Investors in offshore wind parks in Germany face the loss of their investment without any form of compensation. The new, centrally governed competitive public tender system will render projects without participation rights essentially worthless. Even investors in projects that will be allowed to participate in the new tender procedures have no guarantee that their project will be considered.
While investors in Germany should generally be able to seek domestic remedies there, foreign investors also have access to powerful international remedies under bilateral investment treaties and the Energy Charter Treaty.
The Renewable Energy Act 2017 and the Windenergy-at-Sea-Act
Prior to 2012, wind parks benefitted from a right to be connected to the transmission grid and a guaranteed feed-in tariff. Following a complete overhaul of the regulatory regime, these rights were made subject to a centrally governed offshore grid development plan. At the same time, even under the new grid development plan, investors were in principle still able to realise their projects in the long-term.
The new Renewable Energy Act 2017 and the Windenergy-at-Sea-Act, which entered into force on 1 January 2017, dramatically changed this perspective. Under the new law, a competitive public tender procedure is mandatory for any connection to the transmission grid, remuneration, and the permit of offshore wind projects.
First, only wind parks that are planned to be built in designated areas will be able to participate in the tenders that will take place April 2017 and April 2018. All other projects that are located further offshore will lose their project rights without any form of compensation.
Even for those wind parks in the designated areas, participation in the tenders is limited: Only those projects at an advanced stage of the approval process, where the so-called public participation has already taken place by 1 August 2016, will be eligible to participate in the tenders in 2017/2018.
Also investors that may still be able to participate in these tenders face another significant threat: Only roughly half of the projects that are allowed to participate will be successful in the tender. For those that are not, there will be no compensation, but merely a right of entry if the specific project area is awarded to another investor in the future.
Hence, many investors in German offshore wind parks will suffer significant losses as a consequence of the new laws. These losses will likely include development costs, lost profits, and a loss of company value.
Potential remedies for foreign investors
Foreign investors may be able to rely on the protection of the Energy Charter Treaty and bilateral investment treaties between Germany and their home state and recover damages through international arbitration proceedings.
The Energy Charter Treaty and bilateral investment treaties establish objective standards of state conduct and provide foreign investors access to international arbitration directly against the State, with the right to compensation for harm suffered as a result of treaty violations. The protection standards generally entitle investors and their investments to:
- compensation if property has been expropriated either directly or indirectly by regulatory or other government measures that deprive the investor of the economic benefit of its investment;
- ‘fair and equitable treatment’, including protection of the investor’s legitimate expectations as to future state action, and a right to a predictable legal and regulatory framework for investment;
- full protection and security;
- prohibition against discriminatory treatment vis-à-vis similarly-situated investors from Germany or any third country; and
- observance by the State of any obligations it may have undertaken in relation to the investment.
The measures in Germany may well fall afoul of these international standards. For example, the expropriatory effect of the regulatory measures and the constant legislative changes may breach the obligation to provide fair and equitable treatment.