Spanish tariff victories are important, but ultimately Pyrrhic

Antin is the latest foreign investor to win compensation for the country’s retroactive renewable subsidy cuts – however, the sums are minor compared with the savings netted.

In the current climate, with the US unilaterally pulling back from the Paris Agreement and the UK extracting itself from the European Union, it’s hard to recall the shock to the system Spain delivered in 2010-14, when it implemented a series of unprecedented retroactive cuts to its renewable tariffs.

Earlier this month, we got a reminder of those bad old days when law firm Allen & Overy announced it had secured €112 million in compensation for one of its clients, French fund manager Antin Infrastructure Partners, with the International Centre for Settlement of Investment Disputes.

The award is not a home run for Antin, considering it was seeking €218 million in damages, but it goes some way to mitigating the €148 million in lost cashflows inflicted on its Andasol concentrated Spanish solar plants by the government’s retroactive cuts.

Together with the proceeds from offloading the CSP plants to Cubico last year, Antin probably ended up making money from its investments – even if the return may have fallen short of its original target. What it certainly didn’t bank on was to find itself in this situation, as is apparent from the ICSID ruling.

With hindsight, it’s tempting to look at Antin’s decision to invest in the Spanish CSP sector after the government had already implemented retroactive cuts in solar PV and ask why the manager thought it had found a safe corner in what otherwise looked like a burning house. But, of course, that’s the blessing hindsight affords.

What is evident from the ICSID ruling is that Antin didn’t make its decision breezily or skimp on the due diligence. Yes – and, again, with hindsight – one could perhaps fault it for placing a little too much faith on the sector’s purported lobbying power. “A key reason for this [CSP not being affected by retroactive cuts] is the involvement of large Spanish corporates in the sector and their lobby power with the government,” Antin said in an April 2011 investment committee.

But at every step of the way, Antin obtained comfort from advisors Herbert Smith and Poyry, as well as Spanish government representatives (not to mention Spanish law) that the CSP sector would be insulated from the government’s retroactive cuts, despite the country’s gaping electricity tariff deficit. As it turns out, it was not.

That it clearly did its homework and that it then went to battle to claim what it was rightfully due has generated positive comments from at least one of its LPs, with Kasper Struve, a director of private investments at Denmark’s Industriens Pension, telling us: “It shows the benefits of having a capable GP with enough resources to fight back against unjustified and retroactive tariff cuts.”

But before the industry starts patting itself a little too enthusiastically on its collective back, this and other legal victories against Spain – while important – are ultimately Pyrrhic. And as much as we’d like to say these compensation awards are a clear example of crime not paying, in Spain’s case, the moral of the story is that it does.

That’s because, as sources have told us, the compensation Spain has been ordered to pay thus far is easily overshadowed by the savings it netted due to the retroactive cuts. Also, as the country has found out following the success of recent renewables auctions, given enough time, investors will return. From a politician’s point of view, it’s hard not to see Spain’s gambit as a success.

The latter is important because it sends a (bad) message to other governments and politicians toying with the idea of implementing retroactive cuts – or, like the opposition Labour Party in the UK, going nuclear and nationalising infrastructure investors’ assets.

Can investors do anything about it? At the very least, they should really price in the possibility that they can do little.