INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES In the arbitration proceeding between EURUS ENERGY HOLDINGS CORPORATION Claimant and KINGDOM OF SPAIN Respondent ICSID Case No. ARB/16/4 DECISION ON JURISDICTION AND LIABILITY Members of the Tribunal Judge James Crawford, President Mr. Oscar Garibaldi, Arbitrator Prof. Andrea Giardina, Arbitrator Secretary of the Tribunal Ms. Celeste Estefanía Salinas Quero Date of dispatch to the Parties: 17 March 2021 REPRESENTATION OF THE PARTIES Representing Eurus Energy Holdings Representing Kingdom of Spain: Corporation: Mr. Nicholas Lingard Mr. José Manuel Gutiérrez Delgado Mr. Joaquín P. Terceño Ms. Irene Bonet Tous Mr. Daniel Allen (until 31 March 2019) Ms. Gabriela Cerdeiras Megias Freshfields Bruckhaus Deringer LLP Ms. Lorena Fatás Pérez Akasaka Biz Tower 36F Ms. Ana Fernández-Daza Álvarez 5-3-1 Akasaka, Minato-ku Mr. Antolín Fernández Antuña Tokyo 107-6336 Ms. Patricia Elena Fröhlingsdorf Nicolás Japan Ms. Socorro Garrido Moreno Mr. Rafael Gil Nievas Mr. Peter Turner, QC Ms. Lourdes Martínez de Victoria Mr. Yuri Mantilla Ms. Mónica Moraleda Saceda Ms. Claire Pauly (until 14 September 2018) Ms. Elena Oñoro Sainz Freshfields Bruckhaus Deringer LLP Ms. Amaia Rivas Kortazar 9 avenue de Messine Mr. Diego Santacruz Descartín 75008 Paris Ms. Alicia Segovia Marco France Mr. Alberto Torró Molés Mr. Luis Vacas Chalfoun Ms. Samantha Tan Abogacía General del Estado Freshfields Bruckhaus Deringer LLP Ministerio de Justicia del Gobierno de España 10 Collyer Quay 42-01 c/ Marqués de la Ensenada, 14-16, 2ª planta Ocean Financial Centre 28004 Madrid Singapore 049315 Kingdom of Spain Mr. Ignacio Borrego Ms. Ana Calvo Freshfields Bruckhaus Deringer LLP Torre Europa Paseo de la Castellana, 95 28046 Madrid Kingdom of Spain i TABLE OF CONTENTS I. INTRODUCTION AND PARTIES ...................................................................................... 1 II. PROCEDURAL HISTORY ................................................................................................... 2 A. Commencement of the Arbitration ................................................................................. 2 B. Tribunal’s Constitution ................................................................................................... 2 C. First Session and Parties’ Pleadings ............................................................................... 3 D. The Withdrawal of Eurus Europe, the Hearing on Jurisdiction and the Merits ............. 6 E. Post-Hearing Matters .................................................................................................... 11 F. The European Commission’s Application to Intervene ............................................... 13 G. Legal Authorities added Post-Hearing ......................................................................... 15 III. FACTUAL BACKGROUND .............................................................................................. 20 A. The Spanish Electricity System and the Special Regime ............................................. 20 B. Claimant’s Decision to Invest ....................................................................................... 29 C. The Disputed Measures ................................................................................................ 34 D. The Disputed Measures and Spanish Courts Decisions ............................................... 36 IV. THE PARTIES’ CLAIMS AND REQUESTS FOR RELIEF ............................................. 38 V. JURISDICTION AND ADMISSIBILITY .......................................................................... 41 A. First objection: The TVPEE is a taxation measure which is exempt from the scope of the ECT by reason of Article 21(1) of the ECT ....................................................... 42 B. Second objection: The Tribunal lacks jurisdiction to decide on Eurus’s gross-up claim in relation to Japanese taxation of the award under Article 21(1) of the ECT ......................................................................................................................... 50 ii C. Third objection: Inadmissibility of the claim for expropriation under Article 13 of the ECT ......................................................................................................................... 53 D. Putative objection: Status of the Claimant as an investor for the purposes of Article 26(1) of the ECT and related issues .............................................................................. 57 VI. APPLICABLE LAW ........................................................................................................... 60 VII. MERITS ............................................................................................................................... 71 A. The Expropriation Claim: Article 13(1) of the ECT .................................................... 72 B. Spain’s alleged breach of Article 10(1) of the ECT, first & second sentences ............ 81 C. Spain’s alleged breach of Article 10(1) of the ECT, third sentence ........................... 116 D. The EU state aid arguments ........................................................................................ 121 VIII. DAMAGES ........................................................................................................................ 134 IX. CONCLUSIONS................................................................................................................ 142 iii SELECT TABLE OF ABBREVIATIONS/DEFINED TERMS Association of Renewable Energy Producers APPA (by its Spanish acronym: Asociación de Productores de energías renovables) ICSID Rules of Procedure for Arbitration Arbitration Rules Proceedings 2006 Expert report of BDO, entitled ‘Expert BDO Expert Report economic-financial report on the EURUS wind farms’ of 11 April 2017 Official State Journal (by its Spanish acronym: BOE Boletín Oficial del Estado) Brattle Claimant’s regulatory and quantum experts Expert report of Brattle, entitled ‘Financial Brattle First Quantum Report Damages to Investors’ dated 18 November 2016 Expert report of Brattle, entitled ‘Changes to the Regulation of Wind Installations in Spain Brattle First Regulatory Report Since December 2012’ dated 18 November 2016 Rebuttal report of Brattle, entitled ‘Financial Brattle Rebuttal Quantum Report Damages to Eurus’ dated 29 September 2017 Rebuttal report of Brattle, entitled ‘Changes to the Regulation of Wind Installations in Spain Brattle Rebuttal Regulatory Report Since December 2012’ dated 29 September 2017 C-[#] Claimant’s Exhibit CL-[#] Claimant’s Legal Authority Cl. Mem. Claimant’s Memorial of 18 November 2016 Claimant’s Rejoinder on Jurisdiction of Cl. Rej. 8 February 2018 Cl. Reply Claimant’s Reply of 29 September 2017 iv National Energy Commission (by its Spanish CNE acronym: Comisión Nacional de Energía) DCF Discounted cash flow EC European Commission ECT Energy Charter Treaty EU European Union EUR Euros Expert report of Ernst & Young, entitled ‘Japanese Taxation of Damage Compensation Expert Report of Ernst & Young Japan and Dividends Received from Foreign Subsidiary’ dated 29 September 2017 FET Fair and Equitable Treatment FIT Feed-in tariff Hearing on jurisdiction and merits held on Hearing 18-23 July 2018 Transcript of the Hearing (as revised on 13 Hearing Day [#], [page:line] [(Speaker(s))] February 2019) Convention on the Settlement of Investment ICSID Convention Disputes Between States and Nationals of Other States dated 18 March 1965 International Centre for Settlement of ICSID or the Centre Investment Disputes Renewable Energy Plan of 1989 (by its PER-89 Spanish acronym: Plan de Energías Renovables de 1989) Plan for the Promotion of Renewable Energies PFER 2000-2010 (by its Spanish acronym: Plan de Fomento de Energías Renovables 2000-2010) PPA Power Purchase Agreement(s) R-[#] Respondent’s Exhibit RL-[#] Respondent’s Legal Authority v RAB Regulatory asset-based Administrative record of electricity production facilities (by its Spanish acronym: Registro RAIPRE administrativo de instalaciones de producción de energía eléctrica) RD Royal Decree Royal Decree 1432 of 2002, enacted on 27 RD 1432/2002 December of 2002 Royal Decree 2818 of 1998, enacted on 23 RD 2818/1998 December 1998 Royal Decree 413 of 2004, enacted on 6 June RD 413/2004 2004 Royal Decree 436 of 2004, enacted on 12 RD 436/2004 March 2004 Royal Decree 661 of 2007, enacted on 25 May RD 661/2007 2007 RE Renewable Energies Respondent’s Counter-Memorial of 12 April Resp. C-Mem. 2017 Resp. Rej. Respondent’s Rejoinder of 22 December 2017 RPI Retail price index Expert report of BDO, entitled ‘Expert report duplicating Brattle’s Rebuttal Report: Financial Damages to EURUS’ and ‘Rebuttal Second BDO Expert Report Report: Changes to the Regulation of Wind Installations in Spain Since December 2012’ dated 21 December 2017 SPC Special Purpose Company(ies) Tribunal Arbitral Tribunal constituted on 2 May 2016 vi I. INTRODUCTION AND PARTIES 1. This case concerns a dispute submitted to the International Centre for Settlement of Investment Disputes (‘ICSID’ or the ‘Centre’) on the basis of the Energy Charter Treaty, which entered into force for Spain on 16 April 1998 and for Japan on 21 October 2002 (the ‘ECT’),1 and the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, which entered into force on 14 October 1966 (the ‘ICSID Convention’). 2. The Respondent is the Kingdom of Spain (‘Spain’ or ‘Respondent’). 3. Initially