Spotlight on Investment Arbitration in Spain after the withdrawal of the Energy Charter Treaty

Investment arbitration in the EU faces growing uncertainty as Member States challenge its compatibility with EU law, putting investor protections under strain.

In recent years, investment arbitration within the EU has faced increasing obstacles, from the initiation of new cases to the enforcement of existing awards, often in open tension with the Court of Justice of the European Union (“CJEU”) case law. In this context, the withdrawal of the EU and, in particular, Spain from the Energy Charter Treaty 1994 (“ECT”) as of 28 June 2025 has raised serious doubts about the continued viability of ECT-based protection for energy investors and the future of investment arbitration in Europe. Although Article 47 ECT (the “sunset clause”) was designed to preserve the treaty’s effects for 20 years after withdrawal, its operation in the intra-EU context is now highly contested.

The Komstroy v. Moldova, Judgment by the CJEU of 2 September 2021 (“Komstroy”), has been decisive for the EU’s response, pursuant to which it is denied that Article 26 of the ECT may serve as a legal basis for arbitration proceedings within the European Union, which would, by extension, imply that the sunset clause could not perform that function either.

The EU has accompanied its withdrawal from the ECT with two instruments: the Komstroy Declaration and an inter se agreement.  The inter se agreement has been signed by 26 EU Member States, together with the European Union and Euratom, and sets out how they will apply the ECT among themselves. In particular, the signatories commit that, in intra-EU relations, Article 26 of the ECT can never serve as a basis for investor-State arbitration, and that the sunset clause in Article 47(3) cannot be invoked to keep such arbitration alive after withdrawal. The purpose of this agreement is to ensure consistency with EU law and the CJEU’s case law, notably the Achmea v. Slovakia (“Achmea”) and Komstroy judgments.

Spain plays a pivotal role in this debate, as it has been among the most proactive Member States in driving the withdrawal from the ECT while simultaneously being among the most frequent respondents in ECT-based arbitration. This dual position underscores the tension between the political objective of eliminating intra-EU arbitration and the practical reality of Spain’s repeated involvement in energy investment disputes.

Current Status of Energy Arbitrations Against Spain

Spain’s regulatory overhaul in the renewable energy sector has made it a leading target of investment arbitration. After a period of generous incentives to attract renewable investments, the economic crisis and successive reforms between 2010 and 2014 sharply reduced those benefits, triggering a wave of disputes and at least 28 awards in favour of investors.

Most cases turn on the Fair and Equitable Treatment standard in Article 10 ECT and, secondarily, on indirect expropriation: investors argue that the reforms frustrated their legitimate expectations and severely undermined project profitability. In parallel, Spain has consistently relied on the primacy of EU law (Achmea and Komstroy) to deny the existence of a valid arbitration agreement in intra-EU disputes, but the prevailing line of arbitral awards has rejected this objection, upheld jurisdiction and found Spain internationally liable on the basis that consent to arbitration stems from the ECT as an international treaty, not from EU law.

However, a notable exception is Green Power and SCE v. Spain, administered by the SCC (SCC Arbitration Institute) and decided in an Award dated 16 June 2022, seated in Stockholm. Applying the Swedish Arbitration Act as the law of the seat, the tribunal held that the existence and validity of the arbitration agreement had to be assessed in light of the CJEU’s case law in Achmea and Komstroy, as well as the declarations of the Member States and the European Commission. On that basis, it concluded that Article 26 ECT, insofar as it was intended to be used for arbitration between an investor from one Member State and another Member State, could not be interpreted as a valid offer to arbitrate, as it was incompatible with the autonomy of the EU legal order. Having found that no valid intra-EU arbitration agreement existed, the tribunal upheld Spain’s objection and dismissed the claims for lack of jurisdiction. This award has thus become the most representative example of the still-minority line of decisions that fully embraces the Achmea/Komstroy doctrine.

Impact of Spain’s Withdrawal from the ECT on Present and Future Arbitrations

Regarding arbitrations already initiated, Spain’s withdrawal from the ECT, together with the Komstroy Declaration and the inter se agreement, allows Spain to reinforce its defence by arguing that, from the EU’s perspective, there was never a valid intra-EU offer to arbitrate under Article 26 ECT and that the sunset clause cannot operate within the EU legal order. Arbitral practice, however, suggests that many tribunals are likely to continue asserting jurisdiction, particularly in ICSID (International Centre for Settlement of Investment Disputes) cases or arbitrations seated outside the EU, where CJEU case law is not directly binding.

For future arbitrations based on existing investments, the sunset clause still entails a residual risk for Spain under the international law of treaties, as investors may continue attempting to rely on the ECT for twenty years after withdrawal, especially in extra-EU seats. The EU, for its part, maintains that neither Article 26 nor Article 47(3) of the ECT has direct effect within the EU and that any new arbitration would be incompatible with EU law, thereby making the reaction of arbitral tribunals decisive.

Regarding new investments made after Spain’s and the EU’s withdrawal from the ECT, while for investors in Spain the ECT avenue may result uncertain, other mechanisms arise, such arbitration regarding ESG obligations, and protection from the EU law perspective by the current Investment Court System (“ICS”) which implies a first step towards the creation of a Multilateral Investment Court (“MIC”). By these means, Spain continues to be an attractive location for energy investments, as protection is not exclusively granted by ECT, but by the sum of national regulation and international instruments to which Spain is a party.  

Overall, withdrawal from the ECT does not constitute an immediate end to energy arbitrations against Spain, or imply the lack of protection for investors, but it does represent a substantial change in the rules of the game.

This article was originally published on Daily Jus on Friday 19th of December, with thanks to Jus Mundi & Jus Connect.