Debevoise & Plimpton: Renewable Energy Investments – International Protections to Mitigate Risks

By Samantha J. Rowe, Merryl Lawry-White, Alma M. Mozetič

I. Introduction

The 193 parties to the Paris Agreement have committed to limit global warming to below two degrees Celsius, preferably to 1.5 degrees Celsius, compared to pre-industrial levels.  Following the 26th United Nations Climate Change Conference of the Parties in early November 2021 (“COP26”), over 100 countries have committed to net zero by 2050.[i]  They are increasingly relying upon renewable energy sources as part of the transition to a net-zero future.

This shift in energy sources has increased importance following the publication of the roadmap to net zero by the International Energy Agency (“IEA”) in May 2021, which “requires the immediate and massive deployment of all available clean and efficient energy technologies, combined with a major global push to accelerate innovation.”[ii]  The IEA’s roadmap also envisages that “[b]eyond projects already committed as of 2021. . . no new oil and gas fields [should be] approved for development . . . and no new coal mines or mine extensions are required.”[iii]

To meet these goals, and achieve net zero by 2050, the IEA estimates that annual clean energy investment must more than triple by 2030 to around US $4 trillion annually.[iv]  Governments across the globe have created incentives regimes to attract private investment into alternative and renewable energy sources.  Such regimes are particularly attractive to investors in this sector because of the high up-front capital investment requirements and the need to wait several years to realize a return on investment.  But incentives can be vulnerable to subsequent reversal or amendment by governments that may significantly impact the viability of the investment.

Investment treaties and the protection and remedies they offer to foreign investors can mitigate against these political and legal risks.  This article provides a brief overview of the main protections available in investment treaties and highlights some procedural and strategic considerations that investors should keep in mind when they make or restructure their investments.  The article then addresses changes to the renewables regulatory regime in certain jurisdictions, and how investment treaty protections have been used—or may in the future be used—in these contexts.

II. What International Protections and Remedies Are Available to Investors?

Investment treaties are agreements between states aimed at attracting and promoting foreign investment.  They set out certain protections that an investor from one party to the treaty will enjoy in relation to its investment in another party.  If a state does not respect the written protections, most treaties provide investors with a direct right of action before an international arbitration tribunal against the government for breach of the treaty.

Over 2,600 investment treaties are currently in force.  They can be broadly divided into two categories: bilateral (such as the U.S-Argentina 1994 Bilateral Investment Treaty) and multilateral (such as the Energy Charter Treaty (ECT) or the United States-Mexico-Canada Agreement (USMCA), which succeeded the North American Free Trade Agreement (NAFTA)).  While each treaty is unique and contains its own specific definitions of investor and investment, investments treaties typically will protect foreign investors in renewable energy projects, whether the investment is in the form of equity or debt.

Each treaty is also unique in terms of substantive protections, but many protect against unfair or inequitable treatment, expropriation without compensation (including “indirect” or “creeping” expropriation), and arbitrary or discriminatory measures.  The fair and equitable treatment and expropriation provisions have proved to be the most relevant to renewable investors.

III. Spain and Italy: Tariff Cuts and International Claims

Spain and Italy have faced the highest number of investment treaty claims by aggrieved investors as a result of the roll-back of investment incentives in the renewable energy sector.

In 2007, Spain enacted a royal decree that provided for regulated tariffs and special premiums for solar photovoltaic (PV) energy.  The 2007 decree built on Spain’s efforts since 2004 to attract investment in renewables.  However, concerns that the feed-in tariffs were overly generous were exacerbated by the 2008 financial crisis.  Financial losses in the electricity system totalled EUR 25.5 billion by the end of 2012,[v] a consequence of power generation and distribution costs exceeding what utilities companies could recover from consumers.

Between 2010 and 2014, Spain sought to contain these losses in part by rolling back solar energy subsidies.  These measures have given rise to at least fifty investment arbitrations against Spain,[vi] many of which were brought under the ECT.  Investors most commonly complained that these policy changes breached their right to fair and equitable treatment and amounted to expropriation.

At least 19 awards have reportedly been issued against Spain (one of which was subsequently annulled),[vii] which totalled over US $1 billion by the end of October 2020.[viii]  Investors routinely win tens, and even hundreds, of millions of dollars in compensation.  For example, subsidiaries of the U.S. energy company NextEra Energy, Inc. won EUR 290.6M, plus interest and certain of its costs, in a single case.[ix]

Where Spain has prevailed on the merits, tribunals have usually emphasised Spain’s inherent right to regulate, particularly to address financial difficulties.  They also dismissed cases based on a finding of no breach of the treaty on the particular facts of the case, which often turned on the timing of a particular investment.  For example, some tribunals found that investors who invested later in time should not legitimately have expected the subsidies to continue without further change. Conversely, when investments were made before the promulgation of the energy subsidies, tribunals found that such investments could not have been made in reliance on the subsidies.  Other tribunals were not convinced that there was clear evidence of harm in circumstances where the claimant continued to enjoy its investment.  Another tribunal found that Spain acted transparently and in good faith, particularly by consulting with lobby groups before implementing the cuts.[x]

Like Spain, Italy faced a flurry of investment claims arising from its solar subsidy cuts.  Italy has been named as a defendant in twelve renewables cases, five of which are still pending.  At least three awards have been rendered in favour of the investors, whereas Italy prevailed in at least five cases.  Here again, claimants have won tens of millions of dollars in damages.

IV. Lessons Learned? From Europe to Mexico, Ukraine and Japan

Spain and Italy may prove to be important examples for other countries that have implemented or are implementing rollbacks on renewable energy incentives, including Mexico, Ukraine and Japan.

A. Reforms to the Mexican Electricity Market

Since taking office in 2018, President López Obrador has sought to introduce sweeping changes to Mexico’s electricity sector and largely reverse a series of energy reforms that were enacted in 2013. The 2013 reforms opened the energy sector to private investment and provided a number of incentives for investments in renewable energy.

In March 2021, Congress passed a bill introduced by President López Obrador that amends the Electricity Industry Law (the “Reform Act”).  The Reform Act reverses prior incentives that gave priority to renewable sources of energy by changing the order of dispatch of power to the national grid.  Under the Reform Act, renewable energy sources will be relegated behind all power generated by the State-owned electric utility Federal Electricity Commission (“CFE”), including power generated from fossil fuels.  While first instance courts granted injunctions that temporarily stayed the effects of the Reform Act, appellate courts have since started to overturn them.  A challenge to the constitutionality of the legislation is pending before the Mexican Supreme Court and will be heard en banc.

In a preemptive effort to circumvent a finding of unconstitutionality, President Lopez Obrador sent a bill to Congress in October 2021 to amend the Constitution (the “Constitutional Bill”) that seeks to (i) establish a State monopoly over the electricity sector; (ii) ensure the predominance of CFE in the generation of power; and (iii) eliminate existing incentives for renewable energy projects.  Congress is set to discuss the Constitutional Bill in mid-April 2022.[xi]  In addition to Congressional approval, the Constitutional Bill will require approval of a minimum of 17 of the 32 state legislatures in order to become law.

If successful, President López Obrador’s amendments to the Electricity Industry Law and the Constitution will have significant detrimental impacts on renewable energy investments in Mexico.  International investment agreements between the foreign investor’s home country and Mexico may provide a strong source of protection.  Mexico is party to a wide range of treaties, including the United States–Mexico–Canada Agreement (the “USMCA”), the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, and bilateral treaties with Spain, the Netherlands and the U.K., among others.  Members of the U.S. Congress have already raised concerns that the Reform Act and Constitutional Bill may violate the USMCA,[xii] and Mexican media outlets have reported that at least two unnamed foreign funds are preparing to commence international arbitration proceedings against Mexico if the Constitutional Bill passes.[xiii]

In view of these developments, it is important that foreign investors in the sector devise a coordinated strategy drawing on domestic and international law to preserve their rights, as well as avenues to secure legal remedies.

B. An “Avalanche” of Arbitrations Against Ukraine?[xiv]

In the aftermath of the financial crisis, Ukraine looked to attract private investment to develop its renewable energy sector.  Effective from 2009, Ukraine introduced a “green tariff” which provides producers of renewable energy the right to sell energy at an attractive rate—calculated as the retail tariff multiplied by a green coefficient—for 20 years to a state enterprise, Guaranteed Buyer (or GarPok).  In turn, GarPok would sell it on the wholesale market at the market price, with another state enterprise, Ukrenergo, covering the difference.  By the end of 2019, investors had reportedly invested almost $10 billion in Ukraine’s renewable energy sector. [xv]

However, in light of energy price fluctuations and other economic changes, by late 2019, GarPok lacked sufficient funds to pay the green tariff and electricity producers have reportedly not been paid in full since March 2020.  In May 2020, Ukraine concluded an MOU with the main industry group for the Ukrainian energy sector (although this did not cover all foreign investors), which included a schedule for the payment of the unpaid tariffs.  However, it has been reported that Ukraine has not followed the payment schedule.[xvi]  Further negotiations with investors do not appear to have resolved the dispute.

As a result, in March 2021, Modus Energy, through its Dutch subsidiary, filed an investment claim against Ukraine,[xvii] followed by a second investment claim by a Belgian wind farm investor, SREW NV, in October 2021.[xviii]  A number of other investors are reportedly considering bringing claims,[xix] while Ukraine is considering draft legislation to replace the green tariff system.[xx]

C. The First Case Against Japan

Japan is another country where there is the potential for legal claims in respect of changes to incentives for renewable investments.  In 2012, in the wake of the 2011 Fukushima nuclear disaster, Japan introduced the renewable energy subsidy regime in the form of generous feed-in-tariffs to encourage investment in solar and other renewable energy projects.  The feed-in tariffs were effectively agreed prices at which electric utilities and merchants could purchase renewable-generated electricity.  This regime reduced investment risk at a time when solar equipment costs were falling rapidly.  These two conditions created a powerful incentive that led to many investments into PV plants in Japan.  About a year later, however, the government began steadily cutting the feed-in tariff rates and put in place deadlines for certain plants—licensed prior to the regulatory changes—to begin operations.  According to some estimates, the subsidy cuts and revised regulatory framework have forced more than 250 solar companies into bankruptcy between 2018 and 2020.[xxi]

In March of this year, it was reported that a Hong-Kong-based energy fund had brought a claim against Japan over the rollback of renewable subsidies.  This is understood to be the first-ever international arbitration claim brought under a bilateral investment treaty with Japan.  There is speculation that this claim may be the first of many such claims against Japan, particularly considering that Hong Kong and Chinese investors are among the main foreign investors in Japan’s renewable energy market.[xxii]

V. Conclusion

As climate imperatives and commitments require a dramatic and rapid shift towards renewable sources of energy, investments in renewable energy sources will continue to increase in demand.  Investors would be well advised to consider investment treaties when structuring their investments.  The Spanish example, in particular, illustrates how protections may be invoked when governments drastically change regulatory regimes that investors relied on when making investments.

Before formally commencing a claim and seeking damages before international arbitration tribunals, simply putting a government on notice of a claim can provide a powerful incentive for the government to negotiate.  Investment-treaty claims can drive policy change.  At the end of 2019, Spain introduced a new regime, Royal Decree-law 17/2019, to end pending treaty claims valued at over US $7 billion. The new law guaranteed higher returns to renewable energy investors in exchange for renouncing their pending claims or awards against Spain.  A number of claimant investors reportedly have signed up.[xxiii]


[i]           All references in this article are up-to-date as of 12 November 2021.  Energy & Climate Intelligence Unit, Net Zero Scorecard,  Two countries—Bhutan and Suriname—have already achieved net zero.

[ii]           International Energy Agency, Pathway to critical and formidable goal of net-zero emissions by2050 is narrow but brings huge benefits, according to IEA special report (18 May 2021), available at

[iii]          International Energy Agency, Net Zero by 2050: A Roadmap for the Global Energy Sector (May 2021), available at, at 21.

[iv]                      International Energy Agency, The IEA at COP26,       at-cop26.

[v]           See also Debevoise & Plimpton LLP, Solar Arbitrations: A Year in Review (22 October 2019), available at

[vi]          GAR, Spain marks 50th renewables claim as new reforms roil investors (21 September 2021), available at

[vii]         Eiser Infrastructure Limited and Energía Solar Luxembourg S.à r.l. v. Kingdom of Spain, ICSID Case No. ARB/13/36.

[viii]    GAR, Renewables investors to renounce awards against Spain (6 October 2020), available at (citing El Pais).

[ix]          NextEra Energy Global Holdings B.V. and NextEra Energy Spain Holdings B.V. v. Spain, ICSID Case No. ARB/14/11.

[x]           FREIF Eurowind Holdings Ltd v. Kingdom of Spain, SCC Case No. 2017/060, Final Award, 8 March 2021, para. 525.

[xi]          Reuters, Mexican Congress pushes back debate on power bill into 2022 (4 November 2021), available at

[xii]         Congress of the United States, Letter to Ambassador Tai, and Secretaries Blinken, Raimondo, and Granholm (3 November 2021), available at; Congress of the United States, Letter to The Honorable Ken Salazar (19 October 2021), available at; see also Bloomberg, U.S. Energy Department’s NREL Sees AMLO Bill Pushing up Emissions and Costs (27 October 2021), available at

[xiii]         Milenio, Se le olvidó Ovidio (19 October 2021), available at

[xiv]         Letter to Madame Georgieva of IMF (27 May 2020), available at

[xv]         Renewable Energy World, Why Ukraine’s once thriving renewable energy sector could be at dire risk of failure (30 April 2020), available at

[xvi]         EUEA, October 8 Press Conference (13 October 2020), available at

[xvii]        GAR, Ukraine faces claim over renewables reforms (28 April 2021), available at

[xviii]       GAR, Ukraine hit with another renewables claim (29 October 2021), available at

[xix]         GAR, Ukraine faces claim over renewables reforms (28 April 2021), available at

[xx]         Ministry of Energy of Ukraine, Notice of promulgation of the draft Law of Ukraine “On Amendments to Certain Legislative Acts of Ukraine on Stimulating Production of Electricity from Renewable Energy Sources on a Market Basis and Related Materials (26 August 2021), available at

[xxi]    Financial Times, Hong Kong energy fund sues Japan in groundbreaking case (3 March 2021), available at (citing Teikoku Databank); see also Financial Times, Sun fails to shine on Japan’s solar sector (22 July 2021), available at

[xxii]   GAR, Japan faces first treaty claim (3 March 2021), available at (citing the Financial Times); see also Financial Times, Sun fails to shine on Japan’s solar sector (22 July 2021), available at

[xxiii] GAR, Renewables investors to renounce awards against Spain (6 October 2020), available at; see also GAR, Spain offers incentives to end renewables claims (22 November 2019), available at  Most recently, in May 2021, RREEF Infrastructure filed a joint status report before a U.S. federal district court stating that it had executed, pursuant to Royal Decree-Law 17/2019, a release to forgo the portion of the arbitral award pertaining to its investment in the wind power plants (without affecting the portion of the award corresponding to the losses in the investment in the solar power plants).  RREEF Infrastructure (G.P.) Limited and RREEF Pan-European Infrastructure Two Lux S.A.R.L. v. Kingdom of Spain, No. 19-cv-03783 (D.D.C. 6 May 2021) [Dkt. No. 34], at [2].