Revisiting the Concept of Legitimate Expectations in Renewable Energy Treaty Cases

The past decade has seen a significantly increased level of foreign investment as a result of international initiatives on the development of alternative energy sources. The renewable energy sector often depends on significant up- front investments, which can only be recouped over a long period. Given the substantial initial capital investment required, many countries have implemented government subsidies and support schemes to encourage investments in renewable energy. For different reasons, some countries have recently decided to change or eliminate those incentives, triggering a wave of arbitral proceedings. These disputes raise fundamental questions, particularly concerning the need for investment protection, on the one hand, and the host State’s right to regulate, on the other. This article provides an overview of the evolution of the concept of legitimate expectations in renewable energy cases, which covers (1) the traditional approach giving rise to legitimate expectations, reflecting contractual arrangements and specific commitments or representations made by States, and (2) the modern approach where legitimate expectations may arise under a general domestic regulatory or legislative framework aimed to attract investments, and from investors’ expectations to obtain a ‘reasonable rate of return’ on their investments.