Renewable Energy in a Political and Legal Maze

Spain is one such country, but because it designed its policy to incentivize the development of renewables imperfectly—against a backdrop of growing institutional complexity—it has found itself embroiled for nearly 20 years in a global financial storm with no end in sight. This experience offers useful lessons on the challenges of regulation within a legal framework that is becoming increasingly complex due to the multiplicity of energy policy objectives and the instruments deployed to achieve them, not to mention the number and nationalities of the stakeholders involved.

The Facts, 2007–2026

Even when simplified as much as possible, the history of the Spanish case shows just how fragile contractual, financial, and regulatory commitments can be.

On May 25, 2007, the Zapatero administration (PSOE—Socialists) adopted a tariff framework designed to promote the profitability of renewable energy in order to accelerate the country’s energy transition. Under certain conditions, incentives guaranteed investors a minimum return of approximately 7%. The impact was significant: between 2007 and 2012, the installation of 19,000 MW of renewable energy made Spain an international leader.

However, due to the 2008 financial crisis, the electricity sector ran a deficit, leading that same government to reduce the amount of incentives in 2010. As the fiscal constraints resulting from the crisis persisted, the subsequent government (Rajoy, PP—conservatives) eliminated subsidies for facilities commissioned after 2012. Between 2013 and 2014, these were replaced by a “reasonable rate of return” indexed to government bonds. However, this resulted in a reduction in the financial incentives enjoyed by ongoing projects—in some cases by 40% of a return initially projected to be between 13% and 30%.

Beginning in 2015, some investors filed lawsuits with the Spanish Supreme Court seeking compensation for the amounts promised under the old regulations but not paid under the new framework. However, the Court held that this new regime did not constitute an expropriation of property rights acquired under the previous regulations. The affected companies then turned to international arbitration tribunals: 29 claims were filed with the International Centre for Settlement of Investment Disputes (ICSID), affiliated with the World Bank.

In May 2017, ICSID dealt Spain its first setback by ordering it to pay 128 million euros, plus interest, to the British company Eiser Infrastructure and the Luxembourg-based company Energía Solar. However, in November of that same year, the European Commission expressed its support for the Spanish government, ruling that the proceedings initiated by investors from other EU member states were contrary to EU law.

In February 2018, the Stockholm Chamber of Commerce ruled that Spain must pay 53 million euros to the company NovEnergia, arguing that, in the case of a complaint filed by an international investor, the matter involves not only EU law but also public international law, and therefore this type of dispute does not fall under the exclusive jurisdiction of the European Commission (EC).

In April 2019, Spain referred the matter to the EC following the ICSID’s decision ordering it to pay 101 million euros in compensation to the Luxembourg-based company Antin. The Commission launched an investigation and concluded that this arbitral award constituted “illegal state aid,” and was therefore contrary to EU regulations. Consequently, if Spain pays the compensation set by the award, it will be in violation of these regulations. Brussels therefore ordered Spain not to pay the 101 million euros and to ensure that there is no further payment, enforcement, or implementation of the arbitral award.

Amid this flood of conflicting decisions, we should also mention the U.S. Court of Appeals for the District of Columbia, which, in 2024, upheld the validity of three arbitral awards rendered against Spain, totaling approximately $395 million (the companies Nextera, 9REN, and AES Solar, whose interests were acquired by the Blasket Renewable Investments fund), a sum that Spain refuses to pay.

To conclude (for now) this list, it should be noted that the Sánchez (PSOE) government paid $36 million in compensation in 2025 to the U.S. fund Blasket, which had acquired the recovery rights from the original investor, the Japanese company JGC, and that, in July 2026, the European Commission announced the opening of an investigation aimed at confirming its preliminary analysis that this payment is illegal because it constitutes state aid that does not comply with Article 107 of the Treaty on the Functioning of the European Union.

The Source of the Dispute

The various parties refer to different legal frameworks against a backdrop of shifting priorities. The legal basis used by foreign investors to resort to international arbitration proceedings is the Energy Charter Treaty (ECT), an international agreement signed in 1994 that regulates and protects investments in the energy sector.

Although recognized by international arbitration tribunals, this treaty has been formally contested in Europe since 2017 because its dispute-resolution mechanism allows operators and investors to challenge, before arbitration tribunals, the political decisions necessary for actively managing the energy transition. The ECT allows private interests to prevail at the expense of governments’ new collective concerns. This explains why, since 2016, several European countries have withdrawn from it: Italy (2016), Germany (2023), France (2023), Spain (2024), and the United Kingdom (2025). The European Union and Euratom did the same in 2025.

The Limits of National Energy Regulation

The turmoil engulfing Spain and its energy sector is affecting other sectors as well, particularly social media, which is suffering from disagreements between the United States and Europe. These conflicts highlight (at least) two limitations of economic regulation that have long been the subject of academic research.

The first is temporal: Are regulators’ commitments credible, particularly in an unstable economic and geopolitical context? If a regulator can easily renege on its commitments without compensating the parties penalized by the change, most companies will hesitate to make sunk investments. In the literature on regulation, this issue is known as the hold-up risk (J.J. Laffont and J. Tirole, A Theory of Incentives in Procurement and Regulation, 1993). In any contractual relationship, a party’s refusal to pay the promised sums is profitable in the short term but catastrophic in the long term, given the loss of credibility it entails for that party.

The second limitation is linked to the difficulty of identifying the regulator's specific areas of jurisdiction when transactions are poorly regulated, particularly because they involve actors with diverse legal and political horizons. On the one hand, regulation must adapt to changes in the societal obligations of political authorities, particularly with regard to climate change. On the other hand, investors and operators do not negotiate adjustments to changes in legal frameworks with a single, monolithic entity—“the regulator.” They do so with a set of distinct public bodies, both national and international, each with its own legitimacy and its own regulatory tools.

References to treaties recognized by some but not by others, along with the influence of economic and political pressure groups, transform the basic dynamics of regulation. Whereas it was once sufficient to rely on a model involving only a single supreme authority (the principal) responsible for overseeing the activities of a firm (the agent), it is now necessary to anchor practical regulatory recommendations in far more complex theoretical models involving multiple layers of regulators—some complementary, others competing—that compel private or public companies to comply with potentially contradictory requirements.

This increased complexity and the need for adjustments over time were not sufficiently taken into account by the drafters of national and international legal frameworks for the energy sector at a pivotal moment for the industry, which increases sources of uncertainty rather than contributing to a reassuring and equitable transition for all parties involved.

The setbacks facing renewables are likely to persist

The current patchwork is based on the idea that conflicts between legal norms must be resolved through their hierarchy. At the international level, only treaties can guarantee this hierarchy, which requires a minimum of consistency among the signatories’ viewpoints and, of course, that states honor their commitments. It is also crucial that they agree on transition rules when sectoral priorities shift. If these conditions are not met, or if signatories can withdraw from a treaty without a transition mechanism that is fair to all stakeholders, international commitments lack credibility.

In the case of renewable energy subsidies, the failure of the negotiations to update the ECT—initiated in 2017—is also linked to ideological differences. For some investors (and their home countries), private interests take priority. For others (the governments of countries receiving investments and the European Commission), the collective interest must be prioritized. The challenge is to reconcile these two visions through transitional mechanisms. In the current geopolitical context, achieving this reconciliation will not be easy. Yet the situation is urgent, as the same problem is already spreading to other essential sectors, such as the regulation of artificial intelligence and that of the pharmaceutical industry.

Op-ed originally published in La Tribune on October 13, 2026: “Renewable Energy in a Political and Legal Maze.”