On 15 February 2018, an SCC Tribunal ordered Spain to pay €53.3 million in compensation to a Luxembourg investment fund (Novenergia II). This was for the loss of value of its investment in Spanish photovoltaic (PV) plants after the reforms enacted by Spain in 2013.


In 2007, Novenergia II invested in eight PV plants in Spain. Under the Spanish regulatory framework at the time, the energy produced by the plants could be sold in its entirety to the network for a fixed remuneration. After limited changes in 2010, Spain enacted a new remuneration model for PV plants in 2013, based on the reasonable rate of return of the assets, which applied to PV plants already in operation.

Novergia II claimed compensation from Spain on the basis of the Energy Charter Treaty (ECT), both for expropriation (art. 13 of the ECT) and for unfair treatment (art. 10 of the ECT).

Position of the parties

As the Tribunal dismissed the claim for expropriation, the developments below focus on the alternative claim for unfair treatment.

The Claimant claimed €61.3 million in damages on 15 September 2016, consisting of €22.9 million in lost profits between January 2011 and September 2016 and a loss of €38.4 million in the fair value of the investment on 15 September 2016. In both cases, the Claimant claimed both pre-award and post-award interest.

Claimant’s position

The Claimant calculated their loss using the Discounted Cash Flow (DCF) method as the difference between what they earned - taking into account the change in regulatory regime (actual scenario) - and what they would have earned had they continued to receive the long-term tariff in force in 2007 (but-for scenario).

The Claimant considered that the DCF method was particularly suited as the PV plants had been operating for eight years (2008-2016) and their regulated revenues were more predictable than unregulated businesses.

Respondent’s position

The Respondent deemed the damages speculative as extrapolations over a 20-year period lack the necessary rigour and security. The Respondent recommended using an asset-based valuation instead.

Moreover, the Respondent argued that the return guaranteed by the new regime (7.398%) was higher than the return demanded by the Claimant and the market in the period 2010-2014.

Alternatively, the Respondent’s expert calculated that the value of the investment actually increased as a result of the change in legislation. They assumed that the previous regime presented a greater risk than the actual scenario, which resulted in a higher regulatory risk premium and a higher illiquidity discount.

Approach taken by the Tribunal

The Tribunal considered that the DCF method was well established and broadly accepted by arbitral tribunals. The Tribunal upheld the use of the DCF method given the PVs’ eight-year track record and its regulated income stream.

The Tribunal noted that the rate of return calculated by the Respondent after the regulatory change only took into account standard investments costs. When factoring in standard operation costs and standard production hours, the Tribunal found that the Claimant’s remuneration was lower than the standard remuneration of 7.398%.

The Tribunal considered the difference between a discount rate and a rate of return. It concluded that after tax, the Claimant was not in a better position under the new regime compared with the previous regime.

Regarding the DCF calculation itself, the Tribunal did not agree with the Respondent’s argument that the risk (and thus the discount rate) would be higher had the regulatory landscape in Spain remained stable, or that the business would be more difficult to divest (which would have justified a higher illiquidity discount).

Finally, for consistency with its decision on jurisdiction and liability, the Tribunal deducted losses caused by any of the measures pre-2013 and awarded compensation of €53.3 million plus interest at a rate of 1.5% compounded monthly.


This case illustrates the relevance of the DCF method to assess damages in a regulated environment where income streams are easily predictable, a fortiori when the asset also has an eight-year trading history. This case also illustrates the autonomy of arbitral tribunals when considering quantum and the importance of adequately substantiating a party’s position on technical matters (valuation method, regulatory risk premium, illiquidity discount).

Case information

Claimant: Novergia II – Energy & Environment (SCA) (Grand Duchy of Luxembourg), SICAR

Respondent: The Kingdom of Spain

Case ref: SCC Arbitration 2015/063

Tribunal: Johan Sidkley, Chairperson

Professor Antonio Crivellaro, Arbitrator

Judge Bernardo Sepúlveda Amor, Arbitrator


  1. Novenergia II - Energy & Environment (SCA) (Grand Duchy of Luxembourg), SICAR V. The Kingdom of Spain, Arbitration Institute of the Stockholm Camber of Commerce

For further information, please contact Daniel Turner.