Foreign investors in renewable energy projects in Spain have hired lawyers to prepare potential international legal action against the Spanish government over new rules they say break their contracts.
It is unclear how much claims might be worth, but international funds have more than €13-billion ($17-billion U.S.) of renewable energy assets in Spain and say that the government has reneged on the terms of their investment.
The Spanish Parliament approved a law on Thursday that cuts subsidies for alternative energy technologies, backtracking on its push for green power.
That measure, along with other recent laws including a tax on power generation that hit green energy investments especially hard, will virtually wipe out profits for photovoltaic, solar thermal and wind plants, sector lobbyists say.
International commercial law firm Allen & Overy told Reuters on Thursday that it is representing a group of investors in concentrated solar power plants in relation to potential claims under the international Energy Charter Treaty.
“International investment funds are consulting with legal advisers on how to proceed with action. There will be various lawsuits,” Luis Crespo, secretary general of Spain’s solar thermal association told Reuters.
He said that investors from the United States, Japan and the United Arab Emirates are among those pursuing action through the Brussels-based Energy Charter, an internationally ratified treaty that binds members to rules on energy and arbitration.
Allen & Overy is already handling an earlier claim against Spain, filed in 2011 on behalf of photovoltaic investors. The investors it is representing for potential new claims are in the solar thermal industry.
Spain’s Industry Minister Jose Manuel Soria defended the law in Parliament on Thursday, saying that the measures were necessary to eliminate the accumulated €28-billion ($37.4-billion) tariff deficit in the electricity system.
Asked to comment on the potential lawsuits at an event later in the day in Madrid, Mr. Soria said the government always had the general interest and the legality in mind when legislating.
He declined to make any further comment.
That deficit, built up through years of the government holding down electricity prices at a level that would not cover regulated costs including renewables premiums, is at the heart of Spain’s energy sector woes.
“I don’t know why anyone would put another penny in investment in the sector in Spain,” said one leading investor whose firm is studying possible claims.
The same source, who asked to remain anonymous, said that the reforms could drive some solar industry projects, particularly ones that are highly leveraged, into bankruptcy.
Foreign investors poured money into Spanish wind and solar projects, drawn to generous subsidies during a decade-long economic boom that helped the country to become one of the biggest markets for investments in green energy.
The problem was that the cost of the subsidies were not passed on fully to consumers because that would have pushed prices to unprecedented highs.
Spanish companies such as Acciona SA and Abengoa SA have also been hit hard by the new rules, but because it is passed as a decree by the government, Spain-based companies have virtually no form of appeal and will not join the claims being studied by foreign investors.
Listed foreign companies with investments in the sector include Germany’s E.ON and Japan’s Mitsubishi Corp. and Mitsui & Co. Ltd., several sources from the energy sector said.
Some of the funds planning legal action are also among the 11 investors who sent a letter to Prime Minister Mariano Rajoy in July to complain of another energy reform with a retroactive impact on investments, the sources said.
The letter, seen by Reuters, was signed by Ampere Equity Fund, AES Solar, KKR, RREEF Infrastructure, MEAG, KGAL, Infrared Capital Partners, HG Capital, Eiser Infrastructure Partners, Cube Infrastructure and Antin Infrastructure Partners.