23 Jan 2018

Suspended in legal limbo: Protecting investment in renewable energy in the EU

Monica Alessi / Jorge Núñez Ferrer / Christian Egenhofer

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This paper focuses on the damage – and the potential for inflicting further damage – to investor confidence arising from legal uncertainties surrounding renewable energy support in some EU member states. A higher-than-expected expansion of the renewables sector, resulting in higher costs of the support, combined with the financial crisis, has driven some member states to radically curtail renewable energy support schemes. Loss-making investors unsuccessfully challenged these EU governments in national courts, arguing that their rights had been violated and denounced reforms that they considered to be retroactively punitive in nature. A number of EU-based international investors turned to international arbitration courts under the provisions of the Energy Charter Treaty (ECT), which protects cross-border investment in the energy sector. This move, however, has called into question the legal framework of the single market and EU state aid rules. A dispute on the jurisdiction of the ECT within the single market has ensued, which highlights a complex and unresolved situation. While the legal disputes accumulate, the concern is that investors may shy away from the EU as a result of the regulatory and legal uncertainties. The main aim of the paper is to provide some clarity for non-specialists on a complex situation, and to highlight the need to find workable solutions that de facto restore investor confidence.

Keywords: Energy Charter Treaty, ECT, retroactive changes, RES, renewables, renewable energy Directive, investors, single market, arbitration, state aids

Monica Alessi is Research Fellow and Programme Manager and Jorge Núñez Ferrer is Senior Research Fellow at CEPS Energy Climate House. Christian Egenhofer is Senior Fellow, Head of the Energy and Climate programme and Director of the CEPS Energy Climate House.