|Claimant||Claimant approach||Respondent approach||Tribunal decision||Tribunal method to calculate damages and reasoning||Amount claimed by Claimant||Amount awarded to Claimant by Tribunal|
|Eiser Infrastructure Ltd xiii||DCF||Asset-based method||In favour of Claimant||DCF i) & iv)||€209m||€128m|
|Novenergia II - Energy & Environment xiv||DCF||Asset-based method||In favour of Claimant||DCF i), ii) & iii)||€ 61.30||€53.3m|
|Masdar Solar & Wind Cooperatief U.A xv||DCF||Asset-based method||In favour of Claimant||DCF i), ii), iii) & iv)||€179m||€64.5m|
|Antin Infrastructure Services Luxembourg S.a.r.l and Antin Energia Termosolar B.V xvi||DCF||Asset-based method||In favour of Claimant||DCF i), ii) & iv)||€148m||€112m|
|Foresight Luxembourg Solar 1 S. µ.R1., et al. xvii||DCF||Asset-based method||In favour of Claimant||DCF i) & iii)||€58.2m||€39m|
|9REN Holding Sarl xviii||DCF||Asset-based method||In favour of Claimant||DCF iii)||€52.2m||€42m|
|NextEra Energy Global Holdings BV and NextEra Energy Spain Holdings BV xix||DCF and an alternative calculation based on the cost of assets plus a reasonable rate of return||Asset-based method||In favour of Claimant||Cost of assets plus reasonable rate of return||€21.4 or €416.3m (alternative calculation)||€290.6m|
|Cube Infrastructure Fund SICAV and others xx||DCF||Asset-based method||In favour of Claimant||DCF i), ii) & iii)||€74.08m||€33.7m|
|SolEs Badajoz GmbH xxi||DCF||Asset-based method||In favour of Claimant||DCF i)||€52.7m||€41m|
|InfraRed Environmental Infrastructure GP Limited xxii||DCF||Asset-based method||In favour of Claimant||DCF ii) & iii)||€75.7m||€28.2m|
|Schwab Holding AG (Swiss), OperaFund Eco-Invest SICAV PLC (Maltese)xxiii||DCF||Asset-based method||In favour of Claimant||DCF i) & ii)||€40.1m||€30m|
|Stadtwerke Munchen GmbH, RWE Innogy GmbH and others xxiv||N/A majority Tribunal dismissed the Claimants' claims||N/A majority Tribunal dismissed the Claimants' claims||In favour of Respondent||N/A||N/A||Nil|
|RREEF Infrastructure (G.P.) Limited and RREEF Pan-European Infrastructure Two Lux S.a.r.l xxv||DCF||Asset-based method||In favour of Claimant||A 'reasonable return' for the project based on Internal Rate of Return (IRR)||€265m||€59.6m|
|Watkins Holdings S.a.r.l and others xxvi||DCF||Asset-based method||In favour of Claimant||DCF i), ii), iii) & iv)||€123.9m||€77m|
|Total claimed by all Claimants||€1,860m|
|Total awarded by all Tribunals||€998m|
Cases where the tribunal rejected the use of DCF
Only in 2 of the 13 cases did the tribunal reject the use of DCF method.
In the NextEra case the plants had been in operation for less than one year (and therefore less than one year of actual profits), which the tribunal considered to be an insufficient basis for the application of DCF. While NextEra sought to contend that the initial regulatory framework (RD 661/2007) provided a basis for calculating future profits (the ‘premium’ option), the tribunal disagreed and found that NextEra did not have a legitimate expectation of an entitlement under the initial framework; instead they just had a legitimate expectation that there would not be a material change to it. The tribunal determined the appropriate method for quantifying damages was the capitalised costs of the assets plus a reasonable return. The tribunal considered that the alternative damages calculation proposed by the claimants was ‘not dissimilar’ to the asset-based approach proposed by the respondent.
In the RREEF case the tribunal decided that the valuation should be analysed by reference to the internal rate of return (IRR). The IRR of a project measures the average annual returns of a project, based on the cash flows generated by the project over its entire lifespan. In RREEF, the tribunal rejected the use of the DCF method because they found that “the only legitimate expectations the claimants had was to obtain a ‘reasonable’ return that the respondent was committed to”xxvii and the ‘reasonable’ return by Spanish law was the project IRR. The RREEF tribunal found that comparing the income or asset valuation under the old and new regime made it possible to calculate a difference but gave no indication as to whether the two remunerations were ‘reasonable’ or not.&
Amounts claimed versus amounts awarded
From the table above we can see that the total amount claimed by all the claimants was €1.86 billion, and the total amount awarded by all the tribunals was €998 million, or 54% of the total amount claimed by all the claimants.
As well as the valuation method, the tribunal also considered and analysed the following criteria, based on the evidence put before them by the claimants and respondents, in deciding how much to award the claimants in each of the 13 cases:
- Operational lives of the plants – 40 years (claimants) versus 25 years (respondents); the majority of tribunals agreed that 25 years was more appropriate
- Valuation date - appropriate for the purpose of evaluating the impact of the Disputed Measures on claimant’s investments
- Interest on the award – whether any award should include interest from the valuation date to the date of the award
- Tax ‘Gross-Up’ Claim – whether any amounts awarded should be net of taxes
- Liquidity discount – whether a discount should be applied based on the marketability of the plants (how long it would take to sell the assets) and the potential discount required to facilitate the sale
- Cost of capital and discount rate (to be applied to DCF valuation) – to appropriately reflect market risk and regulatory risk in Spain
Based on published decisions in renewable energy cases brought against Spain, arbitral tribunals appear to have a significant preference for the use of DCF to calculate the damages. In the cases analysed, tribunals have appeared to focus on the quality of the inputs and a careful analysis of the underlying assumptions, in order to minimise speculative elements.
However, as noted in the NextEra and RREEF cases, tribunals may use an alternative valuation method such as cost of assets or IRR depending on the tribunal's decisions as to the legitimate expectations of the investors. As ever, tribunals will focus on the particular facts of each case to determine the most appropriate measure of damages.
This report was written by: Sandy Cowan, Emma Jarman and Nilesh Mehta. It was first published 05/08/2020.
For more information, please contact Daniel Turner.
i Based on awards published by ICSID and SCC
ii On 11 June 2020, the ICSID committee annulled the award in favour of the claimant in the case Eiser Infrastructure Limited and Energia Solar Luxembourg Sarl v Kingdom of Spain (ICSID Case No. ARB/13/36). The value of the award was €128 million. Excluding this award there are 12 published awards against Spain for a combined value of €871 million
iii Law 54/1997 (27 November 1997)
iv Royal Decree 436/2004 (12 March 2004)
v Royal Decree 661/2007 (25 May 2007)
vi Royal Decree 1565/2010 (19 November 2010)
vii Royal Decree 14/2010 (23 December 2010)
viii Law 15/2012 (27 December 2012)
ix Royal Decree-Law 2/2013 (1 February 2013)
x Law 24/2013 (26 December 2013)
xi Royal Decree 413/2014 (10 June 2014)
xii Energy Charter Treaty, Article 10(1)
xiii Eiser Infrastructure Limited and Energia Solar Luxembourg Sarl v Kingdom of Spain, ICSID Case No. ARB/13/36
xiv Novenergia II – Energy & Environment (SCA) (Grand Duchy of Luxembourg), SICAR v Kingdom of Spain, SCC Case No. 2015/063
xv Masdar Solar & Wind Cooperatief U.A. v. Kingdom of Spain, ICSID Case No. ARB/14/1
xvi Antin Infrastructure Services Luxembourg S.à.r.l. and Energia Termosolar B.V. (formerly Antin Infrastructure Services Luxembourg S.à.r.l. and Antin Energia Termosolar B.V.) v Kingdom of Spain, ICSID Case No. ARB/13/31
xvii Foresight Luxembourg Solar 1 S. Á.R1., et al. v Kingdom of Spain, SCC Case No. 2015/150
xviii 9REN Holding S.a.r.l v Kingdom of Spain, ICSID Case No. ARB/15/15
xix NextEra Energy Global Holdings B.V. and NextEra Energy Spain Holdings B.V. v Kingdom of Spain, ICSID Case No. ARB/14/11
xx Cube Infrastructure Fund SICAV and others v Kingdom of Spain, ICSID Case No. ARB/15/20
xxi SolEs Badajoz GmbH v Kingdom of Spain, ICSID Case No. ARB/15/38
xxii InfraRed Environmental Infrastructure GP Limited and others v Kingdom of Spain, ICSID Case No. ARB/14/12
xxiii OperaFund Eco-Invest SICAV PLC and Schwab Holding AG v Kingdom of Spain, ICSID Case No. ARB/15/36
xxiv Stadtwerke München GmbH, RWE Innogy GmbH, and others v Kingdom of Spain, ICSID Case No. ARB/15/1
xxv RREEF Infrastructure (G.P.) Limited and RREEF Pan-European Infrastructure Two Lux S.à r.l. v Kingdom of Spain, ICSID Case No. ARB/13/30
xxvi Watkins Holdings S.à r.l. and others v Kingdom of Spain, ICSID Case No. ARB/15/44
xxvii RREEF Infrastructure (G.P.) Limited and RREEF Pan-European Infrastructure Two Lux S.à r.l. v Kingdom of Spain, ICSID Case No. ARB/13/30. Decision on Responsibility and on the Principles of Quantum, 30 November 2018, 545
Summaries of the damages aspects of recent arbitral awards.
Providing you with an overview of current practice and the approach of different tribunals on similar issues.