ENERGY NEWS #27/2016
The new Offshore Wind Energy Act (WindSeeG) violates the constitutionally protected legitimate expectations of a large number of developers of offshore wind energy parks that have yet to be realized. The Act’s first goal is to increase aggregate offshore wind turbine output to 15 GW by 2030, beginning in 2021. Its second goal is to prevent unlimited expansion of offshore wind energy capacity. But this general interest does not legitimize retroactively disappointing the investments that already been made in specific projects in good faith.
I. Summary
- The Offshore Wind Energy Act represents a systemic change, introducing a centralized competitive bidding procedure for offshore wind farm projects. A further new element is that successful bidders may now only realize such projects on the areas previously developed by the Bundesnetzagentur (Federal Network Agency)
- To avoid unreasonable hardship for projects already approved, legislators have also made transitional provisions. Firstly, developers of existing projects may take part in two special competitive bidding procedures, each with a volume of 1,550 MW. Secondly, a right of first refusal is granted where previously surveyed areas that largely or fully match the area of an existing project are included in a bidding procedure.
- Disappointing the established investments made in good faith by offshore wind turbine developers – investments that meet the criteria for due protection – is not constitutionally justified. Investments in projects outside the designated areas that have already undergone preliminary development, in particular, will suffer a complete loss of value. With the exception of isolated cases that benefit from the transitional provisions, realization of such projects will be ruled out completely.
- The owners of projects affected can seek redress by filing a constitutional appeal to the Federal Constitutional Court.
II. The Offshore Wind Energy Act concept – competitive bidding procedure model and devaluation of investments in projects that have undergone preliminary development
According to the previous system, each project developer that met the statutory requirements was able to obtain a decision approving its project. The Offshore Wind Energy Act has changed this fundamentally. From 2020, the Bundesnetzagentur will use competitive bidding procedures to determine the offshore wind energy projects to be commissioned from 1 January 2025 for areas previously surveyed by the public authority (section 16 Offshore Wind Energy Act). The successful bidder will acquire the sole right to carry out a planning approval procedure (Planfeststellungsverfahren) for constructing and operating the offshore wind turbines. It will become entitled to connect wind turbines at sea to an offshore connection set in an area development plan (Flächenentwicklungsplan), and have a claim to the grid connection capacity assigned. The entitlement is in the amount of bid volume awarded. Once the wind turbines have been commissioned, the successful bidder will also be entitled to the market premium (section 19 Renewable Energy Sources Act (EEG)).
This means that investments in projects that have already undergone preliminary development will be devalued, because the successful bidder will only be able to construct offshore wind turbines on the areas previously surveyed by the Bundesnetzagentur.
III. Transitional provisions and the protection of legitimate expectations
Given the grave consequences that this systemic change entails for existing projects, legislators have created two transitional provisions to cushion its impact. These provisions do not take sufficient account of the expectations that have been disappointed, however.
1. Competitive bidding procedure for existing projects
For wind turbines at sea that are commissioned after 31 December 2020 but before 1 January 2025, the Act provides for two competitive bidding procedures for “existing projects”. The two procedures will take place on 1 March 2017 and 1 March 2018 and are each for 1,550 MW (section 26 et seqq. Offshore Wind Energy Act). Projects that have received planning consent before 8 June 2016, or planning approval, or have been established under planning law, are entitled to take part. The projects must also be located in certain clusters defined in the Federal Offshore Technical Plans (Bundesfachpläne Offshore) for the exclusive economic zones in the North Sea and Baltic. The Bundesnetzagentur determines the grid connection capacities available in each cluster and publishes them in the competitive bidding procedure. Despite the special competitive bidding procedures planned, numerous existing projects will of necessity be devalued. The volume of North Sea and Baltic projects that have received planning consent or approval but which have yet to be realized far exceeds the bidding procedure volume set at 3,100 MW. It will be impossible to realize existing projects that lose to other bidders in the competitive bidding procedure, and they will lose their original official approval. Projects that do not even have the status of existing project – because they lie outside the respective cluster set for this – will lose all their value for good once the Act comes into effect.
2. Right of first refusal
Developers of existing projects are granted a right of first refusal if previously surveyed areas are included in a competitive bidding procedure and these areas fully or largely coincide with the existing project’s area (section 39 et seqq. Offshore Wind Energy Act). If the right of first refusal is exercised, then the award granted transfers to the existing project’s owner (section 43 Offshore Wind Energy Act)
But only a limited number of project developers may enjoy the right of first refusal. Many developers of existing projects will be unable to obtain a decision to approve their project either in competitive bidding procedures or by exercising a right of first refusal. So the transitional provisions cushion existing projects from the systemic change’s grave consequences only here and there.
IV. Protecting legitimate expectations under constitutional law
Devaluing investments already made in existing projects breaches wind farm developers’ constitutionally guaranteed protection of their legitimate expectations. Project developers’ legitimate expectations regarding existing projects merit a special degree of protection, which means that special grounds must exist to constitutionally justify disappointing these expectations retroactively. Such grounds are not evident.
1. Project developers’ expectations merit special protection
The expectations merit special protection firstly because legislation over recent years has created targeted incentives to expand offshore wind turbines. According to the Renewable Energy Sources Act’s tariff system, for example, investments in offshore wind turbines were treated favourably. This concern also found expression in the Federal Government’s 2002 strategy for using wind energy at sea, which envisaged installed power of 20,000 to 25,000 MW by 2030. In 2010, the Federal Government was still affirming the State’s intention to increase offshore wind turbine capacity in its “Energy concept for environmentally friendly, reliable and affordable energy supply” (Energiekonzept für eine umweltschonende, zuverlässige und bezahlbare Energieversorgung). Only in 2014 was the offshore wind turbine capacity expansion goal reduced to 15,000 MW in 2030, in section 3(2) Renewable Energy Sources Act. But this continued to signal to wind energy operators that considerable expansion was still needed.
The approvals and grid connection regime in force prior to the systemic change also supports the argument that developers of existing offshore wind turbines merit increased protection of their legitimate expectations. According to the previous system, project developers were required to draw up plans and initiate a planning approval procedure ahead of realization, which meant that they were de facto forced to make investments with legitimate expectations. Until now, obtaining an approval decision has meant carrying out a planning approval procedure that necessitated sufficiently specific and cost-intensive planning by the project developer with regard to the wind farm’s construction, realization and operation. By contrast, the Bundesnetzagentur will in future assume a major part of the planning costs for a preliminary survey of the areas. On this basis, the Bundesnetzagentur will then initiate a competitive bidding procedure for the corresponding projects on the areas in question.
2. Insufficient factual justification
From a constitutional perspective, disappointment of legitimate expectations meriting protection and based on the old legal position must only be accepted to the extent that this is required owing to special public interests that justify the link back to the old legal position, maintaining proportionality. The special grounds for justification must go beyond legislators’ general interest in changing the law. It is precisely the specific disappointment of legitimate expectations meriting protection and the retroactive devaluing of asset dispositions made on the previous legal position that must be justified. If legislators set targeted incentives for corresponding dispositions, then the legitimate expectations merit special protection. General grounds of practicability and simplification do not provide special justification for retroactive devaluing of dispositions made with legitimate expectations and meriting protection. And the general aim of removing existing privileges or abuse is equally unsuited to this task. As a rule, the general goals of restructuring a legal position only express the general interest in a future change and to do not constitute special grounds in this sense.
The systemic change’s legislative purpose is to secure the goal of expanding capacity to 15 GW by 2030 and at the same time to stop unlimited expansion of wind energy capacity at sea. But this is only an expression of a general interest in change that legislators could also meaningfully pursue without devaluing existing projects. Legislators could allow existing projects to be realized without any special action being required. This would not undermine the expansion target of 15 GW by 2030. Instead, it would only reduce the capacity gap until the 15 GW were achieved. As set forth above, the transitional provisions only stop existing projects from being devalued to a very limited extent. Constitutionally, this does not justify devaluing the investments made by wind energy operators.
V. Conclusion and remedies
Again and again, the constant changes in energy law mean new framework conditions, including for offshore wind turbine operators. Offshore wind farm developers’ faith in a stable statutory framework has already been disappointed once before, in the 2012 Energy Industry Act (EnWG) amendment. Prior to 2012, offshore turbine operators had had an unlimited individual claim to grid connection. This was replaced by non-discriminatory capacity allocation based on the Offshore Grid Development Plan (Offshore-Netzentwicklungsplan). The result of this was to devalue project developers’ investments. At the time, the industry did not mount a defence against the statutory amendment, which seems to have strengthened legislators’ apparent belief that they can continue to issue new regulations like the Offshore Wind Energy Act that massively devalue offshore wind turbine developers’ investments, thus disappointing those investors’ legitimate expectations. For this reason, it is more urgent than ever that the constant changing of the statutory framework be clarified constitutionally. After the law takes effect on 1 January 2017, there will be a one-year period in which a constitutional complaint can be filed against this statutory regulation directly. The Offshore Wind Energy Act’s encumbering legal effects are directly incurred by force of law without any act of implementation being required, such that the principle of subsidiarity does not offer any prior relief.
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