P.O. Box 16050, 103 21 Stockholm Phone: +46 8-555 100 50, Fax: +46 8-566 316 50 www.sccinstitute.se FINAL ARBITRAL AWARD Made in Stockholm, Sweden on 15 February 2018 Seat of arbitration is Stockholm, Sweden SCC Arbitration (2015/063) Novenergia II - Energy & Environment (SCA) (Grand Duchy of Luxembourg), SICAR v. The Kingdom of Spain W/8001000/v5 Claimant: Novenergia II - Energy & Environment (SCA), SICAR Reg.no. B124550 21, Rue Philippe II, L-2340, Luxembourg Claimant's counsel: Mr. Fernando Mantilla-Serrano, Mr. Antonio Morales, Mr. John Adam, Ms Rosa Espin, Ms Aija Lejniece, Ms Nora Fredstie Latham & Watkins LLP 45 Rue Saint-Dominique 75007 Paris, France and María de Molina 6 28006 Madrid Spain Respondent: The Kingdom of Spain Respondent's counsel: Mr. Diego Santacruz Descartin, Fco. Javier Torres Gella, Ms Monica Moraleda Saceda, Ms Elena Oñoro Sainz, Ms Amaia Rivas Kortazar, Mr. Antolin Fernandez Antuña, Mr. Alvaro Navas Lopez and Ms Ana Maria Rodriguez Esquivas. Abogacía General del Estado-Dirección del Servicio Jurídico del Estado (Government Attorney's Office) Calle Ayala, 5 28001 Madrid, Spain Arbitral Tribunal: Mr. Johan Sidklev, Chairperson Roschier Attorneys Ltd. Brunkebergstorg 2 W/8001000/v5 111 51, Stockholm, Sweden Professor Antonio Crivellaro, Co-Arbitrator Bonelli Erede Via Barozzi 1 20122, Milano, Italy Judge Juez Bernardo Sepúlveda-Amor, Co-Arbitrator Campos Elíseos 67-801 Polanco, Rincón del Bosque CP 11580 Mexico Administrative Secretary: Ms. Shirin Saif Roschier Attorneys Ltd. Brunkebergstorg 2 111 51, Stockholm, Sweden W/8001000/v5 Contents I. THE PARTIES AND THEIR COUNSEL .............................................................................. 1 1. The Claimant .............................................................................................................. 1 2. The Respondent ......................................................................................................... 2 II. SUMMARY OF THE PROCEDURAL HISTORY.................................................................. 3 III. THE ARBITRATION AGREEMENT AND SUBSTANTIVE LAW .......................................... 11 IV. SUMMARY OF THE FACTS ......................................................................................... 13 3. The Initial Regulatory Framework ............................................................................. 13 3.1 Law 54/1997 ........................................................................................................... 13 3.2 Royal Decree 2818/1998 and Royal Decree 436/2004........................................... 14 3.3 Royal Decree 661/2007 .......................................................................................... 16 3.4 The Renewable Energy Plan 2005–2010 ................................................................ 18 3.5 NEC Reports ............................................................................................................ 19 3.6 "The Sun Can Be All Yours" and Other Prospectuses ............................................. 21 4. Regulations Adopted after 2010 ............................................................................... 23 4.1 Royal Decree 1565/2010 ........................................................................................ 23 4.2 Royal Decree-Law 14/2010 ..................................................................................... 23 5. Regulations Adopted after 2012 ............................................................................... 25 5.1 Law 15/2012 ........................................................................................................... 25 5.2 Royal Decree-Law 2/2013 ....................................................................................... 26 5.3 Royal Decree-Law 9/2013 ....................................................................................... 26 5.4 Law 24/2013 ........................................................................................................... 28 5.5 Royal Decree 413/2014 and Order IET/1045/2014 ................................................ 29 V. SUMMARY OF THE CLAIMANT'S FACTUAL CASE ........................................................ 31 6. Introduction ............................................................................................................. 31 7. RD 661/2007 Was Clear on Its Face ........................................................................... 32 8. The Reasonable Rate of Return Was a Vague Starting Point ...................................... 32 9. The Claimant Invested in the PV Plants in September 2007 ....................................... 33 10. When It Invested, the Claimant Legitimately Expected a Fixed Long-Term FIT and There Were No Warning Signs That the Respondent Would Undermine and Thereafter Abolish the Special Regime ...................................................................... 34 10.1 The Claimant Expected a Fixed Long-Term FIT ....................................................... 34 10.2 There Were No Warning Signs That the Respondent Would Undermine and Abolish the Special Regime ..................................................................................... 35 11. The Special Regime Was Undermined and Thereafter Abolished ............................... 38 12. The Specific Regime Is Unreasonable and Disproportionate....................................... 40 12.1 The Specific Regime Is Volatile and Removed Regulatory Certainty ...................... 40 12.2 The Changes Are Neither Reasonable nor Proportionate ...................................... 40 12.3 The Measures Were Not Proportional and Transparent, nor the Result of Any Meaningful Engagement With the Stakeholders ................................................... 41 W/8001000/v5 VI. SUMMARY OF THE RESPONDENT'S FACTUAL CASE .................................................... 42 13. Introduction ............................................................................................................. 42 14. The Spanish Regulatory Framework .......................................................................... 43 15. The Principle of Hierarchy in the Spanish Regulatory Framework ............................... 45 16. The Special Regime Is Not an Island in the SES .......................................................... 47 17. The Spanish Regulatory Framework in 2007 and 2008 ............................................... 51 17.1 Law 54/1997, Applied by the Government and Known by the RE Sector .............. 51 Law 54/1997, Articles 16 and 30 ............................................................. 51 The Reasonable Return Can Be Achieved in Various Ways ..................... 53 The Reasonable Return Must Be Subject to Possible Changes ............... 54 17.2 RD 2818/1998 ......................................................................................................... 55 17.3 RD 436/2004 ........................................................................................................... 55 Distortions Created by RD 436/2004 Remuneration Formula: RDL 7/2006 ..................................................................................................... 56 The Modification of RD 436/2004 Was Harshly Criticised by the Sector ...................................................................................................... 57 17.4 REP 2005 – 2010 Does Not Contain an Overall Increase in Return for RE ............. 59 17.5 RD 661/2007 ........................................................................................................... 59 The Aim and the Literal Wording of RD 661/2007 .................................. 59 The Relevance of the Case Law as a Fact to Understand the Regulatory Framework ............................................................................ 60 Admissibility of Possible Future Changes by NEC Due to the Case Law .......................................................................................................... 62 Critics to RD 661/2007 by RE Sector and Awareness of the Limits for Future Possible Regulatory Measures ..................................................... 65 The Claimant's Awareness of Possible Prospective Regulatory Measures ................................................................................................. 67 18. Basis of the Regulatory Measures Taken During 2009 and 2010 ................................. 75 18.1 RDL 6/2009 ............................................................................................................. 75 18.2 National Action Plan for Renewable Energy in Spain 2011-2020 ........................... 77 18.3 RD 1614/2010 ......................................................................................................... 78 19. The Challenged Measures Introduced by the Respondent ......................................... 79 19.1 The Challenged Measures Were Adopted Due to a Proved Public Policy .............. 79 Regulatory Measures Passed in 2010 ..................................................... 79 The Challenged Measures Enacted After the Collapse of the Spanish Financial Market in 2012 ......................................................................... 80 19.2 The Challenged Measures Maintain the Essential Characteristics of the Remuneration System of LSE 1997, Are Reasonable and Proportionate ............... 81 The New Remuneration Formula Maintains the Support to RE Producers Within a Sustainable Framework ........................................... 82 W/8001000/v5 The New Remunerative Formula Maintains the Priority of Access and Feed-In.............................................................................................. 84 The New Remuneration System Maintains the Objective of Providing the Investor With a Reasonable Rate of Return on a Standard Facility ...................................................................................... 84 Both Models Respond to the Same Concept of Efficiency ...................... 85 Both Models Set the Subsidies Based on the Standards Contained for Various Standard Facilities ................................................................ 86 The Remuneration Formula Allows the PV Plants to Achieve a Reasonable Return .................................................................................. 87 The Challenged Measures Maintain the Essential Characteristics Test stated by the Charanne Award and the Limits to Regulatory Measures Stated by the Isolux Award ..................................................... 90 VII. RELIEF SOUGHT ........................................................................................................ 91 20. The Claimant's Prayers for Relief .............................................................................. 91 21. The Respondent's Prayers for Relief.......................................................................... 92 VIII. JURISDICTION .......................................................................................................... 93 22. Does the Tribunal Have Jurisdiction Over Intra-EU Disputes (Preliminary Objection A)? ........................................................................................................................... 93 22.1 Introduction ............................................................................................................ 93 22.2 The Respondent's Position ..................................................................................... 93 Introduction ............................................................................................ 93 The Claimant Ignores the Principle of the Primacy of EU Law in Intra-EU Relations ................................................................................... 94 Issues Pending Before the CJEU and Recent Decisions of the European Commission ............................................................................ 97 Conclusion ............................................................................................... 99 22.3 The Claimant's Position ........................................................................................ 100 The Tribunal Has Ratione Personae Jurisdiction Over the Present Dispute .................................................................................................. 100 The Tribunal Has Jurisdiction Over Intra-EU Disputes .......................... 101 The Tribunal's Jurisdiction Is Determined by the ECT, Not EU Law ...... 102 There Is No Incompatibility Between the ECT and EU law .................... 103 22.4 The Tribunal's Reasons ......................................................................................... 106 23. Does the Taxation Carve-out in Article 21 of the ECT Apply to Law 15/2012 (Preliminary Objection B)? ...................................................................................... 109 23.1 Introduction .......................................................................................................... 109 23.2 The Respondent's Position ................................................................................... 110 The Provisions Relating to the Tax Are a Taxation Measure, in Accordance With the Definition of Taxation Measure of Article 21(7)(a)(i) of the ECT ............................................................................. 111 W/8001000/v5 In Any Event, It Must Be Concluded That the Tax Is a Bona Fide Taxation Measure .................................................................................. 112 The Tax Applies to All Energy Producers, Both Renewable and Conventional ......................................................................................... 113 The General Application of the Tax Is a Legitimate Option of the State Legislator, as Recognised by the Spanish Constitutional Court, and Is Linked to the Environmental Nature of the Tax ......................... 114 The Tax Does Not Discriminate Against Renewable Producers in Terms of Repercussion .......................................................................... 115 The Objective of the Tax Is to Raise Revenue for the Spanish State for Public Purposes ................................................................................ 116 23.3 The Claimant's Position ........................................................................................ 116 Article 21 ECT Only Applies to Bona Fide Taxation Measures .............. 116 The Respondent Adopted Law 15/2012 Mala Fide ............................... 117 23.4 The Tribunal's Reasons ......................................................................................... 118 IX. MERITS .................................................................................................................. 120 24. When Was the Claimant's Investment Made? ......................................................... 120 24.1 Introduction .......................................................................................................... 120 24.2 The Claimant's Position ........................................................................................ 120 24.3 The Respondent's Position ................................................................................... 120 24.4 The Tribunal's Reasons ......................................................................................... 120 25. Has the Respondent Failed to Accord at All Times to the Claimant and its Investment Fair and Equitable Treatment? ............................................................. 122 25.1 Introduction .......................................................................................................... 122 25.2 The Claimant's Position ........................................................................................ 123 The Fair and Equitable Treatment Standard under the ECT ................. 123 The Respondent Failed to Conform to the Fair and Equitable Treatment Standard .............................................................................. 124 The Stability and Transparency Obligation in the ECT .......................... 127 25.3 The Respondent's Position ................................................................................... 129 The Principle of Fair and Equitable Treatment Under ECT Article 10(1) ...................................................................................................... 129 Reasonable and Objective Expectations of the Claimant ..................... 131 The Expectations of the Claimant Are Not Objective............................ 134 Fair and Equitable Treatment Standard Under ECT: Stable Conditions ............................................................................................. 138 Transparent Conditions ......................................................................... 143 25.4 The Tribunal's Reasons ......................................................................................... 146 Is the Stability and Transparency Obligation Part of the Fair and Equitable Treatment Standard in Article 10(1) of the ECT? .................. 146 The Scope and Applicability of the Fair and Equitable Treatment Standard ................................................................................................ 147 W/8001000/v5 Were the Claimant's Expectations Legitimate and Reasonable? .......... 151 Did the Legislation Introduced by the Respondent After 2007 Constitute a Violation of the Fair and Equitable Treatment Standard in Article 10(1) of the ECT? .................................................................... 156 ............................................................................................................... 160 26. Has the Respondent Breached Article 13 of the ECT? ............................................... 165 26.1 Introduction .......................................................................................................... 165 26.2 The Claimant's Position ........................................................................................ 165 The Claimant's Investment Is Protected by Article 13 of the ECT ......... 165 The Respondent's Measures Resulted in the Expropriation of the Claimant's Investment ........................................................................... 166 The Challenged Measures Cannot Be Justified by the Police Powers Doctrine ................................................................................................. 167 26.3 The Respondent's Position ................................................................................... 169 Introduction .......................................................................................... 169 The Case Law Applicable to the Challenged Measures ......................... 170 26.4 The Tribunal's Reasons ......................................................................................... 172 27. Damages ................................................................................................................ 173 27.1 Introduction .......................................................................................................... 173 27.2 The Claimant's Position ........................................................................................ 174 27.3 The Respondent's Position ................................................................................... 178 27.4 The Tribunal's Reasons ......................................................................................... 183 The Standard of Compensation ............................................................. 183 The Damages Payable by the Respondent ............................................ 184 The Interest Payable by the Respondent .............................................. 190 X. COSTS .................................................................................................................... 191 28. The Claimant's Costs .............................................................................................. 191 29. The Respondent's Costs .......................................................................................... 192 30. The Tribunal's Findings on Costs ............................................................................. 192 XI. DECISION ............................................................................................................... 192 W/8001000/v5 1 I. THE PARTIES AND THEIR COUNSEL 1. The Claimant 1. The Claimant in this arbitration is Novenergia, a Société d'investissement en capital à risque (SICAR) ("Novenergia" or the "Claimant") (list of definitions can be found in Annex 1) incorporated in the Grand Duchy of Luxembourg on 1 February 2007, with legal address at 28, Boulevard Royal, L-2449, Luxembourg, and with registration number B124550 in the Luxembourgish Commercial and Corporate Registry. 2. The investment in the eight photovoltaic ("PV") plants (the "PV Plants") was structured through Novenergia II Energy & Environment España, S.L. ("Novenergia Spain"). The Claimant acquired its interest in Novenergia Spain on 3 July 2007. At this time, Novenergia Spain was wholly- and directly-owned by the Claimant. 3. The eight PV Plants were each built and organised under the auspices of seven corporations which each bear the same name as a respective PV Plant (except Fuente Alamo Norte and Fuente Alamo Sur, which were built and are administered by the same corporation). All seven corporations have at all times been held by Novenergia Spain. The Claimant held the following indirect ownership in these seven companies:  100% in Novenergia-Solarsaor, S.L. ("Solarsaor");  100% in Novenergia-Bonete, S.L., formerly called Paracel Investment, S.L. ("Bonete");  100% in Novenergia-Almansa, S.L., formerly called Las Cabezuelas Fotoparque, S.L. ("Almansa");  100% in Novenergia-Villares del Saz, S.L., formerly called Terrapower, S.L. ("Villares");  90% in Energy Engineering I Mora la Nova, S.L. ("Mora");  50% in Fuente Alamo Fotoparque, S.L. ("Alamo"); and  70% in Novenergia-Lobon, S.L., formerly called Morcone Invest, S.L. ("Lobon"). 2 4. The corporate structure after November 2015 is depicted in the chart below: 5. Under this corporate structure, the Claimant holds a 60.27% indirect interest in Novenergia Spain. Similarly, the Claimant's interest in the seven corporations is:  60.27% in Solarsaor;  60.27% in Bonete;  60.27% in Almansa;  60.27% in Villares;  57.26% in Mora;  30.14% in Alamo; and  71.47% in Lobon. 6. The Claimant is represented by Mr. Fernando Mantilla-Serrano, Mr. Antonio Morales, Mr. John Adam, Ms Rosa Espin, Ms Aija Lejniece, Ms Nora Fredstie, all of whom are from the law firm Latham and Watkins LLP. 2. The Respondent 7. The Respondent in this arbitration is the Kingdom of Spain (hereinafter together with the Claimant referred to as the "Parties"). 8. The Respondent is represented by Mr. Diego Santacruz Descartin, Fco. Javier Torres Gella, Ms Monica Moraleda Saceda, Ms Elena Oñoro Sainz, Ms Amaia W/8001000/v5