The Clean Energy Subsidy Dispute That Could Define Europe's Future

By Haley Zaremba - Apr 03, 2023

• The lawsuit over renewable energy subsidies promised by Spain to investors in 2011 is being heard in a London courtroom, which could impact clean energy financing across Europe.
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• Spain has been sued internationally over 50 times for retroactive changes to its clean energy subsidies, losing over 20 cases so far, but has not paid out.
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• The ongoing dispute highlights accountability mechanisms in the EU and the importance of policy support for accelerating the development and investment in the renewable energies sector

A dispute over renewable energy subsidies which has been drawn out for over a decade is finally coming to a head in a London courtroom. Back in 2011, Spain promised subsidies to renewable energy investors, who accordingly poured millions of dollars into the Spanish clean energy market. But those subsidies never arrived. Now, the case over the $125 million broken promise is finally going to be adjudicated. That decision will have long-lasting implications for clean energy financing across the European continent. 

The lawsuit, which takes place in London’s Commercial Court this week, addresses claims from clean energy investors from the Netherlands and Luxembourg. These actors invested millions of Euros into a solar plant in southern Spain in 2011, under a standing clean energy subsidy from the Spanish government. But Spain slashed those subsidy payments with no warning after the 2008 financial crisis threw the economy into disarray. 

“Spain has been sued internationally more than 50 times over the retroactive changes,” reports the Associated Press. “It has not paid out despite losing more than 20 cases so far, according to U.N. data on international investment disputes.” While this is already concerning for potential investors, the main issue is that the EU has consistently backed Spain’s position. 

While the details of the case are specific to Spain, arguments are shining a spotlight on accountability mechanisms within the EU and the priorities of the European Commission. The grander implications of this probe means that the ultimate decision – to pay or not to pay – could impact all clean energy investing going forward. Investors need to be confident that the rules of engagement are fair – and so far, it’s not clear that that’s the case. 

Clean energy incentives have received increasing attention on a global scale as the Russian war in Ukraine has upended existing energy trade flows and created an energy crisis in Europe with major ripple effects for countries in every corner of our increasingly interconnected world. When the Russian oil and gas that sustained the European economy became unreliable, European leaders rushed to scale back dependence on the Kremlin by ramping up their own energy production, particularly through increased development of clean energy production capacity. In 2022, for the first time in history, wind and solar produced more energy than gas in the European Union. 

The dual energy and climate crises have underscored the importance as well of the urgency of the green energy transition. Reaching climate goals and shoring up global energy security will require a massive and unprecedented acceleration of development and investment in the renewable energies sector. The record-breaking progress we’re currently seeing in Europe is certainly promising, but it isn’t enough. Far from it. And getting the sector to the levels it needs to be at to meet global emissions goals and avoid ongoing energy security crises will require lots of policy support, especially in the form of subsidies and incentives. 

In the United States, the Biden administration has made steps towards rising to this challenge in the form of the Inflation Reduction Act, which marks the single biggest piece of climate legislation ever passed in Congress. But this Act, which incentivises home-grown clean energy supply chains, has been unpopular in Europe. According to reporting from the Associated Press, “experts say the Inflation Reduction Act is already drawing clean energy investment away from EU countries [...], leaving the 27-nation bloc much less competitive globally.” 

This is what will make the current courtroom drama unfolding over clean energy subsidies in Spain all the more important and impactful for the way that the clean energy transition will unfold going forward. And so far, quibbling over who should be responsible for the shirked payments is shaking investor confidence in the EU. 

By Haley Zaremba for Oilprice.com