13 August 2015

Legal experts at law firm Pinsent Masons say it could be open to international investors, who have collectively pumped billions in to Scottish renewables, to raise a claim for compensation under the Energy Charter Treaty (ECT).

The ECT was introduced to protect the transmission of energy in to Europe and allows investors to file claims against member states for violation of their protections under the ECT.

Spain, the Czech Republic and Italy are facing similar compensation battles after those Governments suddenly changed renewables subsidy legislation and so far investors commenced 10 arbitrations against Spain for alleged ECT violations.

Any compensation claim would be an embarrassment to the UK, which prides itself in offering a stable regime for investment, and Westminster is hoping to avoid such a scenario with the introduction of a grace period before the subsidy pipeline is closed.

Energy Secretary Amber Rudd caused widespread anger in the renewables sector when she announced the Renewables Obligation (RO) – effectively a subsidy for renewables projects of a certain scale – would end for onshore wind projects a year earlier than the previous deadline of April 2017.

But her current proposal is that onshore wind developments which have already secured planning consent, grid connection acceptance and land rights for the build site, would be afforded a grace period which would entitle them to RO support up to the original deadline.

Pinsent Masons’ dispute resolution expert, John Gilbert, believes some investors in projects which fall outside any grace period which is ultimately granted, will be looking at the potential for multi-million pound compensation claims.

Meantime, Rudd's proposals are to be included in an Energy Bill which will be subject to the Parliamentary amendment process before it is enacted, which could take up the new RO closure date in March of next year before being passed, thus causing even greater uncertainty.

Mr Gilbert said: “European investors, and German companies in particular, have invested many millions in to Scotland’s renewable sector in the belief that it was a safe investment with limited risk.

“The UK Government have attempted to be clever by introducing changes to the RO through primary legislation which has the backing of Parliament and therefore cannot be challenged through judicial review. Under the ECT, investors can’t challenge the Government’s decision on subsidies, but they may have a good case for seeking damages on the basis that their investments have been undermined and devalued.”