Partner Hamburg
"The aim of this limitation is to prevent excessive usage fees and ensure a fairer distribution of the benefits of the energy transition."
Paragraph 1045 of Germany’s coalition government agreement reads: “We will limit the permissible amount of land leases for plants subsidised by the EEG“.
Thus, the new government wants to limit the remuneration for land on which facilities subsidised under the Renewable Energy Sources Act (“EEG”), such as solar parks or wind turbines, are built and operated. The use of the term “land leases” (“Pachten”) is misleading as, according to prevailing case law, usage contracts for land made available for energy generation are not agricultural leases (“Pachtverträge”), but commercial leases, which is why we should refer to ‘usage fees’.
The aim of this limitation is to prevent excessive usage fees and ensure a fairer distribution of the benefits of the energy transition, such as lower electricity prices. In concrete terms, this means there should be an upper limit on the user fees that farmers and other property owners can demand from operators of subsidised energy plants. The justification for such a measure is that high usage fees impair the profitability of renewable energy generation plants and thus complicate the energy transition. This could slow down the expansion of renewable energy and jeopardise the energy transition. The limitation of usage fees is intended to ensure that state support for the energy transition does not primarily benefit landowners, but rather to benefit promote technological advances in renewable energy generation by creating incentives for further investment in the expansion of renewable energy plants.
"The parties involved find efficient solutions by way of private autonomy through essentially free contract negotiations."
It is a fact that some owners demanded very high remuneration. This is due to suitable land for energy projects being a rarity and usually sought after by several competitors. Some owners therefore initially demand what is being called a “whole bouquet” of remuneration demands to obtain a maximum usage fee. Considering hefty six-figure annual remuneration is often required for a wind turbine – which hardly restricts agricultural use – it is understandable that the Federal Government sees this a problem.
From a free-market perspective, one might note that in such a system pricing will be determined by supply and demand. The use of the area then costs the price that an operator of energy plants is willing to pay for it. The parties involved find efficient solutions by way of private autonomy through essentially free contract negotiations. On the other hand, if the state wants to steer economic developments with subsidies, ensuring that these state-directed incentives reach where they can have the best effect – and in a cost-conscious manner – is imperative given that the expansion of renewable energy is subsidised by taxpayers’ money.
Legally, however, the issue is not easy to resolve. Beyond Paragraph 1045 quoted at the beginning of the coalition agreement, very little is known regarding any concrete government plans. How the Federal Government intends to implement this project remains unclear given it does not have a constitutional majority in either the Bundestag or Bundesrat without support from the Greens or the Left. That said, this would not be necessary if the government is able to achieve limited usage fees by altering the participation conditions for the granting of EEG feed-in tariffs. So perhaps the legislator will not need to intervene deeply in private autonomy or commercial leasing law in the BGB, but can simply set limits at the point where the state subsidy system comes in. The Federal Government will probably try to link the payment of EEG feed-in tariffs to operators of energy plants to certain minimum requirements for the land use agreements.
"The Federal Government will probably try to link the payment of EEG feed-in tariffs to operators of energy plants to certain minimum requirements for the land use agreements."
But what kind of regulation could stipulate the maximum usage fees and how should they be fixed over the lengthy term of usage contracts, usually set for 30 years? A ‘user fee audit’ with an annual review of the amounts paid would result in too much administrative work and be impractical. However, due to the text form requirements of the usage contracts, it could be sufficient for participants in EEG auctions to make a binding commitment to the Federal Network Agency to comply with certain standards. This would ensure no increase in user fees (that have not already been laid out) could be made during the contract term without operator consent. Whether further controls are necessary remains to be seen in practice. Due to the widespread due diligence checks by buyers and financing banks, a market standard should quickly emerge that places importance on complying with these requirements to secure a long-term EEG feed-in tariff.
The state already has experience with the limitation of remuneration under lease agreements – namely rent brake. Whilst these are very different subject matters – rent brake is intended to counteract the displacement of lower income groups from high-demand residential areas – nonetheless, certain aspects of this measure are comparable. For example, the rent brake’s framework includes mechanisms to decide at what point an apartment’s rent is considered excessive. Similar mechanisms could be used to take action against excessive usage fees.
What could a limitation model for usage fees look like? Currently there is no ‘energy investment index’. Will there be certain administrative categories or certain value criteria for wind and solar areas in the future? From an operator/developer’s point of view, road and grid connection conditions on site, as well as wind, light and ground conditions would be of interest in determining charges. So far, the German Wind Energy Association (“BWE”) has remained somewhat unprecise on this point: in his view, the link to the tender and the correct control mechanism are “important” for the implementation of the limitation model of usage fees. The BWE prefers a model with a loss of the acceptance of a bid in the auction for EEG feed-in tariffs in the event of violation of a reference remuneration. It therefore remains to be seen which criteria the legislator will consider permissible and how a ‘reference remuneration’ could be determined for regional areas.
"If a limitation model for energy generation plants that are to receive EEG feed-in tariffs is actually implemented by the Federal Government, existing usage contracts would have to be adhered to by the parties for the time being."
Such limitation provisions (which have yet to be developed) may only affect future land use agreements, i.e. those that have not already been concluded because of the protection of a status quo for agreements that have already been concluded. This would be an argument for landowners to establish facts and to conclude contracts on the negotiated terms. If a limitation model for energy generation plants that are to receive EEG feed-in tariffs is actually implemented by the Federal Government, existing usage contracts would have to be adhered to by the parties for the time being. If projects become uneconomical as a result of the new EEG regulations because the operators cannot obtain the required EEG feed-in tariff, the respective operator/project developer would usually have a right to withdraw from the contract or try to renegotiate with the landowner in order to prevent it from going under.
It is likely that there will be no automatically effective reduction of already contractually agreed user fees. This would be too much of an encroachment on privately autonomous contracts. If, however, in the case of already concluded user contracts with high usage fees, the subsequent obtaining of an EEG feed-in tariff was excluded due to the expected limitation regulations, such projects with high contractual usage fees could be put to the test – and fail.
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