Masdar versus Spain: say adios to CSP investors?
Spain’s administration seems unperturbed at the growing queue for arbitration over loss of CSP earni
By Jason Deign
Spain’s ability to attract future CSP investors looks increasingly in doubt as the number of international backers embarking on arbitration proceedings grows.
Last month, Abu Dhabi’s leading clean energy player, Masdar, became the fourth international CSP investor to present a claim against Spain at the World Bank’s International Centre for Settlement of Investment Disputes (ICSID), for loss of earnings caused by policy changes.
Masdar has investments in three CSP projects in Spain, including Torresol Energy’s landmark Gemasolar plant, which was opened in October 2011 with a ceremony featuring Spanish King Juan Carlos and Abu Dhabi’s Crown Prince Mohamed bin Zayed Al Nahyan.
Since then, however, relations between the two countries appear to have soured as a result of Spanish Minister of Industry, Energy and Tourism José Manuel Soria’s lacklustre attempts to curtail Spain’s ballooning tariff deficit.
Ignoring calls to levy windfall profits on hydro and nuclear plants, Soria’s ministry has focused efforts on hacking away at the support schemes that originally attracted foreign investors such as Masdar.
The latest measures, unveiled last month, saw Spain’s feed-in tariff system being replaced altogether with a flat rate of return of 7.398% over the entire lifetime of plant.
The calculation methodology for this return depends on a number of parameters that vary from plant to plant, and which sources close to the industry say may bear little relation to the actual costs borne by investors.
Masdar’s action has been presented through its Dutch subsidiary Masdar Solar & Wind Coöperatief.
It follows similar demands from the British investment fund Eiser Infrastructure, the German institutional asset management body Deutsche Asset & Wealth Management (formerly RREEF Infrastructure) and Antin Infrastructure Partners, of BNP Paribas in France.
Eiser is an investor in Aries Solar Termoeléctrica, which owns the 50MW Aste 1A and Aste 1B plants at Alcazar de San Juan in Ciudad Real, and Dioxipe Solar, owner of the 50MW Astexol plant in Badajoz. It is estimated to have put €935 million into the projects.
RREEF and Antin, meanwhile, have sunk a reported €830 million into the Andasol I and II plants. RWE of Germany and Mitsubishi of Japan are also said to be studying lawsuits through the ICSID.
The four renewable energy disputes, represented by the multinational law firm Allen & Overy, plus a fifth, non-related matter, put Spain on a par with Turkmenistan and Uzbekistan in terms of arbitration proceedings outstanding at the ICSID.
Only Argentina, Egypt, Hungary, Peru and Venezuela have higher levels of investment insecurity, as measured by ICSID disputes.
The parties involved are generally reluctant to speak of the proceedings and Masdar did not respond to a request for further information on the dispute. “Because of the legal mess, few are willing to comment,” points out Josefin Berg, a European solar analyst at IHS.
However, legal sources consulted by CSP Today believe the Spanish administration’s apparent lack of concern over the avalanche of ICSID actions may simply be a delaying tactic.
Since coming to power in December 2011, the Spanish Popular Party has been predominantly concerned with wider economic restructuring measures that appear to have calmed global fears over the country’s finances.
Terrifying risk premium
Spain’s once-terrifying risk premium has dipped as a result, and danger of the country needing a European bailout appears to have receded. Renewable energy aside, Spain is once more becoming attractive to foreign investors.
Hence there may be some logic in the administration’s persistent disregard for claims from the renewable sector.
Piet Holtrop, a lawyer acting on behalf of various Spanish renewable energy bodies, thinks the national lawsuits currently working their way through Spain’s legal system will eventually be found in favour of investors when they reach the European courts in Luxembourg.
But by then, he argues, Spain’s lawmakers hope the economy will have picked up enough to deal with the problem. Meanwhile, the ICSID may provide a route to pay off angered foreign investors behind closed doors.
What happens through the ICSID is “a private agreement,” says Holtrop. “Generally they try to reach a settlement.”
It remains to be seen is whether such tactics will be forgotten easily by the infrastructure investment community, however. Right now the signs are not encouraging.
“It changes the investment climate with retroactive regulation,” says Aris Karcanias, a managing director at FTI Consulting’s Economics and Financial Consulting Practice. And in Spain there is no doubt that regulatory shifts are affecting the value of deals made several years ago.
Before, investors were receiving nearly double last year’s average market pool price (around €40-45/MWh) but now projects that have already achieved a Return on Revenue of 7.5% will be paid the market pool price, which has been seen this year to go as low as €2/MWh, Karcanias says.
As David Jones, head of renewable energy at Allianz Capital Partners, Europe’s biggest institutional investor in wind and solar projects, observed this month at an industry meeting in Barcelona, Spain: “We are in a market now where investors have pulled out.”
To respond to this article, please write to the author Jason Deign.