Potential of the energy transition for investors in Germany – Noerr Insight No 2: Onshore wind

In our briefing German energy transition: Potential for investors we gave a comprehensive overview of the opportunities and challenges related to the energy transition in Germany for domestic and foreign investors. After looking in detail at offshore wind in part 1 of our series last week, we will now take a closer look at onshore wind in part 2.

Onshore wind power

1. Current situation and challenges

The investor environment in Germany for onshore wind is very different to that for offshore wind. For decades, onshore wind turbines have been the backbone of the German energy transition. No other renewable asset class has achieved and exceeded expansion targets to a comparable extent. However, the major incentive effect of the legally guaranteed minimum feed-in tariffs not only led to the breakthrough of this technology, but also to such a large increase in the Renewable Energy Act levy that it was abolished in the 2022 Easter Package.

But investors had already withdrawn from developing new areas for wind power in Germany even before the summer of 2022. The available sites for new onshore wind turbines were limited, which lead to ecxeptionally rising costs for the existing areas to rise exponentially. Other concerns (distance from residential areas, interactions with weather and airborne radar, species protection and environmental compatibility) played a major role and delayed or prevented smooth approval procedures.

Investors and project developers who had traditionally invested in onshore wind power in Germany turned their attention to neighbouring countries. France and Poland in particular promised very attractive margins with almost similar country risks.

Only repowering (the construction of larger and more modern wind turbines on the sites of old wind farms) still appeared attractive, although the costs of securing sites exploded, too.

2. Special regulation of incentives

To counteract this trend, there have recently been numerous legislative changes for onshore wind power generation as well. In particular, there is a focus on opening up new sites for wind turbines. This is to be achieved partly by making the federal states individually responsible for creating suitable areas. If site targets are not met, state-specific distance rules will no longer apply. In future, environmental concerns will increasingly take a back seat to the special public interest in expanding renewable energy. Recently, onshore wind power generation was to be driven forward particularly with the Planning Acceleration Package 2 (known as the Summer Package).

a) German Onshore Wind Energy Act

Part of the legislative initiatives described above is the German Onshore Wind Energy Act (Wind-an-Land-Gesetz), which came into force on 1 February 2023. The main purpose of the Act is to speed up planning and approval procedures and create favourable conditions for providing the necessary sites for onshore power generation.

b) The German Wind Energy Area Requirements Act (Windenergieflächenbedarfsgesetz – WindBG)

Section 1 of the German Onshore Wind Energy Act introduces the German Wind Energy Area Requirements Act. According to the latter Act, the federal states are given binding site targets (known as area contribution figures) for the expansion of wind power. When the Act came into force, 0.8% of the federal state’s land was designated for onshore wind power nationwide, but only 0.5% was actually available. By the end of 2032, the federal states must designate 2% of their land as sites for wind power, and by the end of 2027, 1.4% of the land is to be set aside for wind power.

c) German Construction Code

To allow the federal states to provide the sites required for the expansion of wind power in all cases, section 2 of the German Onshore Wind Energy Act supplements the introduc-tion of the German Wind Energy Area Requirements Act through amendments to the German Construction Code (Baugesetzbuch – BauGB). Under section 249(1) of the German Construction Code, the 3rd sentence of section 35(3) of the German Construction Code does not apply to projects under section 35(1)(5) of the German Building Code that serve to research, develop or exploit wind power. As long as a federal state has not reached its area contribution value, the expansion of wind farms is also possible outside of specially designated wind power sites. Only when the site target in section 5 of the German Wind Energy Area Requirements Act is reached does this privilege cease to apply outside the designated areas. Until the target is reached, the privileged permissibility of wind turbines cannot be restricted to certain areas.
 
The law also contains an amendment to what is known as the “state opening clause” for minimum distance regulations under the laws of the federal states. The state opening clause previously allowed the states to set minimum distances for wind turbines of up to one kilometre from residential areas. Although the federal states still have this option, they must ensure they achieve their site targets under the German Wind Energy Area Re-quirements Act. If the area contribution figures are not achieved by the cut-off dates or are no longer achieved at a later date, wind turbines are permitted on a privileged basis in the entire planning area affected by the failure to meet the target, and minimum distance rules under state law within the meaning of section 249(9) of the German Construction Code no longer apply.

d) German Regional Planning Act

Section 3 of the German Onshore Wind Energy Act contains an amendment to the German Regional Planning Act (Raumordnungsgesetz): species protection issues are to be considered in a regulation issued by the Federal Ministry of Housing, Urban Development and Building in agreement with the Federal Ministry for the Environment, Nature Conservation, Nuclear Safety and Consumer Protection, which is intended to result in a legally secure and faster procedure.

e) German Federal Nature Conservation Act

The overriding public interest in establishing a sustainable energy supply is now also expressly stated in the German Federal Nature Conservation Act (Bundesnaturschutzgesetz – BNatSchG). In future, even landscape conservation areas will be open to wind energy development. Statutory standards for species conservation assessments are to be standardised nationwide in order to make approval procedures more effective. The new Section 45c of the German Federal Nature Conservation Act facilitates repowering measures for wind turbines: The German Federal Immission Control Act (Bundes-Immissionsschutzgesetz – BImSchG) stipulates simplified amendment authorisations of this Act for repowering measures where the new turbine is erected within 24 months of dismantling the existing turbine and the distance between the existing and the new turbine is no more than twice the total height of the new turbine. Section 45c of the German Federal Nature Conservation Act extends this simplified assessment process to turbines with a construction period of 48 months and in which the new turbine is no more than five times the total height of the new turbine. The previous impact under species conservation law must also be taken into account in the authorisation procedure for repowering wind turbines, meaning that the affected site is deemed to be predetermined for the construction of the wind turbine. This repowering relief is supplemented by amendments to the German Building Code, stating that repowering wind turbines in outdoor areas are privileged projects within the meaning of section 35(1)(5) of the German Building Code until 31 December 2030. The exclusionary effect of the 3rd sentence of section 35(3) of the German Building Code does not apply to repowering projects even if the planning proviso of section 245e(1) of the German Building Code could take effect for planned wind turbines on the basis of a corresponding land use or regional development plan.

f) German Motorways Act

The German Motorways Act (Fernstraßengesetz – FernStrG) also contains new provisions on wind and solar farms. It defines the goal that when building and adapting federal motorways, the opportunities for generating renewable energy in usable areas or installations must be exploited. Whereas previously, constructions of any kind had to be located at a certain distance from motorways and dual carriageways and required a special approval procedure, the new section 9(2a) of the German Motorways Act contains a presumption of approval for wind turbines within a construction restriction zone if approval is not refused within two months. Under certain conditions, the approval requirement for wind turbines is abolished altogether.

g) Act to improve Climate Protection in Immission Control

On 6 June 2024, the Bundestag passed an Act to Improve Climate Protection in Immission Control (Gesetz zur Verbesserung des Klimaschutzes beim Immissionsschutz). This Act incorporates the climate as a protected good in the German Federal Immission Control Act and streamlines and simplifies approval procedures under the German Federal Immission Control Act. Instead of the previous unlimited authorisation periods, it will only be possible to extend them once in future, and a fixed start date will prevent deadlines from being prolonged due to repeated requests for information or documents. Repowering projects are also to be given a further boost through procedural simplifications.

3. Impact of regulation on investors

It remains to be seen whether the incentivising effect of these provisions will be sufficient to break the temporary reluctance of investors and achieve greater expansion of onshore wind farms. In any case, the German government’s goal is to increase onshore wind power from the current 61 GW of installed capacity to 115 GW by 2030 and to 160 GW in total by 2040. This will not be achieved solely through repowering.

As in the offshore sector, Germany subsidises the expansion of installed capacity for onshore wind power. The total annual volume and the maximum subsidy are capped each year. The maximum value of the subsidy is also subject to annual degression. In 2023, however, the tender volume offered was not yet fully utilised, meaning that the unused volumes will have to be made up in subsequent years in order to achieve the desired total volume.

As of 2023, 28,677 wind turbines with a cumulative installed capacity of 61 GW have been installed. According to a press release from the Federal Network Agency, the tenders for onshore wind turbines are now at a stable level. The values of the contracts awarded range between 7.25 cents per kWh and the maximum permissible value of 7.35 cents per kWh. The total volume covered by the bids submitted was 6.5 GW; in the years 2018-2022, no more than 3.7 GW was ever bid for. However, the tender volume of 12,840 MW originally planned for 2023 will still not be reached. The bids continue to fall short of the planned expansion.

The tender volume is to be increased by 10,000 MW per year from 2024 to 2028. However, after the maximum value was initially reduced from 6 cents per kWh to 5.88 cents per kWh on the bidding dates in 2023 and the tendered volumes were not fully utilised, the Federal Networks Agency also subsequently raised the maximum bid to 7.35 cents per kWh on 14 December 2023 in accordance with section 85a(1) and (2) of the German Renewable Energy Act.

4. Outlook

It may be that it is simply too early to see the impact of the Easter Package on onshore wind. This is because, unlike for offshore turbines, the requirements of federal law still have to be implemented in regional planning and applied in the municipalities. In November 2023, the Conference of State Premiers signed a Pact for Accelerating Planning, Approval and Implementation. The pact provides for the simplification and acceleration of planning and approval procedures, including for onshore wind turbines. While the plan was for the first results to be presented in Q1 2024, according to the German Chamber of Commerce, only 18 of 53 legislative amendments had been started as of June.

Further developments remain to be seen.

However, the development of the bids for onshore wind shows one of the central dilemmas: If the planned increase in expansion (target of quadrupling the total volume of awarded bids in 2023 compared to 2018-2022 and a further doubling of tendered capacity in 2024 compared to 2023) is to be achieved, this will only be possible with the approval of higher bids, i.e. higher subsidies in the event of low energy prices. However, the expansion of capacity is important. In addition to solar power, energy sources that produce energy at times when there is no sun must be available to ensure grid stability.