A dispute between Novenergia, a fund incorporated in Luxembourg, and Kingdom of Spain arose out of adjustments made by the Spanish authorities to the regulatory framework for electricity for solar photovoltaic energy. To promote the use of renewable energy, Spain created a special regulatory framework for electricity produced by PV installations. These incentives attracted billions of euros in investment in renewable energy assets from foreign investors. This boom led to electricity output far surpassing the Spanish government’s intended targets and led to rising cost of electricity. 

To modify its regulatory framework for electricity from solar photovoltaic energy, Spain adopted various measures, including Royal Decree-Law 9/2013, guaranteeing only a reasonable rate of return. Arbitral proceedings initiated by Novenergia were administrated by the Stockholm Chamber of Commerce (SCC Case No. 063/2015). 

Novenergia argued that the Spain’s legal reform affecting the renewable energy sector, culminating in Royal Decree-Law 9/2013, was in violation of the Spain’s obligation under Article 10(1) of the Energy Charter Treaty to accord fair and equitable treatment to foreign investors and to create stable, equitable, favourable and transparent conditions. The arbitral tribunal composed of J. Sidklev, A. Crivellaro and B. Sepúlveda Amor confirmed that Article 10(1) ECT does not create an independent obligation to provide stable investment conditions. However, as regards legitimate expectations, contrary to Charanne v. Spain, the tribunal held that such expectations arise naturally from undertakings and assurances given by the state. 

Legitimate expectations do not have to derive from specific commitments from the host state or contractual stabilisation clauses. State’s conduct or statements may create legitimate expectations, irrespective of whether the state intended to create them. Thus, the tribunal found that Spain’s 2013/2014 reforms were a “radical and unexpected” departure from the 2007 regime. Assessing the impact of Spain’s reform on the investors property, the arbitral tribunal held that these had a significant damaging economic effect on Novenergia’s plants, decreasing revenues by 24% – 32%. In the award rendered on February 28, 2018, Kingdom of Spain was ordered to pay €53 million to Novenergia as compensation.