The new Offshore Wind Act as part of the Renewables Energies Act 2017

Written on 23 Sep 2016

German legislator stops feed-in tariff and introduces a competitive method of determining remuneration levels for electricity generated from renewable energies sources.

Offshore wind related stipulations will be merged in an Offshore Wind Act.

Legislatory status

On 8 July 2016 the drafting of the revised Renewable Energies Act (EEG 2017) was finalised. On this day the German Federal Council (Bundesrat) resolved not to submit the draft EEG 2017 to the parliamentary mediation committee (Vermittlungsausschuss). Further changes to the draft act and a renewed resolution of the German Parliament (Bundestag) are, therefore, not to be expected. The draft EEG 2017 or the “Act for the introduction of auctions for electricity from renewable energy sources and of further changes of the legislation regarding renewable energies” as it is called officially (the “Act”) was brought before parliament by the governing coalition’s parliamentary groups and amended by the recommendations of the parliamentary committee for economy and energy will. Save for the outstanding signature from the Federal President and publication in the Federal Law Gazette, the Act will enter into force on 1 January 2017.

The Key Element of the Act

The core element of the revised act is the much debated paradigm shift regarding the financial promotion of electricity generated from renewable energy sources. The act will shift this away from the feed-in tariff with its statutorily determined level, and towards a remuneration level determined amongst the providers in a free competition. Henceforth, the electricity generated in renewable energy plants will only be remunerated if these plants have succeeded in an auction and received the award.

The tenders and the auctions will be managed by the Federal Network Agency (Bundesnetzagentur). In the course of such an auction the relevant beneficiary and the applicable reference value (anzulegender Wert) (i. e. the aggregated amount of the remuneration, being the sum of direct marketing proceeds to be paid by the direct marketer and the market premium to be paid by the grid operator) will be determined by the award. This applies for on- and offshore wind energy plants, solar and biomass energy plants. According to the opinion of the Federal Ministry of Economy and Energy there is not enough competition in the markets for water power, geothermal energy, landfill, sewage and mine gas. Consequently, there will be no tenders and auctions for projects using these technologies.

The future regulatory framework for offshore wind receives a special treatment. The Act sets forth a special Offshore Wind Act that shall according to the aims of the legislator provide for a coherent and cost efficient framework for offshore zoning and a special auction design. The Offshore Wind Act introduces auctions for offshore wind farms to be commissioned as of 2021 in an interim and a final, so called central regime. Until then, the current “old” regime shall remain in effect. Consequently, the Act introduces three different periods of time with specific regulatory regimes, as follows:

Old Regime

Offshore wind turbines are excluded from the scope of the EEG 2017 and, consequently, the applicability of the Offshore Wind Act, if prototypes are concerned or if an unconditional grid connection commitment has been issued by the transmission grid operator in accordance Section 17 para 2a of the Energy Industry Act (Energiewirtschaftsgesetz – EnWG)) or if connection capacity has been allocated by the Federal Network Agency (Bundesnetzagentur – BNetzA) pursuant to the successional provision in Section 17d para 3 Energy Industry Act (Energiewirtschaftsgesetz – EnWG)) for the relevant wind farm before 1 January 2017, provided commissioning will occur before 1 January 2021. Operators of these wind farms will receive remuneration without having received an award in an auction. Some associations have already announced objecting against the EEG 2017 before the Constitutional Court because it “devalues” a project that is ready for building but cannot be commissioned before 2021. These projects must succeed in an auction under EEG 2017 and this additional requirement was not known when the financing decision has been made.

Projects under the old regime will be remunerated in the basic model with 15.40 cent per kWh paid for the first twelve years (starting tariff) as of commissioning as prolonged by the correction factor for distance and water depth: Afterwards the basic tariff of 3.90 cent per kWh shall apply. Alternatively, operators can opt into the acceleration model (Stauchungsmodel) which provides for a tariff of 19.40 cent per kWh for the first eight years as of commissioning, followed by a tariff of 15.40 cent per kWh for the prolongation period calculated on the basis of distance and depth. After this prolongation period the tariff decreases to the 3.90 cent/kWh level in the acceleration model. These tariff models (basic and acceleration) are already known from the EEG 2014 and have not been changed by the EEG 2017.

The Interim Regime

The Offshore Wind Act provides for a special auction regime for so called existing projects to be commissioned after 31 December 2020 and before 1 January 2026. Existing projects are those offshore projects which have been permitted under the Offshore Installations Ordinance (Seeanlagenverordnung – SeeAnlVO) or which have received a zoning decision (Planfeststellungsbeschluss) or have been permitted by the competent authority under the Federal Immission Act (Bundesimmissionsschutzgesetz – BImSchG) before 1 August 2016, respectively. For projects to be located in the exclusive economic zone as well as for projects planned in coastal waters it is sufficient if a hearing has occurred either under the proceeding under the Offshore Installations Ordinance (Seeanlagenverordnung – SeeAnlVO) or under the Environmental Impact Assessment Act (Gesetz über die Umweltverträglichkeitsprüfung – UVPG). The cut-off date 1 August 2016 has been chosen because when the parliament approved the Act on 8 July 2016 hearings were already scheduled until 30 July 2016 and the relevant projects should get the opportunity to qualify as existing projects. In addition, existing projects in the exclusive economic zone are limited to those which are planned in specific clusters (clusters 1 to 8 in the North Sea and clusters 1 to 3 in the Baltic Sea). The BSH shall publish a list of the projects which qualify as existing projects shortly after the end of the legislative proceeding. In the view of the legislator the interest of developers and operators to realize projects which have not yet reached the aforementioned steps has not materialized sufficiently. Consequently, developers of projects that are currently in the planning phase without meeting the aforementioned requirements will not get a chance to realize their project anymore.

Under the interim regime there shall be two auctions on 1 March 2017 and on 1 March 2018 in which only existing project are allowed to participate. The aggregated capacity to be awarded within these two auctions shall amount to 3,100 MW, 1,550 MW in each auction. 500 MW of these 3,100 MW shall be allocated only to projects in the Baltic Sea to be erected in 2021.

The owner of an existing project who is not (even not partly) awarded both auctions, 1 March 2017 and 1 March 2018, for the interim regime can be granted a step-in right into an award for a project that is auctioned between 2021 and 31 December 2030. As a prerequisite for such step-in right the location of the existing project must match completely or in most parts with the site of the project to be stepped-into. The owner of the existing project must provide all project related data to the Federal Maritime and Hydrographic Agency (Bundesamt für Seeschifffahrt und Hydrographie – BSH) and waive all its rights pertaining thereto. The step-in right shall compensate this loss. As a consequence of the legislator’s approach that the interests of owners of existing projects shall be protected, these owners get another (third) chance to receive an award for a project on the site that they have initially chosen. The step-in right can be transferred to a third party and it will be interesting to see if there will be a market for such step-in rights.

The Central Model

Offshore wind farms that will be commissioned as of 2026 will only be those which will be erected on sites that are chosen and pre-evaluated. It is a peculiarity of the auctions in the central model that the auctioned capacity will be tied to certain sites. The respective auctions will start in 2021. The auctions shall take place annually on the 1 September. The Federal Network Agency (Bundesnetzagentur – BNetzA) shall be responsible for the pre-evaluation of the sites. This pre-evaluation shall provide a sufficient information basis for the bidders to prepare their bids and to decide on the suitability of a site for the erection of an offshore wind farm. Based on the results of the pre-evaluation a successful bidder shall be able to file for a zoning decision. Vice versa without having been awarded it will not be allowed to file for a zoning decision any more. The legislator admits that the pre-evaluation will not be as detailed that bidders are released from performing their own detailed site studies. In theory this approach is consequent because the pre-evaluation shall not predetermine the design of the wind farm and shall, therefore, only be related to more general matters. For example, the pre-evaluation shall cover the marine environment and bird migration. The results of these investigations are required for the Environmental Impact Study (Umweltverträglichkeitsstudie) within the statutory zoning proceeding. Furthermore, subsoil and geological investigations (but without giving any indication for the foundation type) are part of the pre-evaluation. In addition, subsoil investigations are included, but limited to the turbine sites and they shall not cover the cabling routes within and outside of the wind farm. Unexploded ordnances, wrecks and obstacles are not subject of the governmental subsoil investigations. The pre-evaluation shall also comprise a report on the wind conditions (but not as detailed as a typical wind report (Windgutachten)) and the oceanographic conditions at the site. The wind yield is explicitly not part of the pre-evaluation’s scope and it is a basic principle within the pre-evaluations that the profitability of the project is excluded from the scope. It is obvious that many aspects that determine the realization costs of an offshore wind farm are excluded from the governmental pre-evaluation of the site, e.g. explosives and obstacles. Consequently, we see the need for bidders to perform own investigations before placing the bid which can lead to stranded investments in case the bid is not successful in the end. The first tenders will show if and to what extent bidders are discouraged by these risks to take part in the tenders.

If as a result of the pre-evaluation an area is considered as suitable as a site the suitability as well as the capacity to be installed on the site will be confirmed in a statutory ordinance by the Federal Ministry of Economy and Energy for sites in the exclusive economic zone or by the government of the relevant federal state. The Federal Ministry of Economy and Energy is entitled to mandate the authority which was competent for the pre-evaluation. This suitability ordinance may set forth specific project related criteria under which the area is suitable, e. g. maximum hub heights or rotor diameter.

Replacement of the Federal Offshore Grid Plan (Bundesfachplan Offshore) and the Offshore Grid Development Plan (Offshore Netzentwicklungsplan – ONEP)

With the Offshore Wind Act the legislator aims to improve the system of interlocking provisions for planning and zoning law, permission and remuneration of offshore wind projects. Consequently, the procedure for obtaining the zoning decision (Planfeststellungsbeschluss) for the offshore wind turbines has moved from the Offshore Installation Ordinance (Seeanlagenverordnung – SeeAnlVO) into the Offshore Wind Act. However, central questions of zoning and grid connection will remain subject to the Energy Industry Act (Energiewirtschaftsgesetz – EnWG). Nevertheless, as regards planning and zoning aspects the Act provides for a paradigm shift as follows:

The current Energy Industry Act (Energiewirtschaftsgesetz – EnWG) provides for a system in which the Federal Maritime and Hydrographic Agency (Bundesamt für Seeschifffahrt und Hydrographie – BSH) issues a Federal Offshore Grid Plan (Bundesfachplan Offshore) that contains the basic zoning decisions for the exclusive economic zone. In addition and based on the Federal Offshore Grid Plan, the transmission network operators issue a joint Offshore Grid Development Plan (Offshore Netzentwicklungsplan – ONEP) covering both, the exclusive economic zone and the coastal waters. The ONEP sets forth binding obligations for the transmission network operators in respect of the network expansion. Based on this framework the Federal Network Agency allocates connection capacity on cable lines to offshore wind farm operators or sells connection capacity in an auction if not enough connection capacity is available.

Under the Offshore Wind Act the Federal Offshore Grid Plan and the ONEP shall be replaced as of 2026 by a comprehensive Zoning Development Plan (Flächenentwicklungsplan) which will in the future be the central planning instrument. This plan shall cover the exclusive economic zone and, optionally, coastal waters. The Zoning Development Plan shall particularly provide for the areas and the consecutive order in which these areas shall be subject to auctions of 700 MW to 900 MW, each, whereby an average of 840 MW shall be achieved. The Federal Network Agency (Bundesnetzagentur – BNetzA) as well as the transmission grid operators shall contribute in a structured proceeding. The first Zoning Development Plan shall be published by the Federal Maritime and Hydrographic Agency (Bundesamt für Seeschifffahrt und Hydrographie –BSH) until 30 June 2019.

The Auctions

The Federal Network Agency shall publish an announcement for each auction at least six month prior to the auction date. The announcement shall comprise the basic information for each auction, such as inter alia the auction date, the auctioned capacity, the relevant area(s) and, if required, the allocation of capacity to these areas, the determination of the relevant offshore cable link and the calendar year of its envisaged commissioning, the calendar year as of which the market premium will be paid (which determines the date of the wind farm’s commissioning), the documentation from the preliminary evaluation of the site and the highest possible bid (Höchstwert) et seq.

The bidders must not bid for a higher or lower capacity on a specific site than it is foreseen in the announcement and the Zoning Development Plan. When placing their bid bidders have to issue a security amounting to EUR 300 per kW of capacity to be installed, e.g. for a 400 MW wind farm the security will amount to EUR 120 million. This security will be released in case the bidder is not successful. The highest possible bid in an auction under the central model is limited to the lowest amount which received the award in the second auction in the interim regime, however, the federal network Agency has the right to determine a different amount under certain circumstances. The further procedure of the auction proceeding is in line with the auction proceeding for onshore wind projects. Only the awarded bidder has the right to enter into the zoning proceeding in order to obtain a zoning decision permitting the erection and operation of the offshore wind farm and has the right to claims the market premium from the transmission network operator for the electricity fed-into the grid.

The Offshore Wind Act sets forth a catalogue of time periods the exceedance of which is penalized. Twenty four months before the binding completion date (verbindlicher Fertigstellungstermin) the awarded bidder has to provide evidence for the financing of the wind turbines, a signed turbine supply agreement. Six months before the binding completion date the awarded bidder has to provide that building process started. Six months after the binding completion date the awarded bidder has to provide the technical operation readiness by at least one of the wind turbines. Eighteen months after the binding completion date the awarded bidder has to provide the technical operation readiness by all wind turbines. The amount of the penalty depends on the concrete time period and will be calculated on the basis of percentage according to security accounting. The penalties are not applicable if the exceedance of time periods is not the result of any bidder`s fault.

Conclusion

The paradigm shift from the statutorily fixed feed-in tariff to a competitively determined level of financial promotion for electricity generated by renewable energy sources has already been called a basic principle under the EEG 2014. However, the object of the tender proceedings and the design of the auctions were not yet defined and were, therefore, the subject of significant speculation. This caused investors and other market participants to be noticeably cautious as to whether these new initiatives would go ahead. Finally however the new EEG 2017 provides for answers to many questions. This is much appreciated by investors and other market participants. Speculation and uncertainty have been replaced by reliable statutory provisions which will presumably be applicable longer than one election period. Practical experience from the first rounds of tenders and the related project realization will prove whether or not the design of the tenders and the auctions satisfies the practical needs of the providers and meets the aims of the legislator.

Our experts at all our German locations are ready to answer all your legal questions arising from the auctions for the specific technologies as well as all other questions in the context of the new EEG 2017.