E.ON wins major payout from Spain over cuts to renewables subsidies

German utility E.ON has won one of the ‘largest ever’ arbitration awards against Spain after cuts made to its support scheme for renewables projects prompted a deluge of claims by investors.

A three-person international tribunal reached a final decision last week and ordered Spain to pay damages for changes it made to the support scheme that affected wind, solar and mini-hydro assets owned by E.ON.

E.ON was reported to have sought around €325m ($353m) when it first filed the claim in 2015, although the final sum was not disclosed.

Luther did however confirm that the award is one of the largest issued against Spain so far in over 50 similar cases it has faced – many of which remain pending – over cuts to the support scheme.

Subsidiaries of US developer NextEra Energy won the largest known award, €291m, while two other investors have won just over €100m.

During the early 2000s Spain boasted one of the most generous support schemes for renewable energy projects, with E.ON among the many international developers enticed to invest during this period.

However, in 2008, with its economy rocked by the global financial crisis that same year, Spain began to make a series of retroactive cuts to the support mechanism.

That culminated with the state abolishing its feed-in tariff system in 2013 and replacing it with a support scheme based on a “reasonable return” on investment.

Over 50 foreign investors in Spain’s renewables sector responded by filing international arbitrations against Spain. Most of those invoked the Energy Charter Treaty (ECT), a multilateral agreement that guarantees protections for investors from one signatory country when they invest in another.

Most of those arbitrations, including E.ON’s case, have been administered by the International Centre for Settlement of Investment Disputes, which is an arm of the World Bank in Washington, DC.

Luther says that the tribunal held Spain liable for breaching a standard of the ECT that holds states must provide “fair and equitable treatment” to investors.

Many other tribunals have also ruled against Spain, finding that the retroactive nature of the changes it made and the effect on renewables projects breached this standard.

The Spanish government was contacted for comment.

E.ON sold all of its Spanish and Portuguese businesses — which boasted 4GW of capacity across renewables, coal and gas — to Australia’s Macquarie Group in 2015.