By Herbert Woopen
I. Introduction: The EU’s ambition
The EU has for a long time wished to be the frontrunner for innovative investments in green technology and strived to secure future economic growth for European companies exporting products for a sustainable world economy, products that are and will be invented in Europe. These intentions deserve wholehearted support if a “Good Disruption” is to be achieved in the interest of our children and grandchildren. Beyond renewable energy, a broader capital-accretive agenda of creating material banks and establishing criteria for high-productivity regenerative systems will need high levels of investments. A new paradigm resulting in a net-positive principle, i.e. an entirely different way of measuring success to change our economic behaviour, might ensure mankind’s survival. These ideas tie very well in with Pope Francis’ recent call on young economists in Assisi, to change the world economy to make it an economy of friendship with the earth, and an economy of peace, transforming an economy “that kills” into an economy of life.
These good intentions do not only merit support, but they certainly require and deserve clear reliability by core institutions, require “staying the course”, “stare decisis” and “pacta sunt servanda” in particular on behalf of the European Union and on behalf of the countries taking up European recommendations towards these goals. Unfortunately, severe shortcomings must be deplored which may endanger the realization of the aforementioned good intentions and, even worse, draw Europe’s credibility into question on a huge scale. How is that?
In the first part, this post will explore how numerous investor-state disputes in Italy have so far been decided in an unconvincing way based on some regrettably wrong assumptions and misreadings. Against such backdrop, the second part will analyse how the European Union could and should amend past erroneous decisions of two of its organs in a way that is more in line with its stated mission and its well-intentioned self-perception.
II. ECJ should confirm: Member States must keep their promises
This post is not a place to resume all lines of arguments which have been developed in various cases in courts and arbitral tribunals on the protection of legitimate expectations created by various Member States’ schemes for subsidizing renewable energies, especially in Spain and Italy. It is, however, a good place to point out that the EU is liable for acts of its organs (Art. 340 TFEU) and that, to the best of the author’s knowledge, in particular the reasoning of the ECJ in its decision on the joint cases C-798/18 (Anie) and C-799/18 (Athesia) fulfils the conditions for such liability. Underlying that decision was the Opinion of Advocate General Saugmandsgaard Øe as well as that of the Italian Constitutional Court quoted there from previous national litigation which all seem to rely on a misrepresentation of the legal and contractual situation.
1. The promise made by Italy
The EU required Italy to meet aggressive renewable energy targets, and in 2003, Italy enacted Legislative Decree 387, with the goal of promoting investment in its renewable energy sector. Starting in 2005, pursuant to Legislative Decree No. 387/2003, Italy enacted an attractive incentive tariff program for PV plants, which was implemented through successive Conto Energia Decrees. The various promises of subsidizing grid connection of Photovoltaic power plants of certain sizes had the following wording (here the example of Conto Energia II of 2007):
Art. 6 Incentive tariffs and entitlement period
- Electricity produced by photovoltaic plants, built in accordance with this decree and entering into operation in the period between the date of issue of the measure under article 10 (1) and 31 December 2008, is entitled to an incentive tariff which, on the basis of nominal capacity and type of plant, as specified under […], will be of the value specified under the following table (values in EUR/kWh produced by the photovoltaic plant). The tariff identified on the basis of that table is awarded for a period of twenty years commencing from the date of entry into operation of the plant and shall remain constant in current currency for the entire twenty-year period.
- Electricity produced by photovoltaic plants, realized in accordance with this decree and operational in each of the years in the period between 1 January 2009 and 31 December 2010, are entitled to the incentive tariff under paragraph 1, on the basis of nominal capacity and type of plant, decreased by 2% for each of the calendar years subsequent to 2008, with commercial rounding to the third decimal figure, without prejudice to the twenty-year period. The value of the tariff shall remain constant in current currency for the aforementioned twenty-year period.”
This promise must have appeared crystal clear to anybody reading such text. In June 2014, Italy surprisingly enacted the “Spalma Incentivi” to reduce Conto Energia tariffs previously granted to existing PV plants. Producers could “choose” between three harmful “options”, with a default to Option C if no choice was made:
- Option A: a 17-25% tariff cut, paid over 24 years instead of originally promised 20 years
- Option B: dramatic tariff reduction from 2015-2019, with promise of increased tariffs in remaining years
- Option C: straight 6-8% cut over 20 years.
2. Misrepresentation and misunderstandings in ECJ decision C-798/18 and 799/18
Based on the appearance of the support scheme “from the file available to the Court”, the Advocate General tried to clarify the background to the reform introduced by Art. 26(2) and (3) of Decree-Law No 91/2014 (Spalma Incentivi). He read this against Art. 7(2)(d) of Legislative Decree No 387/2003, saying that the incentives granted were to be in a decreasing amount, determined for a specific period, and understood this to be open to the interpretation of tariffs varying each within itself over their respective duration.
Furthermore, he referred to Art. 24(2)(d) of Legislative Decree No 28/2011, pursuant to which the agreements between GSE and those operators were concluded, drawn up on the basis of a standard form contract produced by the Italian Regulatory Authority for Electricity and Gas and pursues: “According to the applicants in the main proceedings, that standard form contract provided that GSE had a unilateral right to amend its terms in order to take account of changes in the relevant legislative framework.”, and continues in Footnote 23 as follows:
More specifically, according to the applicants in the main proceedings, the agreements relating to installations which became operational after 31 December 2012 contain, in Article 17.3, the following clause: ‘… GSE reserves the unilateral right to amend clauses … which, as a result of such developments in norms and regulations as may take place, are contrary to the applicable frame of reference’. It will be for the referring court to verify that all the agreements at issue do in fact contain such a clause.
Those matters seemed, understandably, to indicate to the Advocate General that the arrangements for payment of the incentives could be changed within an individual tariff and that their amount was liable to be reduced.
But: In holding that the contractual “guarantee of paying fixed tariffs for 20 years” did not mean that the incentive system could not change, Advocate General and Court relied on a contract that applied only to plants enrolled under the Fifth Conto Energia. Unlike the contracts that governed plants under the First through Fourth Conto Energia decrees, the only contract considered by the court contained an express provision allowing for unilateral modification. In contrast, the contracts governing every plant in the case known best by the author contain express language requiring the “agreement” of the contracting parties (i.e., the plant operators and the GSE) to modify the contracts. The change that occurred between Conto IV and Conto V has also been acknowledged in an arbitration award in CEF v. Italy of January 2019 (paras 148-149).
Any such clause for changes newly introduced into contracts concluded later, can certainly not have the effect of changing the contents of the clauses used in previous programs and contracts. Thus, an “operatore economico prudente e accorto” to which the Constitutional Court refers, was not able to foresee unilateral changes in Conto Energia I-IV.
In detail: The wording of the Legislative Decree No 387/2003, saying that the incentives granted were to be in a decreasing amount, determined for a specific period (para 38), also made perfect sense under the previous GSE contract clauses with respect to the fact that the modalities of the different Contos Energia I to IV were modified from Conto to Conto once the volume defined for the respective Conto-Program had been exhausted by the applications received. In order to reduce economic costs for consumers, the Conto Energia decrees did not provide for one single amount for all the incentive tariffs of the future, but rather provided for various decreasing amounts from Conto to Conto, staggered over time, to be paid to plants that enter into operation after the dates provided for in each of them.
Taking the fourth, Conto Energia IV, as an example, Art. 12 provides that: “for energy produced by photovoltaic plants described in this title, the plant manager is entitled to a tariff identified on the basis of the provisions of Annex 5”. Annex 5 contained a series of tables indicating the amount of the tariffs in relation to the period in which the plant entered into operation.
“1. For June, July and August 2011 the tariffs are identified in table 1.
2. For September until December 2011 the tariffs are identified in table 2.
3. For the first and second six months of 2012, the tariffs are identified in table 3.”
(and so on).
The tables referred to in the provision identify tariffs with amounts decreasing from tariff to tariff.
If we consider these regulations for decreasing amounts depending on the moment of grid connection within a Conto-Program and if, moreover, we consider that each Conto Energia provided for lower tariffs than those provided by the respective previous Conto Energia, it is clear that the system for reducing costs for consumers was strictly set out by the successive Contos Energia and by the differentiated tariffs contemplated within each of them depending on the moment of grid connection, with the obvious specification, clarified by the clauses regarding the constancy of the incentives contained therein, that once granted, the tariff could not incur changes.
Another argument not mentioned in cases C-798/18 and C-799/18 but possibly underlying the misunderstanding refers to interpretation of article 2 (3) of the fourth Conto Energia, according to which “the incentive modalities under this decree may be revised, continuing to foster in any case further sector developments”. This provision should not be read isolated from the context in which it is included. In particular, it should be coordinated with the extremely clear provision under article 5, paragraph four of the same Conto Energia, according to which “the incentive tariff is recognized for a period of 20 years as of the entry into operation of the relevant plant and is constant in current currency for the whole support period”. This clause unequivocally confirms that the provision under article 2, paragraph 3 of the fourth Conto Energia quoted above allows the introduction of new incentive modalities limitedly for future plants and not those already admitted to benefit from the tariffs, in respect of which the stability guarantee for the amount of the incentive applies, for the entire support period.
Thus, the ECJ’s judgment in the joint cases C-798/18 and C-799/18 may be up for a revision according to Art. 44 TEU, due to discovery of facts which are of such a nature as to be decisive factors, and which, when the judgment was given, were unknown to the Court (and to the party claiming the revision – see the wording “according to the applicants in the main proceeding” who apparently were not aware of the full texts and seemingly did not submit them to the Advocate General and the Court).
3. General obligation and intention of the EU to ensure rule of law
It also needs to be stressed that the Commission itself had clearly spoken out against changing retroactively incentive schemes for renewables, asking Member States for clear commitments to avoid changes that alter the return on investments already made and undermine investors’ legitimate expectations (here and here), and it goes without saying that it is in the European Union’s interest to ensure that Member States keep their promises which they made in the interest of transposing European Policies like Directive 2009/28.
However, whether somebody will introduce such a procedure at the ECJ and what the result of such or other procedures will be is uncertain, which is why adherence of the EU to international law seems to be an even more urgent subject for consideration.
Having explored and analysed domestic regulations in Italy and ECJ’s decisions stemming from those in Part I, Part II will look at international law solutions and will analyse how the European Union could and should amend past erroneous decisions.
Dr. iur. Herbert WOOPEN, Docteur en droit (Clermont-Ferrand), is an Independent Lawyer in Cologne, Germany (RA-WOOPEN@netcologne.de). ↑
For details see Stuchtey et al. “A Good Disruption – Redefining Growth in the Twenty-First Century” (2016), pp 22-28, 33 ff., 41-48. ↑
Already in the Recitals no. 8, 14 and 25 of Directive 2009/28, quoted also by the Tribunale Amministrativo Regionale per il Lazio in its decision of 16 November 2018, submitting the case Athesia et al. to the ECJ (C-798/18). ↑
Recital 25 of which is quoted also by the Advocate General Saugmandsgaard Øe in his opinion. ↑