Energy Charter Treaty — Failure to Modernize and What to Expect?

On 22 November 2022, the Contracting Parties to the Energy Charter Treaty failed to reach an agreement on the adoption of the modernized text of the Treaty. What does that mean for renewable energy investors?

In my earlier post, I identified the main points of the modernization process of the Energy Charter Treaty (“ECT” or “Treaty”) that relate to renewable energy investments. I also outlined the implications of the announced withdrawal from the ECT by several European Countries. At the moment such countries include Belgium, France, Germany, the Netherlands, Poland, Slovenia, and Spain. Germany also announced its intention to abandon the ECT modernization process.

On 24 November 2022, the European Parliament adopted a resolution calling on the European Commission and the Member States to start preparing a coordinated exit from the ECT and an agreement excluding the application of the sunset clause between willing Contracting Parties. Whether such agreement to exclude sunset clause would be effective remains to be seen.

In the meantime, Article 47(3), containing the sunset clause, extends the protections of the ECT to qualifying renewable energy investors for 20 years after the respective Contracting Party withdraws from the Treaty. Moreover, any withdrawal from the ECT takes effect one year after the ECT Depositary receives notification of withdrawal from the respective withdrawing State.

Therefore, assuming the notification reaches the Depositary on 1 January 2023, the withdrawal would come into force on 1 January 2024. Qualifying investors from or to the withdrawing ECT Contracting Party who have already made or will make their investments within a year after the notification is received, i.e., by 1 January 2024, are expected to enjoy ECT protections for the next 20 years, i.e., until 1 January 2044.

As I mentioned in my previous post, a prudent strategy at this time is to revisit the structure of your renewable energy investment to ensure its protection under international law. Structuring or restructuring of foreign investments before a dispute has arisen is generally permitted under international law. Certain caveats, however, apply. It is therefore advisable to consult with a qualified attorney before such (re)structuring is initiated.