Spain is ordered to pay damages of EUR 290.6 million in NextEra renewable energy case

NextEra Energy Global Holdings B.V and NextEra Energy Spain Holdings B.V v. Kingdom of Spain, ICSID Case No. ARB/14/11

An ICSID tribunal ordered Spain to pay two Dutch investors EUR 290.6 million in compensation for its breach of the FET standard under ECT Article 10(1), as well as one-third of the investors’ legal costs.

Background and claims

The claimants—NextEra Energy Global Holdings B.V and NextEra Energy Spain Holdings B.V (jointly, NextEra)—are companies incorporated under the laws of the Netherlands. NextEra invested in the construction of two concentrated solar power plants, the Termosol Plants.

NextEra claimed that after their Spanish subsidiaries committed to constructing the plants and spent around EUR 750 million in the construction, Spain altered the regulatory framework applicable to it, negatively affecting the profitability of the project. The changes to the regime provided that the plants would be paid on the basis of capacity, not on the basis of production, and that additional tariffs would be applicable. 

NextEra initiated arbitration on May 23, 2019 arguing that Spain had breached its obligation FET under ECT Art. 10 in three ways: (1) by frustrating NextEra’s legitimate expectations, (2) by breaching its duty to provide a stable, consistent and transparent framework, and (3) by failing to adopt reasonable, proportionate and non-discriminatory measures.

To justify these claims, NextEra alleged that absent the original regulatory framework, which committed to maintaining a production-based remuneration regime and to providing certainty around the premiums and tariffs, they would never had invested. Spain, however, alleged that NextEra should have been aware that changes could be made to the regulatory regime.

Decision on jurisdiction, liability and quantum principles: FET breach through frustration of NextEra’s legitimate expectations

On March 12, 2019 the tribunal rendered its Decision on Jurisdiction, Liability and Quantum Principles. First, the tribunal decided it had jurisdiction over the matter, as NextEra qualified as an investor. Spain objected to the tribunal’s jurisdiction, arguing that the ECT did not apply to intra-EU disputes and relying on the Achmea judgment of March 6, 2019. The tribunal, however, dismissed this objection, concluding that Spain’s consent to submit ECT disputes to arbitration did not exclude intra-EU investment disputes. 

As for the liability portion, the tribunal started by assessing whether Spain breached NextEra’s legitimate expectations protected by ECT Art. 10(1). The tribunal decided that the change in regulation itself would not be a sufficient basis for the breach of NextEra’s expectation that the terms of the prior regulatory framework would be guaranteed. However, it considered that the statements and assurances made directly to NextEra by Spanish authorities served as grounds to justify NextEra’s legitimate expectation.

The tribunal decided that the changes made to the regulatory framework were substantial, especially considering the following:

  • The plants were now to be paid on the basis of capacity, not on the basis of the amount of electricity produced.
  • The regulated Feed-in Tariff (FiT) and the pool plus premium options were abolished.
  • Remuneration was no longer payable for the life of the plants but was limited to a 25-year “regulatory useful life.”
  • Indexation of tariffs to the consumer price index (CPI) was abolished.
  • Electricity generated through natural gas as a support fuel now received no payment other than the prevailing market price, while under Royal Decree (RD) 661/2007 (confirmed by RD 1614/2010), plants had been entitled to use natural gas as a support fuel for up to 12 or 15 per cent of their annual production (depending on whether they sold at a feed-in option or they sold through the pool plus premium option).
  • The market price remuneration was subject to a new 7 per cent levy on gross revenues.

Therefore, considering the assurances made by Spain to NextEra, the tribunal held Spain liable for the damages incurred.

As for the valuation of damages, the tribunal disregarded the discounted cash flow (DCF) method of valuation; instead, it considered that the appropriate method for valuation would be to calculate the value of the assets and a reasonable return on that value. This decision was justified by the fact that the application of the DCF method requires finding an appropriate base for the forecast of future earnings. As the Termosol Plants had been in operation for less than one year when the breach occurred, the tribunal did not consider the profits forecast as sufficient to apply the DCF method. Therefore, the tribunal decided that the investors were entitled to damages based on a return on the capitalized value of their assets as of June 30, 2016, on the basis of the Weighted Average Capital Cost of the Termosol Plants plus a premium of 200 basis points. It also held that NextEra was entitled to post-judgement interest of 5-year Spanish sovereign bonds as at the date of the award.

In sum, the tribunal affirmed its jurisdiction to rule on NextEra’s claims; on the merits, it decided that Spain did not comply with its obligation to provide FET under ECT Article 10(1) by failing to protect NextEra’s legitimate expectations. Holding that NextEra was entitled to damages, the tribunal ordered NextEra to recalculate their damages in light of the quantum principles described.

Decision on quantum, interest and costs

On March 21, 2019, NextEra responded to the March 12 decision, submitting a calculation of EUR 290.6 million and asking the tribunal to specify the applicable interest rate. In its April 5 reply, Spain stated that it had no observations on the calculation. It also submitted that the tribunal had already decided on the interest rate applicable and that it was not appropriate to revisit this discussion.

As Spain did not question the accuracy of NextEra’s calculation applying the principles provided by the March decision, the tribunal accepted the calculation, ordering Spain to pay EUR 290.6 million to NextEra. As for interest, the tribunal decided that it would be determined on the basis of 5-year sovereign bonds as of the date of the March decision.

The tribunal considered that even though Spain lost on all the jurisdictional grounds and on the merits, its arguments on jurisdiction were not trivial, and NextEra’s arguments on the merits were not fully endorsed. Accordingly, it ordered Spain to pay two-thirds of the costs of the proceedings and NextEra to pay one-third. It also ordered Spain to bear its own legal costs and one-third of NextEra’s.

Notes: The arbitrators were Donald M. McRae (Presiding arbitrator, appointed by agreement of the parties, Canadian and New Zealand national), Yves Fortier (claimant’s appointee, Canadian national) and Laurence Boisson de Chazournes (respondent’s appointee, French and Swiss national). The award of May 31, 2019 is available at The Decision on Jurisdiction, Liability and Quantum Principles of March 12, 2019 is available at

Gabriela Barcellos Scalco holds a Bachelor of Laws from Universidade Federal do Rio Grande do Sul, Brazil, and works at Rossi, Maffini, Milman e Grando Advogados.