The realisation of offshore wind park projects in Germany: political environment, legal framework and bankability implications

In: MA-Thesis/Master

Abstract

Inhaltsangabe: Introduction: 1.1 Motivation and objective of thesis: According to the German government the future German energy mix shall be mainly based on renewable energy sources. Offshore wind energy plays a key role in this new energy strategy and is expected to provide the major share of renewable energy to be produced in Germany in the future. Nevertheless, the German offshore wind energy sector has developed much slower than expected, despite considerable supporting efforts taken by the government. Compared to other European countries, there is only little installed offshore wind energy capacity available in Germany today, but the German legislator's medium-term growth targets for this industry are enormous. In this context, the following two questions are to be asked: Does the German government turn a blind eye to the contradictory development just mentioned and/or is there reason for hope that the German offshore wind energy sector will accelerate and grow much stronger in the future? The purpose of this thesis is to describe the general conditions applicable in Germany, which a project developer or potential investor has to consider when planning an offshore wind park (OWP) in the German exclusive economic zone (EEZ). Furthermore, it analyses specific challenges related to the realisation of such kind of projects, identifies existing problems, and outlines possible solutions where appropriate. In doing so, the following chapters will mainly focus on the political environment for the offshore wind energy industry in Germany, the relevant legal framework applicable when realising an OWP, as well as on the bankability challenges a project developer might be exposed to when trying to secure a debt financing for an OWP project in Germany. Apart from giving a theoretical overview about the main subjects referred to above, this thesis also tries to address recent developments one can observe in practice. Hence, personal interviews have been conducted with experienced practitioners to get a better picture of the current market situation in general and possible future developments, as well as to get a practical insight into the mandatory OWP approval process and the recent perceptions and sentiments of banks involved in the financing of OWP in Germany. 1.2 Structure of thesis: The following Section 2 contains definitions of some key terms used throughout this thesis. Subsequently, a brief illustration of the European and German offshore wind energy market is given to get a better idea of how Germany is currently positioned in this field among its peers. From an OWP investors' point of view, a stable and supporting political environment considerably reduces the political risks related to such kind of projects, which is usually an important pre-condition for major investments in this field. Section 3 deals with the political environment OWP project developers or investors are exposed to in Germany and particularly focuses on Germany's offshore wind energy strategy as well as on the German government's recently introduced new energy concept, which is mainly based on renewable energy sources. In addition, a wise OWP project developer should also be familiar with all relevant legal statutes when planning an OWP and consider all important legal aspects in his project plan accordingly. Section 4 discusses the legal framework applicable in Germany when intending to realise an OWP in the German EEZ. The main focus is laid on the Renewable Energies Act, RE-Act (Erneuerbare-Energien-Gesetz, EEG) and the wind energy priority areas in both the North and the Baltic Sea, which have been defined by the legislator in the course of its spatial planning. Subsequently, this section outlines the mandatory approval process necessary for the realisation of an OWP project, containing, inter alia, references to the relevant legal statutes and a detailed description of each individual approval phase. The investment volume for a German OWP can easily amount to EUR 1 billion (bn) or more and thus normally requires also a sufficient amount of debt to be injected into the project. Hence, it is also of utmost relevance for an OWP project developer to be very well aware what has to be done to arrange for a project structure which is bankable at the end, in order to be able to secure the debt financing needed. Section 5 addresses bankability issues related to the realisation of an OWP in the German EEZ and contains an evaluation of the banks' main financing challenges, an outline of applicable banking standards for OWP projects to be considered by the project developer to secure a successful project placement, as well as a brief description of some peculiarities one should be aware of when it comes to granting or taking collateral over assets located in the German EEZ. Finally, Section 6 concludes with a summary of the main outcomes and results developed throughout this work.Inhaltsverzeichnis:Table of Contents: AbstractI AcknowledgementsII List of FiguresVI List of AbbreviationsVII 1.Introduction1 1.1 Motivation and objective of thesis1 1.2 Structure of thesis2 2.Offshore wind energy in Germany - a pioneer industry in the renewable energy sector3 2.1 Definitions4 2.1.1Renewable energy and wind energy4 2.1.2Offshore wind generator and offshore wind park4 2.1.3Territorial Sea4 2.1.4Exclusive Economic Zone4 2.2The European and German (offshore) wind energy market5 2.2.1(Offshore) wind energy in Europe5 2.2.2(Offshore) wind energy in Germany7 3.The political environment for offshore wind energy in Germany10 3.1Influence of international and European climate policy12 3.1.1Kyoto Protocol12 3.1.2Relevant EU legislation13 3.2Government policy and support in Germany13 3.2.1Germany's offshore wind energy strategy13 3.2.2Germany's overall energy concept before Fukushima14 3.2.3Germany's overall energy concept after Fukushima17 3.3 Chapter summary and outlook20 4.Legal framework and approval process for the construction of OWP in the German EEZ21 4.1Legal framework21 4.1.1Renewable Energies Act21 4.1.2Energy Industry Act29 4.2 Getting approval for the construction of an OWP33 4.2.1Legal basis and main applicable statutes34 4.2.2Phases of the OWP approval process44 4.3Outlook49 4.4Chapter summary53 5.The bankability of OWP projects in Germany54 5.1OWP (project) financing in Germany: major challenges andbankability issues56 5.1.1Wind prognosis56 5.1.2Technology57 5.1.3Installation59 5.1.4Insurance60 5.1.5Grid connection61 5.1.6Operation Maintenance (OM)63 5.1.7Overview of results65 5.2Financing OWP in Germany66 5.2.1Typical banking standards in OWP financings67 5.2.2Project placement68 5.3 Security package69 5.3.1Usual elements of security in OWP project finance70 5.3.2Taking collateral in the German EEZ70 5.4Chapter summary and outlook72 6.Summary74 BibliographyIX AppendixXVITextprobe:Text Sample: Chapter 3., The political environment for offshore wind energy in Germany: An unexperienced investor might wonder what politics have to do with the successful realisation of an OWP, which seems to be a purely commercial project at first glance. However, in practice a positive political environment, i.e. one which is supportive and reliable, is very important for the success of such kind of projects. This is even more so when technologies in their early development stage, such as the offshore wind energy sector, shall be financed with no recourse to the project sponsors (i.e. by the use of a project finance structure). Hence, a positive attitude of politicians towards the subject matter is essential for many reasons: They can put issues on the political agenda which are important for the offshore wind industry or refrain from doing that, they can be supportive when it comes to the identification of new marine offshore wind energy sites or not, they can arrange for an efficient and fast OWP approval process with less bureaucracy or fail to do that, they can pass encouraging legal reforms (e.g. implement adequate fixed feed-in tariffs) or not, and introduce other supplemental measures supporting the development of the industry or just leave it. Therefore, it should be worthwhile for an OWP investor or project developer to spend at least some time to make himself familiar and comfortable with the respective political environment in the course of his project due diligence. With its overall energy policy, the German government aims to secure an affordable and reliable energy supply for the industry and private consumers in Germany, strengthen the economy by the development and use of state-of-the-art renewable energy technologies and consequently implement its climate protection targets (Klimaschutzziele). However, apart from its own national political goals, the German legislator needs also to consider the requirements of applicable existing international and European agreements as a factor in its policy making, such as the Kyoto Protocol or relevant EU legislation, which are briefly introduced in the following Section 3.1. The subsequent Section 3.2 describes in more detail the national strategies and policy measures set by the German government. The development and use of renewable energy technologies in general has been promoted by the legislator already since 1990. However, having been a highly risky and unproven technology, for long time the offshore wind energy sector played only a marginal role despite its huge potential. To specifically push the developments in this field, the German government introduced an offshore wind energy strategy in 2002 (Section 3.2.1). Since then further policy measures have been implemented, which, inter alia, had (significant) influence on the offshore wind industry too. The main cornerstones have been the new energy concept of the German government introduced in September 2010 (Section 3.2.2) as well as the additional governmental measures (Maßnahmenpaket) passed after the disastrous nuclear accident at the Fukushima power plant in Japan in March 2011 (Section 3.2.3). 3.1, Influence of international and European climate policy: 3.1.1, Kyoto Protocol: With the ratification of the internationally applicable Kyoto Protocol to the United Nations Framework Convention on Climate Change ('Kyoto Protocol") passed in 1997, the EU gave a joint binding commitment to reduce greenhouse gas emissions by 8% compared to 1990 levels until 2012, which was later distributed between the EU member states by a burden sharing agreement setting the individual reduction target for Germany at 21%. Thus, every EU member state was required to implement adequate measures to be able to comply with its respective emission reduction target. Germany was successful in this respect, by promoting, for example, renewable energy technologies (including the wind energy sector). By the end of 2009, German greenhouse gas emissions had already been reduced by approximately 29% compared to 1990 levels. 3.1.2, Relevant EU legislation, In addition, the EU determined for each member state an individual national target for its respective share of energy from renewable energy sources in gross final energy consumption (Endenergieverbrauch) to be reached until 2020. The individual target for Germany was set at 18%. By the end of 2010, Germany reached a share of about 11%. In order to meet the aforementioned target at the end of this decade, Germany has to continue with taking supportive measures and additional efforts. As we will see in the following section, the constant promotion of renewable energies, and the offshore wind energy sector in particular, is one of the main cornerstones of the German government's energy policy to achieve both compliance with its climate protection and emission reduction goals and a successful implementation of its new energy policy (i.e. the transformation of the existing energy mix mainly based on fossil and nuclear sources into an energy mix with its main focus on renewable sources).