In a striking development that underscores growing tensions in the investment arbitration system, Spain has emerged as the world’s most non-compliant state with investment treaty awards, according to the 2024 Report on Compliance with Investment Treaty Awards released in November 2024. The numbers paint a sobering picture: 24 unpaid awards, outstanding compensation of at least USD 1.5 billion, and an additional USD 350 million in interest and legal fees. Behind these figures lies a cautionary tale about regulatory rollbacks, investor expectations, and the limits of the international arbitration system.
Spain’s arbitration troubles trace back to what is now known as the “Spanish renewables saga”—a series of policy reversals that transformed the country from a renewable energy champion into one of the most-sued states under the Energy Charter Treaty (ECT). During the 2000s, Spain aggressively courted foreign investment in renewable energy through generous incentives, including feed-in tariffs, tax benefits, and guaranteed rates of return. These policies, enshrined in legislation such as Royal Decree 661/2007, attracted an estimated EUR 13 billion in foreign investment, making Spain one of Europe’s largest markets for “green energy.”
The 2008 global financial crisis changed everything. Faced with mounting fiscal pressures and an unsustainable tariff deficit in its electricity system, Spain began systematically dismantling the very incentive structures that had attracted billions in foreign capital. While initial reforms between 2010 and 2012 made relatively modest adjustments, the changes implemented from 2013 onwards—particularly Royal Decree Law 9/2013 and Law 24/2013—were far more drastic, abolishing the fixed feed-in tariff system entirely and replacing it with a new framework that dramatically reduced investor returns.
The resulting wave of investor-state arbitrations has proven devastating for Spain. As of 2024, Spain has faced more than 50 intra-EU ECT claims with damages totaling over USD 10 billion. While Spain won early cases like Isolux Infrastructure Netherlands and Charanne B.V., the tide turned decisively against it starting in 2017.
Landmark Losses
Eiser Infrastructure Limited v. Spain (2017): The ICSID tribunal unanimously found that Spain’s 2013-2014 reforms violated the fair and equitable treatment (FET) standard, describing the regulatory changes as “devastating.” Spain was ordered to pay EUR 128 million plus interest, though investors had claimed over EUR 300 million. The tribunal found that the reforms resulted in a “deprivation of investment value” and constituted a radical alteration of the regulatory regime.
Masdar Solar v. Spain (2018): The ICSID tribunal awarded EUR 64.5 million plus interest to a fund owned by the Emirate of Abu Dhabi, finding that Spain’s reforms violated investors’ legitimate expectations of obtaining a stable return on their investment in the Gemasolar concentrated solar power plant.
Novenergia v. Spain (2018): In a significant SCC arbitration, Spain was ordered to pay EUR 53.3 million plus interest to a Luxembourg-based fund. The tribunal found the 2013-2014 reforms to be “radical, drastic and unexpected,” even though the investor acknowledged it was still generating some profit. Critically, the tribunal held that legitimate expectations “arise naturally from undertakings and assurances” and do not require specific contractual stabilization clauses.
E.ON v. Spain: Most recently, German utility E.ON secured an arbitration victory against Spain for the same policy changes, adding to Spain’s mounting liabilities.
Since 2011, Spain has lost 16 disputes before ICSID alone related to the renewable energy sector.
The Jurisprudential Evolution
These cases have contributed to an evolving body of ECT jurisprudence on several critical issues:
Legitimate Expectations Without Specific Commitments
Early awards like Charanne held that in the absence of specific stabilization commitments, investors could only expect that states would not act “unreasonably, disproportionately or contrary to the public interest.” However, subsequent tribunals in Eiser, Novenergia, and Masdar expanded this doctrine, finding that general legislation and government marketing materials could create legitimate expectations of regulatory stability, even without explicit guarantees.
The Proportionality Analysis
Tribunals have divided on whether to assess the proportionality of Spain’s measures themselves or their effects on investors. Some, like the Watkins tribunal, considered the measures disproportionate per se. Others, including the tribunals in Eiser and Novenergia, focused on the economic impact, examining whether the regulatory changes destroyed investment value or merely reduced returns.
The Sovereign Right to Regulate
While tribunals consistently affirmed Spain’s sovereign right to amend its regulatory framework, they found that this right is not unlimited. The key question became whether changes were so radical and unexpected as to fundamentally transform the essential characteristics of the legal framework upon which investors relied.
Spain’s Strategy of Non-Compliance
Spain’s response to these adverse awards has been unprecedented in its scope and tenacity. Rather than comply with the awards, Spain has pursued a multi-jurisdictional strategy of resistance:
Annulment Proceedings
Spain has systematically sought to annul awards under the ICSID Convention and Swedish law. This strategy has yielded mixed results. In 2023, two ICSID ad hoc committees confirmed adverse awards against Spain in the OperaFund/Schwab and Watkins Holdings cases. However, Spain continues to pursue annulment applications, arguing variously that tribunals manifestly exceeded their powers, failed to state reasons, or that arbitrators lacked independence.
The Achmea Defense
Spain’s primary legal weapon has been the European Court of Justice’s jurisprudence declaring intra-EU investment arbitration incompatible with EU law. The landmark Achmea decision (2018) and subsequent Komstroy judgment (2021) held that arbitration clauses in bilateral investment treaties between EU Member States violate EU law because they remove disputes from the jurisdiction of EU courts.
Spain has aggressively deployed this argument in enforcement proceedings, achieving some notable successes. Swedish and French courts have annulled several intra-EU ECT awards based on the CJEU’s reasoning. In a particularly significant development, Germany’s Supreme Court in the RWE/UNIPER and Mainstream cases declared ICSID ECT proceedings against the Netherlands “inadmissible,” leading to the discontinuance of that case.
For the first time, a tribunal in Green Power Partners K/S v. Spain accepted this argument, finding it lacked jurisdiction because EU law should prevail over the ECT, and referring the matter to the CJEU instead.
The Jurisdictional Divide
However, the Achmea defense has proven far less effective outside the European Union. Courts in Australia, the United Kingdom, and Switzerland have emerged as investor-friendly jurisdictions for enforcing intra-EU ECT awards.
In April 2023, the High Court of Australia in Spain v. Infrastructure Services Luxembourg ruled that Spain waived its foreign state immunity by ratifying the ICSID Convention, allowing enforcement to proceed. Similarly, in May 2023, the English High Court upheld an enforcement order, finding that EU law prohibitions on investment arbitration “do not apply to extra-EU multilateral treaties” like the ECT.
Most recently, the U.S. Court of Appeals for the D.C. Circuit held in the Nextera and Blasket cases that Spain cannot invoke sovereign immunity to avoid enforcement of ICSID awards. This has prompted investors to increasingly seek enforcement in non-EU jurisdictions where Spain holds attachable assets.
The 2024 Compliance Report: Quantifying the Crisis
The 2024 Report on Compliance with Investment Treaty Awards crystallizes the scale of Spain’s non-compliance. The report reveals that:
- Spain’s unpaid awards increased from 15 to 24 between 2023 and 2024
- Outstanding compensation rose from at least USD 1.3 billion to USD 1.5 billion
- Interest and legal fees have added USD 350 million to Spain’s liabilities
- Spain faces more than 50 additional intra-EU ECT claims seeking over USD 10 billion in total damages
These figures establish Spain as an outlier in terms of non-compliance with investment treaty obligations. The report notes that while states generally prevail in more ISDS cases than investors—contrary to public perception—the number of unpaid awards and outstanding compensation continues to rise globally, with Spain as the primary driver of this trend.
Systemic Implications
Spain’s defiance raises profound questions about the effectiveness and future of the investment arbitration system:
The Enforcement Challenge
Spain’s case demonstrates that arbitral awards, despite their binding nature under international law, remain dependent on domestic courts for enforcement. When a sophisticated, democratic state with a robust legal system refuses to comply, investors face a multi-jurisdictional enforcement battle that can take years and add millions in legal costs.
The bifurcation between EU and non-EU enforcement has created a two-tiered system. While investors can potentially enforce awards in jurisdictions like the U.S., U.K., and Australia, they must first identify attachable Spanish assets in those jurisdictions—a non-trivial task. Meanwhile, enforcement within the EU has become increasingly difficult as courts implement the Achmea doctrine.
The Intra-EU Arbitration Dilemma
The fundamental tension between EU law and international investment law remains unresolved. The CJEU’s position is clear: intra-EU arbitration undermines the autonomy of EU law and the jurisdiction of EU courts. However, from a public international law perspective, the ECT remains binding on EU Member States, and the EU itself is a party to the treaty.
This conflict creates legal uncertainty for investors and states alike. Tribunals continue to be constituted and render awards in intra-EU disputes, but the enforceability of those awards within the EU is now doubtful. Some commentators argue this effectively creates a system where EU Member States can violate their ECT obligations with relative impunity, at least within the EU’s borders.
Reputational Costs
While Spain has avoided paying most awards, its strategy carries significant reputational costs. Being designated the world’s most non-compliant state sends a negative signal to potential investors, not just in renewable energy but across all sectors. The ongoing saga contributes to perceptions of regulatory unreliability and legal risk in the Spanish market.
Moreover, Spain’s behavior may embolden other states to resist compliance with unfavorable awards, potentially undermining the legitimacy of the entire investment arbitration system. If a EU Member State can openly defy dozens of arbitral awards without significant consequences, what precedent does this set for other states?
The Path Forward: Energy Charter Treaty Withdrawal
Recognizing the unsustainability of its position, Spain has initiated withdrawal from the ECT. However, this offers no immediate relief. Under the treaty’s “sunset clause,” ECT protections continue to apply to existing investments for 20 years after withdrawal. Spain will therefore continue to face ECT claims and enforcement actions for decades, even after its withdrawal becomes effective.
Several other EU Member States, including Germany, France, the Netherlands, and Poland, have also announced their intention to withdraw from the ECT, partly to avoid Spain-like scenarios. The EU itself is considering coordinated withdrawal. However, the 20-year sunset clause means the treaty will cast a long shadow over European energy policy well into the 2040s.
Broader Lessons for Investment Treaty Reform
Spain’s experience offers several lessons for the ongoing debate over investment treaty reform:
Regulatory Space vs. Investor Protection
The Spanish cases illustrate the tension between a state’s legitimate need to adjust policies in response to changing circumstances and investors’ expectations of regulatory stability. While tribunals acknowledged Spain’s right to regulate, they found that the sheer magnitude and speed of the reforms crossed the line into treaty violations.
This suggests a need for clearer standards in investment treaties regarding the scope of permissible regulatory change. Some newer treaties include explicit carve-outs for regulations addressing climate change, financial crises, or other public policy imperatives. The Spanish saga demonstrates why such provisions may be necessary.
The Role of State Conduct in Creating Expectations
The awards consistently emphasized that Spain’s own conduct—including legislation, official statements, and marketing materials—created the legitimate expectations that were later frustrated. This highlights the importance of clear, measured communication when states implement investment incentive schemes. Overpromising to attract investment can create legal liabilities when circumstances change.
The Compliance Question
Perhaps most fundamentally, Spain’s non-compliance raises questions about the enforcement mechanisms underpinning the investment arbitration system. When a state can resist compliance with dozens of awards for years while incurring primarily reputational rather than practical consequences, the system’s credibility is challenged.
Some reform proposals call for enhanced enforcement mechanisms, including automatic trade sanctions or suspension of voting rights in international organizations for non-compliant states. However, implementing such measures would require significant political will and new treaty frameworks.
Conclusion: An Unresolved Crisis
Spain’s renewable energy arbitration crisis represents one of the most significant challenges to the investment treaty system in recent history. With USD 1.5 billion in unpaid awards, USD 10 billion in pending claims, and no clear resolution in sight, the situation exemplifies the systemic tensions that have prompted calls for fundamental ISDS reform.
The 2024 compliance report’s designation of Spain as the world’s most non-compliant state is not merely a statistical observation—it is a warning about the fragility of the current system. When binding arbitral awards can be systematically resisted by a developed democratic state, the rule of law foundations of international investment protection are called into question.
For investors, the Spanish saga offers a stark reminder that arbitral awards are not self-executing and that enforcement can be a prolonged, multi-jurisdictional battle. For states, it demonstrates both the long-term consequences of abrupt policy reversals and the limits of legal strategies to avoid those consequences.
For the investment arbitration community, Spain’s situation demands serious reflection. As the system evolves—whether through treaty reform, multilateral investment courts, or other mechanisms—the fundamental question remains: how can international investment law balance regulatory flexibility with investor protection while ensuring that binding awards are actually enforced?
Until that question is answered, Spain’s renewable energy saga will continue to unfold, serving as both a cautionary tale and a test case for the resilience of the international investment arbitration system itself.
