Introduction
Can governments change renewable energy incentives after investors have committed? This question is central to Cases C-798/18 and C-799/18, where the ECJ ruled that while Member States have discretion to modify support schemes, such changes must align with EU law and maintain a balance between regulatory flexibility and investor confidence. This is not the first time Italy’s modifications to feed-in tariff (FIT) schemes have been challenged. Investors argue that such changes undermine legal certainty and legitimate expectations, while States contend that evolving market conditions and technological advancements necessitate policy adjustments. By examining this case alongside similar disputes in other EU member-states, this case note explores whether the Court’s decision provides adequate safeguards against arbitrary policy shifts while allowing governments to adapt to a rapidly changing energy landscape.
Factual Background
To support Europe’s goal of shifting to clean energy, the Italian parliament gradually introduced policies to boost renewable energy. As a result, over the past 20 years, Italy has become a leading hub for solar panel production in Europe[1]. This scenario is driven by favorable policies and financial incentives made by the Italian government[2], particularly through the implementation of feed-in tariffs (FITs), which offer long-term guarantees of payments to producers of renewable energy. This makes investments in solar photovoltaic energy more attractive, considering the high initial costs of new energy infrastructure and the long-term amortization, especially given the unpredictable nature of renewable energy production.
Despite the success in boosting renewable energy production, the FITs system faced criticism for its high costs. As renewable energy capacity increased, the rising cost of these guaranteed payments was passed on to end-users of electricity, particularly small and medium-sized enterprises (SMEs)[3], through a significant increase in electricity bills. The Italian government justified the amendments introduced by Decree-Law No. 91/2014 as necessary to reduce the economic burden on consumers, especially during a period of economic crisis, and since the country had already exceeded its renewable energy targets for which the support schemes were initially designed[4]. The decree replaced the existing framework and restructured the incentive scheme by reducing or delaying payments and altering the original terms of the agreements, which had been more favorable to energy producers.
In this situation, Italian private energy companies had signed 20-year agreements with the public company Gestori dei Servizi Energetici (GSE) SpA, which is controlled by the Italian Ministry of Economy and Finance. These agreements allowed them to receive financial incentives (FITs) for promoting solar energy under the previous rules. However, when a new decree changed the terms, they were put at a disadvantage and argued that the decree was unfair because they had already borne the full costs for building and setting up their solar installations, which had been used to determine the incentive amounts. As a result, in 2018, ANIE (which represents companies in the renewable energy sector and whose goal is to protect this industry), Athesia Energy Srl and other parties owning photovoltaic installations with capacities exceeding 200 kW across various locations in Italy[5], challenged these changes before the Tribunale Amministrativo Regionale per il Lazio (the Italian National Court), arguing that they undermined their rights and expectations under the agreements, violating EU principles such as legal certainty and the protection of legitimate expectations. In December of the same year, the National Court referred the case to the Court of Justice to clarify the compatibility of the Decree with EU law.
Legal Background
The FITs schemes were designed to align with EU directives, including Directive 2009/28/EC, which aims to promote the use of energy from renewable sources (Article 1) and encourages Member States, under Article 3(3)(a), to implement predictable and stable support mechanisms for investments to achieve this goal. To implement these objectives, Italy introduced a series of legislative frameworks, including Decree-Law No. 387/2003 and Decree No. 28/2011. These laws established an incentive scheme for solar photovoltaic energy production in Italy, encouraging private-sector participation by guaranteeing fixed returns on investments for up to 20 years.
Thus, the government’s response to the rising energy costs was the enactment of Decree-Law No. 91/2014, which replaced the existing framework and, primarily through Article 26(2) and (3), restructured previously agreed-upon feed-in tariffs. In the case under consideration, brought by the affected energy companies before the domestic court, the Tribunale Ammistrativo Regionale per il Lazio referred a preliminary ruling to the ECJ. This emerged from two questions regarding the compatibility of such an alteration with EU law, as set out below:
1. “Does EU law preclude the application of a provision of national law, such as that in Article 26(2) and (3) of [Decree-Law No 91/2014], which significantly reduces or delays the payment of incentives already granted by law and defined on the basis of corresponding agreements concluded by undertakings generating electrical energy by means of photovoltaic conversion with [GSE], a public company responsible for that process?”
2. “In particular, is that provision of national law compatible with the general principles of EU law relating to legitimate expectation, legal certainty, sincere cooperation and effectiveness, with Articles 16 and 17 of the [Charter], with Directive [2009/28] and with the rules governing support schemes laid down in that directive, and with Article 216(2) TFEU, in particular in relation to the [Energy Charter]?”[6]
Legal Rationale
In addressing the first referred question regarding the foreseeability of the change, the ECJ adopted a literal interpretation of Article 3(3)(a) of Directive 2009/28 (RED I). By highlighting the term ‘may’ in the provision, the Court indicates that Member States are not obliged to implement such schemes, but retain discretion to adopt, modify, or abolish support measures, tailoring them to their renewable energy potential and ensuring that they meet the directive’s binding targets[7]. Thus, in light of settled case-law[8], the ECJ concluded that Article 3(3)(a) of Directive 2009/28 does not prohibit the reform introduced by the Italian government, such as Article 26(2) and (3) of Decree-Law No 91/2014[9].
Secondly, the ECJ stated that the wording of Article 7(2)(d) Decree-Law No. 387/2003 already provided that the incentives granted should correspond to a decreasing amount, set for a specified period of time. According to paragraphs 29 and 30 of the case law Agrenergy and Fusignano Due, the principle of legal certainty requires that legal rules be clear and precise[10]. Thus, it can be said in this case that a prudent and circumspect economic operator had no basis for invoking legitimate expectations regarding the benefit remaining unchanged[11].
Moreover, Article 24(2)(d) of Legislative Decree No. 28/2011 provides that the state-owned enterprise had the unilateral right to modify or even withdraw the terms of the contracts to reflect legislative changes, making such adjustments foreseeable for the operators[12]. Thus, by interpreting these provisions, both the ECJ and the Advocate General[13] concluded that they ensured legal certainty and defined the limits of legitimate expectations. However, the Court holds that it is for the referring court to also assess whether the national regulation complies with the principles in question, as under Article 267 TFEU, the Court’s jurisdiction is limited to providing interpretative criteria of EU law to assist in determining compatibility.
Turning to the second referred question, the Court analyzed Article 16 of the Charter and clarified the scope of the freedom to conduct a business, highlighting that economic activities may be subject to various interventions by public authorities, which can impose restrictions in the name of public interest[14]. Furthermore, because it concerns a contractual model drawn up by only one contracting party, ‘freedom of contract’ essentially consists[15] of deciding whether or not to accept the terms of the contract and with whom to enter into an agreement[16]. Thus, the Court concluded that, when they decided to enter into the contracts, the parties were aware that these did not guarantee that the tariffs would remain unchanged; on the contrary, it is explicitly stated that the tariff amounts depend on the applicable national legislation authorizing their payment.
Regarding the compatibility with Article 17 of the Charter (right to property), precedents[17] clarified that the protection provided by this provision is not intended to cover mere commercial interests or opportunities, but rather a tangible asset from which it derives. Considering this, the Court considered whether the incentives for the production of photovoltaic energy could be regarded as an ‘asset value’[18]. According to settled case-law[19], future income cannot be considered to constitute ‘possessions’ that are protected under Article 17 of the Charter unless it has already been earned, it is definitely payable, or there are specific circumstances that can cause the person concerned to entertain a legitimate expectation of obtaining an asset[20]. In this case, this condition is not verified, because the incentives are predicted but have not yet fallen due.
Finally, on the question of whether Article 10(1) of the Energy Charter Treaty (ECT) and Article 216(2) TFEU were violated, the ECJ concluded that the obligations of equitable, stable, favourable and fair conditions only apply to investors of other contracting parties. Since both parties in the case are from the same country, the case falls outside the scope of this article, and the Court determined that further examination was unnecessary[21]. In conclusion, the Court ruled that, without prejudice to the evaluations to be conducted by the referring court, the Decree-Law No 91/2014 is compatible with both the Charter and the ECT.
Critical Assessment
The ECJ ruling in Cases C-798/18 and C-799/18 reaffirmed that Member States retain significant discretion in modifying support schemes, provided such changes align with the objectives of Directive 2009/28/EC. Notably, this is not the first time that the Italian Administrative Court has brought to the European Court questions raised by Italian operators regarding the unpredictability of changes to FIT schemes for photovoltaic energy production. A slightly earlier ruling in Agrenergy Srl and Fusignano Due Srl[22] pointed in the same direction, reflecting the Court’s consistent stance that changes to renewable energy support schemes lack a solid foundation for legal claims under EU law.
These changes happen because, as demonstrated by several cases, feed-in tariffs fail to promote competition and efficiency once renewable technologies reach a certain level of maturity[23]. This issue is particularly evident in Italy, where photovoltaic systems are reaching grid parity. For this reason, as emphasized by the Advocate General’s opinion[24] the purpose of Decree-Law No. 91/2014 is a response to this failure and, in essence, seeks to relaunch the competitiveness of the national electricity production system, redistributing the overall costs of this system and placing a heavier burden on photovoltaic plant operators. The Court has thus sought to strike a balance between sustaining the renewable energy market and safeguarding long-term financial viability, particularly for end consumers.
Despite this, there has been considerable criticism of the discretionary power granted to national authorities, as it allows policy changes that could be unjustified and potentially deter long-term investments in the renewable energy sector. A clear example of this is the “Spanish renewables saga”[25], where retroactive changes to the photovoltaic incentive regime effectively dismantled the feed-in tariff system. These abrupt and unforeseen measures significantly affected the profitability of solar plants, eroding the confidence of both domestic and foreign investors. In these cases, the Arbitral Tribunal ruled in favor of the claimants, recognizing that the drastic retroactive changes violated investors’ legitimate expectations and created legal uncertainty. The ruling underscored the necessity of consistency and proportionality in regulatory measures, ensuring that policy shifts balance public interests with investor protections[26].
This type of claim has emerged in various jurisdictions. For instance, in the Czech Republic, the case of Antaris Solar GmbH and Dr. Michael Göde v. Czech Republic[27] addressed the abolition of incentives for photovoltaic plants exceeding a certain capacity. The tribunal applied a three-stage test from Micula v. Romania[28] to assess whether investors’ expectations were frustrated: (1) whether there was a specific promise of stability, (2) whether it was essential to their investments, and (3) whether it was reasonable for investors to rely on it. The claimants’ failure to exercise due diligence weakened their argument, and when combined with the public interest behind the measures, it led to the dismissal of their claims.
From these cases, it is evident that the balance between state interests and investor expectations hinges on consistency, responsible governance, and respect for proportionality. In the Italian context, predictability was upheld as gradual reductions had already taken place before Decree-Law No. 91/2014, demonstrating a pattern of regulatory evolution rather than abrupt change. The authorities also ensured proportionality by offering photovoltaic operators various options (Article 26(3) of Decree-Law No. 91/2014) and compensatory measures, such as improved access to bank loans[29], mitigating negative impacts. As such, the modifications were neither arbitrary nor excessive.
In light of this, the Court’s most recent case law reflects progress in safeguards against arbitrary policy changes in its reasoning, emphasizing that while changes in incentive schemes can occur, they must be justified by the need to ensure the long-term functioning of energy markets and promote the growth of renewable energy consumption[30]. This was evident in the Court’s decision in GSE v Erg Eolica Ginestra Srl and Others, where the ECJ appropriately concluded that while individuals cannot expect policy regimes to remain unchanged, retroactive changes must be proportionate, ensuring that Member States cannot arbitrarily impose restrictions without justification, otherwise it creates an environment of legal uncertainty. Unlike in Case C-798/18, prior legislation had not explicitly indicated the incentives at stake (which replaced the green certificate scheme) could be modified or withdrawn. This case exemplifies a situation where arbitrary intervention led to a violation of plant operators’ legitimate expectations.
It is clear that the Court of Justice has increasingly focused on protecting investor confidence in the energy market, ensuring that policy changes are fair, proportionate, and balanced, fostering a legitimate expectation of “consistency” rather than “stability”, and ensuring a measured balance between state sovereignty in policymaking and investor protection.
Conclusion
The ruling in Cases C-798/18 and C-799/18 favored the Italian State, finding no violation of EU law principles. However, investor concerns over policy changes persist, prompting the Court to emphasize stronger justifications for such modifications. While regulatory adjustments are necessary to reflect technological progress and economic realities, the burden of unpredictability should be shared between the State and private entities. Investor expectations must therefore be interpreted restrictively, ensuring a balanced approach that fosters continued investment in renewable energy while allowing governments the flexibility to adapt support schemes in line with evolving market conditions.
[1] European Investment Bank (January, 2024). Italy: Europe’s biggest solar gigafactory 3Sun secures €560
million financing from EIB and pool of Italian banks led by UniCredit and backed by SACE. https://www.eib.org/en/press/all/2024-020-europe-s-biggest-solar-gigafactory-3sun-secures-eur560-million-financing-from-eib-and-pool-of-italian-banks-led-by-unicredit-and-backed-by-sace
[2] Energy (EC), (December 2019). Integrated National Energy and Climate Plan. This plan has propelled the growth of solar (pp.295). https://energy.ec.europa.eu/system/files/2020-02/it_final_necp_main_en_0.pdf
[3] Giovanni Dall’Agnola (2021). Italy’s Spalma-Incentivi Decree and the ECT’s FET Obligation: An Assessment of the Legitimacy of the Photovoltaic Incentives Cut. Diritto del Commercio Internazionale (pp.508 – 510).
[4] Marco Antonelli, Umberto Desideri (2014). The doping effect of Italian feed-in tariffs on the PV market. Energy Policy, Volume 67. pp. 583-594.
[5] Federazione Nazionale delle Imprese Elettrotecniche ed Elettroniche (Anie), Ministero dello Sviluppo Economico, Joined Cases C-798/18 and C-799/18, ECLI:EU:C:2021:280, § 11.
[6] Ibid, § 20.
[7] Ibid, § 28.
[8] Agrenergy and Fusignano Due, C-180/18, C-286/18 and C-287/18, EU:C:2019:605, § 27 and 28.
[9] Joined Cases C-798/18 and C-799/18, § 30.
[10] Ibid.§ 41.
[11] Ibid.§ 45 and 46.
[12] Ibid § 47.
[13] Opinion of Mr Saugmandsgaard Øe, Federazione Nazionale delle Imprese Elettrotecniche ed Elettroniche (Anie), Ministero dello Sviluppo Economico, Joined Cases C-798/18 and C-799/18, ECLI:EU:C:2020:876, § 38.
[14] UPC Telekabel Wien, C-314/12, EU:C:2014:192, § 50.
[15] Sky Österreich case, C-283/11, EU:C:2013:28, § 42.
[16] Joined Cases C-798/18 and C-799/18, § 60.
[17] (36) Given by the ECtHR, Kopecký v. Slovak Republic, CE:ECHR:2004:0928JUD004491298, § 35, and by the ECJ, Commission v. Hungary (Usufruct over agricultural land), C-235/17, EU:C:2019:432, § 69.
[18] Joined Cases C-798/18 and C-799/18, § 34.
[19] Inuit Tapiriit Kanatami and Others v Commission, C‑398/13, EU:C:2015:535, § 61.
[20] Joined Cases C-798/18 and C-799/18, § 39.
[21] Joined Cases C-798/18 and C-799/18, § 70.
[22] Joined Cases C-180/18, C-286/18 and C-287/18, § 47.
[23] Irina Falconett, Ken Nagasaka (2010). Comparative analysis of support mechanisms for renewable energy technologies using probability distributions. Renewable Energy, Volume 3. pp. 1135-1144.
[24] Opinion of Mr Saugmandsgaard Øe, Federazione Nazionale delle Imprese Elettrotecniche ed Elettroniche (Anie), Ministero dello Sviluppo Economico, Joined Cases C-798/18 and C-799/18, ECLI:EU:C:2020:876, § 82.
[25] For instance, Hydro Energy 1 S.à r.l. and Hydroxana Sweden AB v. Kingdom of Spain, ICSID Case No. ARB / 15/42 (2020).
[26] Amélie Noilhac (LLM, Leiden University), 2020. Renewable energy investment cases against Spain and the quest for regulatory consistency. Renewable energy investment cases against Italy and Spain: Same issues, different scenarios? Questions of International Law.
[27] Dr. Michael Göde v Czech Republic (PCA Case No 2014-01, Final Award, 4 March 2022).
[28] Ioan Micula, Viorel Micula and others v. Romania (I), ICSID Case No. ARB/05/20.
[29] Opinion of Advocate General Szpunar delivered on 25 April 2024, ECLI:EU:C:2024:354.
[30] Lucila de Almeida (2024). Change in Conditions of Renewable Support Schemes Agreements does not Violate the Principle of Protection of Legitimate Expectations of Investors: Judgment in Case C-148/23 GSE v Erg Eolica Ginestra Srl and Others. Nova Green Lab Publications.
