Foreign investors in Scotland’s renewable energy sector could launch multi-million pound compensation claims against the UK government over the ending of subsidies for new onshore wind farms, legal experts believe.
Trade body Scottish Renewables has already predicted the axing of the Renewables Obligation support mechanism for new projects could result in the loss of £3 billion of investment in the sector.
Energy Secretary Amber Rudd is proposing that projects which have already secured planning consent, grid connection acceptance and land rights, should be allowed a grace period which would entitle them to support up to the original deadline.
But Pinsent Masons’ dispute resolution expert, John Gilbert, believes some investors in projects which fall outside that grace period will be looking at the potential for multi-million pound compensation claims under the Energy Charter Treaty (ECT).
The ECT was introduced to protect the transmission of energy in Europe and allows investors to file claims against states for violation of their protections under the ECT. Spain, the Czech Republic and Italy are facing similar compensation battles after subsidy legislation was changed.
“European investors, and German companies in particular, have invested many millions in to Scotland’s renewable sector in the belief that it was a safe investment with limited risk,” said Gilbert.
“Under the ECT, investors can’t challenge the government’s decision on subsidies, but they may have a good case for seeking damages on the basis that their investments have been undermined and devalued.”
Gilbert said the government seemed “desperately keen” to avoid compensation claims under investment treaties and that was one of the reasons for introducing the grace period.
“But I suspect investors who have ploughed significant sums into these projects will be looking to maximise the full protections offered under the ECT,” he warned.
“If foreign investors take up cudgels through the arbitration process it is not only the potential financial pay-outs which should concern the government but also the loss of face and damage to the UK’s reputation as a stable and safe home for investments that goes with that.”
According to Scottish Renewables, an estimated £702 million of capital investment was made in onshore wind in Scotland last year.
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