Commission opens in-depth State aid investigation into arbitration award ordering Spain to pay compensation to JGC Holdings Corporation

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The European Commission has opened an in-depth investigation to assess whether an arbitration award ordering Spain to pay compensation to JGC Holdings Corporation (‘JGC’) for changes to a renewable electricity support measure is in line with EU State aid rules.

The Commission’s investigation

In 2007, Spain established a scheme to support the production of electricity from renewable sources. This scheme was not notified to the Commission for approval under EU State aid rules.

In 2013, Spain changed the initial scheme terms and applied these also to installations that had started to receive support under the 2007 scheme. The new support scheme was notified to the Commission, which approved it in 2017. In that decision, the Commission also stated that any compensation to be awarded by arbitration tribunals to investors on the basis that Spain modified the scheme would constitute State aid subject to a notification obligation under EU State aid rules.

JGC, a Japanese engineering holding company, invested in renewables installations in Spain and benefitted from the 2007 scheme. Following the changes, JGC started arbitration proceedings against Spain and claimed compensation for the foregone support it would have received on the basis of the 2007 scheme.

In 2021, an arbitral tribunal found that Spain had infringed the Energy Charter Treaty (ECT) and ordered Spain to compensate JGC for losses allegedly suffered as a consequence of the modifications of the 2007 scheme. The awarded compensation amounts to €23.5 million, plus interest and additional costs. Spain notified this award to the Commission under State aid rules. Spain also informed the Commission it had made a payment under this award to Blasket Renewables Investment (‘Blasket’), a US fund that was assigned the rights to the award and has prepared and envisaged enforcement in the Netherlands and attempted enforcement in the United States and Belgium.

The Commission’s investigation

At this stage, the Commission’s preliminary view is that the arbitration award and in any event its implementation constitute State aid within the meaning of Article 107(1) of the Treaty on the Functioning of the EU (‘TFEU’), as it grants JGC an advantage equivalent to those provided for by the non-notified 2007 Spanish scheme. Blasket has also benefited from the award, after acquiring the right to it and pursuing its enforcement.

The Commission will further investigate the measure and its compatibility with the internal market as it has doubts that relate to a possible breach of EU Treaties by the aid measure and the non-compliance of the aid measure with the criteria of the State aid guidelines applicable to operating aid to energy from renewable sources:

• state aid is prohibited unless it is approved by the Commission, which enjoys exclusive competence to assess the compatibility of aid measures with EU State aid rules;
• the dispute leading to the award was between a Member State and an investor of a third country on the basis of the investor-State arbitration mechanism of the ECT. According to the case-law of the Union courts, an international agreement cannot affect the allocation of powers fixed by the Treaties or, consequently, the autonomy of the Union legal system.  By awarding compensation for the modification of the 2007 scheme, the arbitral tribunal substituted its own assessment to that of the Commission by ignoring Articles 107 and 108 TFEU, the 2017 decision and the applicable EU case law of the Court of Justice of the European Union (‘CJEU’). The Commission therefore has doubts about the compliance of the measure with the general principle of autonomy of the EU legal order and several provisions of the EU Treaties;
• based on the evidence on file, the Commission has not been able to conclude whether or not the Award constitute a discrimination in breach of Article 18 TFEU; and
• the renewables installations in which JGC invested already benefitted from the 2013 scheme. The Commission will investigate whether the additional support granted by the arbitration award is necessary for the development of an economic activity, has an incentive effect and is proportionate. The Commission will also investigate whether granting such support only to JGC could unduly distort competition.

The Commission will now carry out an in-depth investigation to determine whether its initial concerns are confirmed. The opening of an in-depth investigation gives Spain and interested third parties the opportunity to submit comments. It does not prejudice the outcome of the investigation in any way.

Background

Reliable and transparent provisions for supporting production of electricity from renewable energies are important to ensure investor confidence and enable investments necessary for the Clean Industrial Deal and to reach the Union’s decarbonisation objectives. Actions by individual investors seeking the annulment of national measures or claiming financial compensation are in the competence of national courts. If an investor considers its investment is wrongly jeopardised by a Commission State aid decision, it may challenge the decision directly before the General Court. Finally, the Renewable Energy Directive (2018/2001) provides for an obligation of Member States to ensure that the support granted to renewable energy projects is not revised in a way that negatively affects the rights conferred to companies and undermines the economic viability of projects that already benefit from support. No such provision existed in 2013.

For more information

The non-confidential version of the decision will be made available under the case number SA.102404 in the State aid register on the Commission’s competition website once any confidentiality issues have been resolved. New publications of State aid decisions on the internet and in the Official Journal are listed in the Competition Weekly e-News.