European renewable energy investors have been urged to find “alternative means” to protect new investments ahead of the UK and EU’s coordinated withdrawal from a key international energy treaty.
11 EU member states including France, Germany and Italy announced their exit from the Energy Charter Treaty prior to the European Parliament backing the move last month.
The UK government also gave notice of its withdrawal from the ECT in February amid fears it offers too much protection to fossil fuel companies and provides a brake on clean energy policies.
The treaty came into force in over 50 countries in 1998 to offer guarantees to energy investors and compensation for breaching protections on fair treatment and discriminatory measures.
More than 150 arbitration cases have been brought under the ECT including 50 related to fossil fuel investment and the introduction of new laws banning oil and gas exploration and the refusal of licences to operate mines and coal plants.
91 cases have concerned renewable energy investments including a claim made by EP Wind in 2020 that its investment in an 80MW wind farm in the Dobrogea region of Romania had been affected by reforms to the country’s incentive schemes.
The mass withdrawal from the ETC has been sparked by the failure of attempts to modernise the treaty to exclude fossil fuel projects and align it with the 2015 Paris Agreement.
A sunset clause is likely to mean that investments already covered by the ETC will continue to be protected for a further 20 years. However, legal experts have warned that the legal position on new investments will not be the same.
Eversheds Sutherland Partner Wilson Antoon (pictured) said: “Foreign companies operating in the energy sector in the UK and UK energy investors abroad need to properly consider the risks associated with their investments and the measures they can take to maximise their protections under international law.
“They should obtain legal advice to review the protections offered under other treaties and structure their investments carefully at an early stage to secure the best protections and improve their negotiating position.”