Spain says it will not pay. Now what? A strategic approach to the enforcement of awards in the renewable energy saga

Significant changes in Spain’s renewable energies’ regulation from 2010 to 2013 led numerous foreign investors to commence international arbitration proceedings against Spain – the latest count is over 50.  Many of those arbitrations have found in favour of the investors, and have resulted in awards ordering the State to pay compensation, which currently amounts to €2 billion.

Spain has yet to pay any compensation, highlighting one of the main weaknesses of investment arbitration as an efficient means of dispute resolution: once a foreign investor has obtained a favourable arbitral award, enforcement against a State can be a protracted, uphill battle.  What options does a claimant have to transform its favourable award into something more valuable than wet paper?  Beyond the legal enforcement proceedings, a successful enforcement strategy will need to explore angles to engage with the State and motivate it to voluntarily comply with the compensation due.

In the case of Spain, it urgently needs to regain the confidence of large foreign investor groups to achieve its goals of decarbonisation of the economy and complete its energy transition process.  Complying with its obligations under international law towards foreign investors is a key step to re-establish this trust and rebuild its reputation as a fair, stable and attractive investment destination.

The current Spanish government has set ambitious targets for achieving decarbonisation, taking the Paris Agreement for sustainable development as a reference. Spain’s commitment is mainly framed within the National Integrated Energy and Climate Plan, which must be submitted to the European Commission for approval, and which serves as a roadmap for investors and public bodies. The document contains objectives such as reducing CO2 emissions by up to 32% and developing an energy mix that allows for 81% renewable electricity generation. 

The commitments made regarding energy transition will require a massive entry of new renewable assets and a large-scale national and international investment effort by 2030.  Foreign funds will stay at bay unless Spain is perceived as a country with legal certainty which honours its obligations under international law and the international treaties it voluntarily enters into as signatory.

Spain’s track record of non-compliance with its obligations under international treaties sounds alarm bells for foreign investors considering business in Spain. Its refusal to even consider negotiated agreements further deteriorates the perception of Spain and its reputation.  A pragmatic approach from the Spanish government would help leave behind past conflicts and focus on the future and achieving its ambitious goals in the energy transition.  These goals will only be met if Spain takes action to regain the confidence of large foreign investor groups.