A(nother) Turning Point for Intra-EU ECT Disputes?

Two ICSID tribunals have recently upheld Spain’s intra-European Union (EU) jurisdictional objections in two arbitrations pursuant to the Energy Charter Treaty (“ECT”).¹

Both cases arise out of Spain’s decision to modify its incentives scheme for renewable energy investments in 2013/2014, under which the prior scheme was abolished in favour of a system of incentives based on a reasonable rate of return calculated by reference to market remuneration. The claims were commenced against Spain in 2018 and 2019 respectively under the ECT.

While the awards currently remain unpublished, it has been reported that both Tribunals found by majority that they did not have jurisdiction over the disputes, as they determined that the competence of the matters in dispute to have been transferred to the EU. In a 14 October 2024 press release, Spain confirmed that: “the Energy Charter Treaty has the meaning advocated by Spain and the European Commission, according to which the participation of the EU in the ECT, as a regional economic interest organisation, introduced into its scope the supremacy of EU law in the area of competences transferred by the member states to the EU.”²

Spain’s jurisdictional objection, commonly referred to as the ‘intra-EU’ objection, follows the well-known Achmea (2018) and Komstroy (2021) decisions by the Court of Justice of the European Union (CJEU), in which it was ruled that intra-EU treaty claims (including ECT disputes) between EU investors and states were not compliant with EU law, as they interfered with the autonomy and application of EU law and were incompatible with Articles 267 and 344 of the Treaty on the Functioning of the European Union.

However, this is the first time that an ICSID tribunal has reached this decision. Up until now, while a significant number of ICSID tribunals have faced this question, all have continued to maintain their jurisdiction over these type of disputes, primarily on the basis that they derive their legitimacy from an international treaty and are therefore subject to public international law, and not EU law.

The only other tribunal that had previously upheld an intra-EU objection was Green Power v. Spain. However, given this was a Stockholm Chamber of Commerce (SCC) arbitration, seated in Sweden, the interpretation of the arbitration agreement had been subject to Swedish, and therefore EU, law.

This recent change in approach by the ICSID tribunals also follows the recent decisions by both the EU and the United Kingdom to withdraw from the ECT, albeit subject to the 20-year sunset clause (which we have previously written about here and here), leaving the future of ECT disputes somewhat uncertain.

These novel rulings could therefore have wide-reaching implications for other investors both with pending, or potential, intra-EU arbitrations. This stark departure from the decisions reached by previous ICSID tribunals raises questions over whether there will now be a turn in the tide in ICSID tribunals declining jurisdiction over intra-EU energy disputes.

¹ Sapec, S.A. v. Spain (ICSID Case No. ARB/19/23) and European Solar Farms v. Spain (ICSID Case No. ARB/18/45).

² Spain’s Press Release.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.