Full Reparation and Opportunity Cost of Renewable Investors

Daniel George, Senior Economist at Compass Lexecon, and Antonio Delgado, Partner at Fieldfisher, authored an article for the European Investment Law and Arbitration Review, examining full reparation in renewable-energy disputes. In the paper, the authors argue that interest should reflect investor-specific opportunity costs, with cost-of-equity benchmarks better capturing full compensation for equity-financed renewable projects.

The views expressed in this article are the sole responsibility of the authors and cannot be attributed to Compass Lexecon or any other parties.

Abstract

This article examines the principle of full reparation in renewable-energy investment disputes. It argues that tribunals should calibrate interest towards the true opportunity cost borne by different categories of renewable investors, rather than relying on risk-free or sovereign-bond rates that understate the consequences of delayed compensation. Because renewable projects are typically equity-intensive and often financed by non-resilient investors (independent developers, cooperatives, local communities), uniform interest awards risk undercompensating those who assume greater risks to make a crucial contribution to the green energy transition. The article reviews arbitral decisions from risk-free and ‘forced-loan’ approaches toward methods based on the claimant’s cost-of-funds – particularly cost of debt and cost of equity – and contends that, for non-resilient equity investors, a cost-of-equity benchmark best implements the Chorzów Factory standard. Adapting the principle of full compensation to the financing realities of renewable investors not only ensures economic justice but also advances the objectives of international climate treaties.