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Reducing Regulatory Risks and Preventing Investor-State Conflicts in the Renewable Energy Sector

The Secretariat, together with the World Bank Group, has completed a joint report entitled “Enabling Foreign Direct Investment in the Renewable Energy Sector Reducing Regulatory Risks and Preventing Investor-State Conflicts”.

The report has been extensively peer-reviewed by senior experts of the World Bank Group, the Multilateral Investment Guarantee Agency (MIGA), the International Finance Corporation (IFC), the International Energy Charter Industry Advisory Panel, the Deputy Business Ombudsman of Ukraine and the Energy Commission of Nigeria. It has also received financial support from the Government of the United Kingdom, the European Commission and the African, Caribbean and Pacific Group of States (ACP).

Since 2013, the Energy Charter Secretariat has been actively promoting prevention and amicable resolution of investment disputes and conflicts; and the Energy Charter Conference has endorsed relevant tools such as the Guide on Investment Mediation and the Model Instrument on Management of Investment Disputes (both frequently referred to at international forums such as UNCITRAL). The joint report with the World Bank Group further aims to attract greater attention to the need for dispute avoidance and mitigation in energy projects relevant for energy transition and low-carbon development to enable greater flow of foreign direct investment (FDI).

The Energy Charter Secretariat is expecting to host a webinar on the findings of the report.

About the Report

This report explores political, including regulatory risks, associated with adverse measures affecting foreign investors in the sector of renewable power generation, the prevalence of investment disputes caused by such risks, and policy options and mechanisms for governments to prevent the disputes.

It is submitted that FDI remains an important source of financing of renewable power generation facilities. With acceleration of energy transition and low-carbon development, attracting and retaining high levels of FDI in the renewable energy sector becomes crucial for achieving developmental goals. 
However, disputes arise between investors and host countries in the course of planning and implementation of the renewable energy projects, and the parties may take recourse under international investment agreements and contracts. The disputes may lead to significant monetary losses for both of the parties as well as to delay, cancellation or withdrawal of investment projects.

In studying different types of disputes and conflicts in renewable power generation, the report identifies that most common adverse measure challenged by investors in arbitral proceedings is regulatory changes, predominantly in the form of reductions and phase-out of incentive programmes.

The report further identifies that while there are no specific mechanisms developed to prevent and mitigate disputes in the renewable power generation sector, there are certain  legal instruments and tools on international, national and contractual levels to avoid and mitigate conflicts between foreign investors and host states.

Building upon the analysis of investor-state disputes and existing mechanisms and tools for dispute avoidance and mitigation, the report suggests possible option state can implement to address investor conflicts and ultimately prevent investor-state disputes specifically in the renewable energy sector.

“[W]e commend the IEC [International Energy Charter] for the review, which would serve as a source of veritable information on preventing disputes during investment in Renewable Energy for production of electricity, biofuels and heat”, Prof. Eli Jidere Bala, Director General, Energy Commission of Nigeria.