New law in Germany to accelerate offshore wind expansion

Out-Law News | 21 Apr 2022 | 7:28 am | 4 min. read

The German government plans to obtain more electricity from offshore wind farms and has passed a new law to increase expansion targets and tender volumes and simplify award as well as approval procedures.

It has adopted a package of new laws that provide for a reform of German energy law. The new rules are intended to accelerate the expansion of renewable energy and to ensure more security of supply and energy independence for Germany. By 2030, 80% of Germany's electricity demand is to be covered by electricity from renewable energy sources. Some government members agreed to the package only with reservations. According to media reports, details still in dispute will be debated and refined in parliament.

An essential part of the package is the amendment of the Offshore Wind Energy Act (WindSeeG). The new draft law (only available in German language) provides for a further increase in the expansion targets for offshore wind and also an increase in tender volumes. It aims for an installed capacity of at least 30 gigawatts (GW) by 2030 and at least 40GW by 2035. Previously, 20GW were planned for 2030 and 40GW for 2040. By 2045, at least 70GW of electricity is to be generated off the German coasts.

To achieve these goals, the German government wants to speed up tendering procedures as well as planning and approval processes, introduce a new subsidy regime in some cases, and also push ahead with expansion, especially in deeper waters far from the coasts.

In centrally pre-surveyed areas, the planning approval procedure is to be dropped and replaced by a more expeditious planning approval procedure. In future, the awarding of subsidies for such areas is to be carried out via state subsidised contracts for difference (CfD).

CfDs serve to reduce the risk associated with price fluctuations for both contracting parties - in this case the German government and the wind farm operator. The operator bids on a so-called "strike price", which is the average energy price that the operator expects to achieve over a certain operating period. Differences between the strike price and the relevant market price for electricity are then settled between the state and the operator, whereby the strike price is to be regarded as a fixed price mark: if the electricity price actually achieved on the market is higher than the strike price, the operator pays the surplus back to the state; if it is lower, the state pays the difference to the operator. The term of the CfDs is to be 20 years.

The possibility of CfDs, at least for certain areas, has been welcomed in the market. While other countries, such as the UK or France, have long relied on CfDs as a proven support model for offshore wind, Germany, in the course of the amendment to the WindSeeG 2020, continued to opt for the traditional tendering model with a market premium, which has been in place since 2017. Under this model, the contract for a project is awarded to the bidder who calls for the lowest state subsidy for its planned wind farm project. In 2021, so-called "zero-cent bids" were called for the first time, meaning that wind farm operators waived state subsidies altogether. If there are several zero-cent bids, the decision is made by drawing lots.

"CfDs should also offer smaller bidders a higher chance of being awarded a contract due to their planning certainty and the associated lower investment risks", said Christian Lütkehaus, an expert on major projects and marine construction at Pinsent Masons. Furthermore, the offshore wind industry argues that CfDs could ultimately result in lower electricity prices for consumers than the tendering model, as higher electricity prices without a compensation mechanism in CfDs are more likely to be passed on to consumers due to the lack of an electricity price cap in the German market.

Areas that have not been centrally pre-surveyed are also to be put out to tender, but not via the CfD model. The decision as to which bidder is awarded the contract in such cases is to be made on the basis of "qualitative criteria and a supplementary payment bid by the bidder". The German Federal Ministry for Economic Affairs and Climate Action said these criteria will be the energy yield of the turbines, the conclusion of a long-term power purchase agreement (PPA), the compatibility with nature conservation and species protection, and the recyclability of the rotor blades. 70% of the revenue from the payments offered shall be spent to subsidies the offshore grid levy, 20% to nature conservation and 10% to environmentally friendly fishing.

In addition, the new WindSeeG is intended to speed up all procedures: In the case of pre-surveyed areas, the planning approval procedure is to be replaced by a faster procedure. The maximum duration of planning approval procedures is also to be regulated. Environmental assessments and the participation of associations and the German Federal Agency for Nature Conservation are to be "bundled". Additionally, the contract for the grid connection of a wind farm site can be awarded directly after the site has been included in the site development plan.

The new law also clarifies that offshore expansion - just like the construction of wind farms and solar plants on land - is in the "overriding public interest" and therefore has priority when it has to be weighed against other public interests. Thus, it would be possible to build wind farms even in nature conservation areas if a case-by-case assessment shows that this makes sense.

The new WindSeeG also contains rules on how wind farm operators must proceed if they want to increase the capacity and efficiency of old wind farms (repowering). The legislative package also contains proposals for accelerating the expansion of onshore solar and wind energy plants. In the next step, the proposed new provisions will be debated in parliament.