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.