ECT tribunal finds Italy’s modifications to its renewable energy incentive scheme reasonable, foreseeable, and proportionate

Silver Ridge Power BV v. Italian Republic, ICSID Case No. ARB/15/37

The majority in Silver Ridge Power BV v. Italy dismissed the claimant’s claims on merits, holding that Italy’s renewable energy framework did not give rise to legitimate expectations of a fixed level of incentives.

Background and claims

Silver Ridge Power BV, a company incorporated in the Netherlands, owned and controlled an Italian subsidiary that operated 25 photovoltaic (PV) plants. The local subsidiary and Italy’s regulator (the Gestore dei Servizi Energetici S.p.A., or GSE) entered into agreements (GSE conventions) under which the plants benefitted from feed-in-tariffs (FITs) at a specified rate for 20 years.

However, Italy progressively reduced FIT incentives through successive decrees (“Conto Energia,” or Energy Accounts) to better reflect the falling costs of producing renewable energy. The Third Energy Account of 2010 established a tri-annual reduction of FITs. The “Romani Decree” of 2011 decreased the lifespan of the Third Energy Account and added conditions of eligibility for PV plants to receive FITs. The Fifth Energy Account of 2012 directed producers benefitting from incentive tariffs under any of the energy accounts to pay an annual administrative fee. Finally, in 2014, Italy enacted the “Spalma-incentivi” Decree under which it reformulated its incentive payments. Consequently, each of Silver Ridge’s plants was subjected to an 8% decrease in FIT.

Silver Ridge challenged the adoption of the Romani Decree, Fifth Energy Account, and the Spalma-incentivi Decree under Articles 10 and 13 of the ECT.

Italy’s intra-EU jurisdictional objection rejected

Italy, supported by the European Commission, argued that disputes between EU investors and member states were governed by EU law and outside the scope of the ECT. The tribunal found that, even if a conflict exists between EU law and the ECT in respect of the jurisdiction of intra-EU arbitral tribunals, Italy’s jurisdictional objection would fail due to the lex specialis conflict rule in Article 16 of the ECT. The tribunal noted Article 16 preserved rights of investors arising under Parts III and V of the ECT against overlapping provisions in other agreements if the former were more favourable to the investor or their investment. It found that the substantive guarantees of freedom of establishment and free movement of capital, as well as the procedural mechanism of judicial protection of EU law, overlap with the standards of investment protection and the dispute settlement mechanism in Parts III and V of the ECT. Moreover, in the tribunal’s view, “at least some of the provisions of Part III and Part V of the ECT are more favorable to investors and investments with respect to ECT intra-EU claims than EU law” (para. 212). Accordingly, the tribunal held that the conditions for the rule in Article 16 were met and EU law did not operate to limit its jurisdiction.

The tribunal also rejected three other jurisdictional objections raised by Italy. First, the tribunal found that the forum selection clauses in the GSE conventions did not preclude its jurisdiction since the fork-in-the-road clause in Article 26(2) of the ECT permits the investor to choose its preferred mode of dispute settlement. Second, the tribunal dismissed Italy’s objection that Silver Ridge had failed to request amicable settlement in relation to the Romani Decree as required under Article 26 of the ECT. Finally, the tribunal held that the administrative fee imposed by the Fifth Energy Account did not fall under the taxation carveout in Article 21 of the ECT. The tribunal observed that since this fee was paid for a specific purpose—for processing applications and to cover the management, control, and inspection costs under the GSE—there was sufficient degree of reciprocity in the payments to qualify them as fees and not taxes.

Spalma-incentivi decree did not breach umbrella clause or FET

The tribunal first addressed Silver Ridge’s claims concerning the Spalma-incentivi Decree under Article 10(1) containing the umbrella clause and Article 10(1) on FET.

As regards the former, Silver Ridge argued that Italy had breached the umbrella clause by changing the terms of its obligations under the GSE conventions to the detriment of the investment. Drawing from Italy’s legislative framework for renewables, the tribunal found that “the GSE conventions only reflect a legal relationship whose existence and essential features have been determined before” (para. 376). Accordingly, the tribunal held that these declaratory instruments did not constitute obligations “entered into” with Silver Ridge’s investments for the purposes of the umbrella clause.

Silver Ridge further claimed that the Spalma-incentivi Decree both violated its legitimate expectations and failed to ensure legitimacy and transparency of the Italian legal framework. The tribunal opined that for legitimate expectations to exist within the meaning of this article, the relevant question was whether acts of the host state objectively gave rise to protected expectations in the factual circumstances of the given case. The tribunal also endorsed existing jurisprudence in relation to Article 10 of the ECT to note that any assessment under this provision should balance the investor’s legitimate interest in the stability and transparency of the host state’s legal framework and the host state’s right to adapt this legal framework to relevant developments over time.

Turning to the facts of this case, the tribunal found that the terms of Italy’s energy accounts, in combination with the related legislative decrees, were detailed and specific enough to create legitimate expectations. However, the majority held that Italy had not committed itself to leave this legal framework untouched for 20 years. In the majority’s view, the relevant legislative acts created a system of fair remuneration for PV energy producers without guaranteeing them a fixed compensation. The majority found the reference to “constant” incentives under the Romani Decree and the energy accounts to mean stable but not fixed remuneration. Here, the majority also emphasized the absence of a stabilization or freezing clause under Italy’s legislative framework for renewables. Accordingly, the majority held that the investor “could legitimately rely on the overall integrity of the incentivization regime for solar energy in Italy” but “had to be prepared for certain, non-radical modifications of the applicable legal framework” (para. 437).

In light of this conclusion, the majority considered whether Italy’s measures amounted to fundamental and radical modifications of its regulatory framework. The majority accepted Italy’s contention that the Spalma-incentivi Decree was aimed at a public purpose, i.e. to strengthen the stability of the FIT scheme by redistributing economic advantages. With respect to its foreseeability, the majority acknowledged that the Spalma-incentivi Decree was the first of its kind: previous reforms were prospective reductions that had not affected incentive payments to plants already admitted to the incentivization regime. Finally, the majority accepted that the modifications introduced by Italy and the 8% reduction in incentive payments had a considerable impact on Silver Ridge’s plants. Nevertheless, the majority opined that this “did not exceed what was necessary to reach [Italy’s] public policy objectives” (para. 465). In support of this conclusion, the majority noted that the Spalma-incentivi Decree distinguished between various categories of PV plants in an effort to adequately distribute the economic burden of FIT reduction. Moreover, while the majority acknowledged that high leverage was common for financing projects in the renewable industry, it noted that such high costs did not “dispense [Silver Ridge] as a reasonable investor would do, from preparing itself for certain strains or stumbles in the flow of incentive payments” (para. 468). Accordingly, the majority rejected Silver’s ridges claims based on the Spalma-incentivi Decree, attributing Silver Ridge’s losses to its entrepreneurial choices.

The dissenting arbitrator opined that Italy had reneged on its commitment to provide incentive payments for 20 years, irrespective of whether it had given “a separate promise that it would not violate the terms of its specific commitment” (para. 9, dissenting opinion). The dissenting arbitrator also noted that the magnitude of incentive reductions was only relevant for the calculation of damages and should not have affected the majority’s decision on the proportionality of Italy’s conduct.

Romani Decree was not the proximate cause for the failure of Silver Ridge’s project

Silver Ridge’s claim with respect to the 2011 Romani Decree concerned the decree’s impact on Project Vega, a solar PV project in Italy’s Puglia region destined to be the largest in Europe at the time. Silver Ridge argued that the 2011 Romani Decree had triggered a phase of regulatory uncertainty and led to a sharp decrease in FIT, forcing the investor to abandon the project.

The tribunal noted that at the time of adoption of the Romani Decree, several aspects of Project Vega remained unrealized. The tribunal also considered Silver Ridge’s admission that it was prepared to complete Project Vega in 2011. While it acknowledged that the Romani Decree was “an unfortunate development from the point of view of the Claimant” (para. 520), the tribunal noted that Project Vega would have been eligible for incentive payments if Silver Ridge had connected the plant to the grid by the 29 March 2012 cutoff date under the Romani Decree. In this light, the tribunal held that Silver Ridge had failed to establish that Italy’s actions were the “proximate” cause of its decision to abandon its project.

Actions under the Fifth Energy Account did not amount to disproportionate regulatory changes

With respect to the Fifth Energy Account, Silver Ridge claimed a threefold violation of the ECT. First, it argued that the sudden and unpredictable enactment of the Fifth Energy Account compromised the profits Silver Ridge expected from its new PV plants under the Fourth Energy Account, in violation of Italy’s FET obligations. Second, Silver Ridge advanced that the reduced benefits under the Fifth Energy Account, combined with their retroactive character, rendered the measure expropriatory. Finally, it argued that the reduction of incentive payments to compensate for a newly invented GSE administrative fee also resulted in a breach of the FET standard.

On Silver Ridge’s first claim, the tribunal recalled that Silver Ridge could only expect to be protected against fundamental or radical changes to the Italian regime for incentivization of renewable energy. The tribunal was convinced that the Fifth Energy Account had been adopted for the public purpose of strengthening the sustainability of the Italian incentive regime and that the consequent changes in the remuneration system did not result in a genuine overhaul of existing practices. In addition, the tribunal also noted that the changes introduced under the Fifth Energy Account were foreseeable; the Fourth Energy Account provided for a modified regime for large plants and acknowledged that incentive regimes may be revised when targets under this scheme were reached. On this basis, the tribunal rejected Silver Ridge’s claim.

The tribunal did not find any merit in Silver Ridge’s expropriation claim, noting that “at the moment of the adoption and entry into force of the Fifth Energy Account, accession to the 2013 tariff was a mere aspiration on the part of the Claimant, but not a ‘right’ in the meaning of the Electrabel v. Hungary decision, of which the Claimant would have been deprived” (para. 610).

The tribunal found no breach of the FET standard with respect to the introduction of administrative fees either. In particular, the tribunal recalled its previous findings in respect of the reasonableness of the administrative fee and its foreseeability. The tribunal was also satisfied that the measure was proportionate since “the administrative management fee consists in a relatively low amount, exceeding half of a percent of the incentives received by the Claimant” (para. 624).

Decision and costs

The tribunal unanimously rejected Italy’s jurisdictional objections, as well as Silver Ridge’s claims with respect of the Romani Decree and the Fifth Energy Account. A majority of the tribunal also dismissed Silver Ridge’s claims in respect of the Spalma-incentivi Decree.

The tribunal ordered the parties to bear half of the arbitration costs and their legal fees. In arriving at this decision, the tribunal noted that while Silver Ridge’s case had failed on the merits, Italy’s “objections and request [on jurisdictional matters] significantly contributed to the overall costs of the proceedings” (para. 636).

Notes: The tribunal was composed of Bruno Simma (president, appointed by the parties, German/Austrian national), O. Thomas Johnson (claimant’s nominee, U.S. national), and Bernardo M. Cremades (respondent’s nominee, Spanish national). The award is available at

The author of this piece has elected to contribute anonymously.