Dutch court denies RWE and Uniper compensation for closure of coal plants

Western European countries have taken divergent approaches to dealing with the consequences of shutting down ability plants while transitioning towards cleaner energy sources. On ane side, Germany resolved the resulting compensation disputes by making settlement payments to the owners of affected nuclear
and coal
power plants. In contrast, kingdom of the netherlands appears reluctant to similarly recoup affected power plant owners, which resulted in claims. This contribution focusses on the latter; specifically, the Netherlands’ coal phase-out legislation and, in turn, the resulting ICSID arbitrations commenced past RWE and Uniper.

The Paris Agreement
on climatic change led the Netherlands to adopt the Police force Prohibiting the apply of Coal with the Product of Electricity
in 2019. The law affects holland’ v coal-fueled ability plants past prohibiting them from generating electricity through the use of coal. The prohibition is divided into three categories.

Commencement, every bit from 1 Jan 2020, inefficient coal plants (i) with an electrical efficiency rate lower than 44%; (ii) that cannot produce any renewable energy through biomass; and (iii) that don’t produce any renewable heat, are prohibited.

Secondly, as from 1 January 2025, inefficient coal plants (i) with an electrical efficiency rate lower than 44%; (two) that can produce renewable free energy through biomass; and (iii) that can produce renewable heat, will be prohibited.

Thirdly, as from 1 January 2030, all coal plants will be prohibited.

The oldest of the five bear on plants is owned by Vattenfall and was commissioned in 1994. The iv remaining plants are endemic past RWE (who owns one establish required to be shut down by 2025 and 1 plant required to be shut down past 2030), and Uniper and Onyx (who both own plants required to exist shut down past 2030). The three plants required to be shut down in 2030 were commissioned in 2015 and 2016 respectively, afterwards having received the necessary governmental permits and in role built at the specific asking of the netherlands in 2004
to ensure continuity in the power supply during the country’s energy transition. At the time, the Minister of Economical Affairs explained to Parliament
that newer more efficient coal plants would be important in the transition towards renewables, in office due to the limited agin ecology furnishings that such plants would crusade.

With regards to compensation, the Netherlands agreed In 2019 to pay Vattenfall EUR 52.5 million in bounty to close the oldest plant (and therefore, the establish with the shortest remaining lifespan) past 2020. That payment was subject to state-aid investigations, just as payments made by Federal republic of germany for its coal
phase-out. The European Commission finally authorized the payment to Vattenfall as can be read here.

As for the remaining four plants, it is believed that holland is currently in negotiations with Onyx regarding bounty for one constitute, but has refused to compensate RWE and Uniper for the remaining three plants, resulting in diverse legal proceedings.

RWE commenced ICSID arbitration
on ii Feb 2021 and Uniper commenced ICSID arbitration
on xxx April 2021. Uniper and RWE also commenced court proceedings (presumably one procedure per power found, every bit reported to the Netherlands Parliament). In response to the commencement of the ICSID arbitrations, kingdom of the netherlands initiated two anti-arbitration injunctions (1 against RWE and one confronting Uniper) before the German courts to block the ICSID arbitrations to keep. The basis for these injunctions, which can exist distilled from correspondence to the netherlands Parliament, would exist that the arbitration agreement in the Free energy Charter Treaty cannot be given consequence due to the incompatibility of the Free energy Charter Treaty with EU police force in intra-EU investment protection matters. The German anti-arbitration injunctions are reported separately on Kluwer Arbitration Weblog.

Should the German anti-arbitration injunctions be unsuccessful, the fundamental problems in the ICSID arbitrations would include:

  • jurisdictional objections arising out of the alleged incompatibility of the Energy Charter Treaty with EU law in low-cal of the ECJ judgment in the Achmea matter; and
  • a Land’southward correct to regulate to achieve climatic change goals.

RWE and Uniper’southward claims

RWE and Uniper made their position known in the public consultation process in advance of the police force being adopted. They argued that the law would not accordingly take into account the interests of ability establish owners as these would not be compensated accordingly for the inability to operate their ability plants in an undisturbed style until the stop of their lifespan.

RWE
said that the constabulary would cause unequal amercement in view of the economic lifespans exceeding 2040 (for the plant required to exist close downwards by 2025) and 2055 (for the plant required to exist shut down by 2030). The latest constitute commissioned cost RWE an investment of EUR 3.2 billion. If the plants would exist shut downwards earlier the cease of each plant’s economical lifespan, appropriate compensation would accept to be paid as the 2025 and 2030 phase-out deadlines would not be sufficient to recover the investments made. RWE likewise said that it built one of the plants at the specific request of holland. While the constabulary would not prohibit some other employ of the plants from 2025 and 2030, RWE believes
that it cannot make the plants profitable using another fuel blazon.

Uniper
also said that information technology should receive appropriate compensation and that the police force provides an imbalance betwixt climate goals and the rights of plant owners. Uniper believes that it had legitimate expectations to rely on the policies of the Netherlands when it took the investment determination (before the Paris Agreement was concluded), particularly since the netherlands repeatedly stressed the importance of coal plants in the energy transition. The coal stage-out was non foreseeable and an appropriate compensation machinery is missing. See likewise Uniper’s 16 Apr 2021 press release.

The position of kingdom of the netherlands

In the past, the Netherlands said that “the EU must respect international law in the do of its power, in particular with respect to the termination and suspension of international treaties”. That statement
was made in 2010 when it intervened as an amicus in the Achmea / Slovak Republic
arbitration. Kingdom of the netherlands at the time confirmed that it was working towards “a practical solution that … secures … the protection of investors in the European Union”.

Since 2010 circumstances have changed considering of the 2018 ECJ conclusion
in the Achmea matter; and the 2019 joint declaration
of more than 20 EU member States (including kingdom of the netherlands and Germany) in relation to the consequences of the ECJ conclusion on intra-European union investment protection instruments.

The government’southward position is that information technology cannot be held to arbitrate intra-European union investment protection disputes. This, it believes, is justifiable as it is established EU law that mediation clauses in investment protection instruments governing intra-Eu investments cannot exist given upshot. In an caption to parliament, the Minister of Economy and Climate said that the analysis in relation to intra-European union Flake’s would equally apply to arbitrations based on a multilateral musical instrument such every bit the Energy Charter Treaty. No position is taken on the decisions that reject the Achmea-objections, the latest being the 30 July 2021 Infrastructure Services Luxembourg ICSID annulment committee decision that reports 56 tribunal decisions having rejected the Achmea-objections.

The jurisdiction of the ICSID tribunals volition be heavily contested, both in and outside of the arbitrations, equally evidenced by:

  1. the German anti-arbitration injunctions having been commenced; and
  2. the contents of the minister’south letters to parliament.

Holland shed some light on its claim defences of the claims of RWE and Uniper. Before the ICSID arbitrations commenced, the minister updated parliament
in relation to the modernization discussions relating to the Energy Charter Treaty and the importance of u.s.’ right to regulate, especially in view of
inter alia
reaching climate goals. The Netherlands seems to invoke the right to regulate equally a reason to exculpate itself. In letters to parliament in relation to both the RWE
and the Uniper
mediation, it says that in its view, the adopted law takes into business relationship the netherlands’ international and European law obligations. Plant owners should not take expected that the government would not impose measures to significantly reduce carbon emissions given long term developments. How this tin be reconciled with the government’south asking to build more efficient coal plants and its repeated emphasis on the importance of more efficient coal plants in the energy transition is unclear.

As the police force does not prohibit the plants from being repurposed, they may be able to be used to generate power with alternative fuels or be used for a purpose other than power generation. The coal phase-out would further be appropriately long-term structured to let power plant owners a (sufficient) return on investment.

NGO perspective on the profitability of the power plants

If the ICSID arbitrations keep into a merits stage, the Netherlands may contend that RWE and Uniper do not suffer (textile) damages. Inquiry
from the NGO’s IEEFA, Ember and Somo indicates that RWE and Uniper already devaluated their plants years before 2019 when the law on coal prohibition was adopted.

According to the research, the cause of the devaluations did not relate to the Land-ordered coal phase-out, just rather is attributable to the uncompetitive economics of the exploitation of coal plants through rising carbon prices and cheaper renewable energy.

While kingdom of the netherlands has not yet forwarded these arguments, there is little dubiety that information technology would stay clear from advancing these at the appropriate fourth dimension.

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Source: http://arbitrationblog.kluwerarbitration.com/2021/08/24/the-netherlands-coal-phase-out-and-the-resulting-rwe-and-uniper-icsid-arbitrations/

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