12 July 2021
Q & A Energy & Infrastructure – 7 of 8 Insights
With our Corporate Energy @TW series, we aim to shed light on current developments and topical issues in the renewables sector across different jurisdictions. Taylor Wessing’s international industry group Energy & Infrastructure contains more than 50 experts in 16 locations. Being active in the field of renewables transactions and financing for more than a decade, we have built a substantial track record and are in 4th place worldwide in the Clean Energy League Tables 2021 by number of clean energy M&A deals.
Question: What are the most important current developments in the field of renewable energy transactions and financing?
Response: In Germany, we are increasingly occupied with large-scale and large-volume solar parks, mostly still in early development phases (regularly 50 MWp and larger up to 200 MWp). This development goes along with a decreasing supply of land and additional public-law restrictions on land use. At the same time, the demand especially from large industrial electricity consumers for the supply of very substantial quantities of green electricity is increasing continuously. As a result, long-term electricity supply contracts are relevant primarily in the PV sector.
In the onshore wind sector, green power purchase agreements are currently only an issue for plants after the end of the subsidization period due to the still relatively attractive subsidies and the lack of area limitations compared to solar PV. PPAs are of course also topical in the offshore wind sector, not least due to the "0 EURO auction results" from the last German offshore tenders. With respect to project finance, in contrast to subsidized projects (e.g. onshore wind farms), the challenge for the implementation of (large-volume) PPAs lies in securing the necessary financing (higher share of equity required).
In general, observing the interplay of further developing supply and at the same time massively increasing demand and advising against this turbulent market development is a fascinating task. This interplay has inevitably stimulated the transaction business in an exciting fashion.
Question: What market developments can we expect to see towards the end of 2021?
Response: We expect transaction activity in Germany to remain high. The demand for suitable investment projects in the renewable energy sector is not only unbroken, it continues to rise. The trend for investors to invest beyond the borders of their own jurisdiction also continues to grow. The increasing demand for solar PV and onshore wind projects in Germany has meant that we have been seeing an increase in transactions abroad for several years, initially in Spain and Italy, especially in the Scandinavian countries, and now also increasingly in Eastern Europe.
Question: What is your personal "game changer" or "highlight" in the field of renewable energies since the beginning of 2021?
Response: The decision of the Federal Constitutional Court on the unconstitutionality of the German Climate Protection Act was highly important, arguing that the legislator should not leave the greater burden of dealing with the climate crisis to future generations. Against this background, the Climate Protection Act is shall be quickly amended, and a first government draft is available. Industry, especially the energy-producing industry, is shall be assigned much more far-reaching reduction targets than before. However, the draft law explicitly leaves open how players in the industry actually realize these targets. The issue of how the demand for clean energy is to develop at the necessary speed (not to mention cost issues) in view of the current legal environment and the possibilities for expansion, which is also of particular concern to the economy, remains open.
In an "immediate action programme", which is currently being coordinated among the ministries, the federal government has set higher expansion targets for wind and solar energy - but once again these are non-binding. Urgently needed planning security for the affected economic sectors (i.e.: all of them) is missing (more on this topic in our Insight).
The ruling of a Dutch court against Shell at the end of May 2021 was also groundbreaking. For the first time, a multinational company was legally obliged to protect the climate; we can assume this ruling will have a signal effect. The question of whether individuals have a claim to climate protection against companies and states and can assert this claim may have far-reaching and not fully assessable (legal) consequences.
Finally, there were also important developments at a European level at the end of April 2021. The Commission presented a package of measures to incentivise more investment in sustainable activities. The package, part of the European Green Deal, includes the delegated regulation on EU climate taxonomy, a proposed directive on corporate sustainability reporting, and amending acts on fiduciary duties and on investment and insurance advice.
Do you have any questions or are you interested in an (interdisciplinary) exchange with our Corporate Energy team? We look forward to talking to you!
Spotlight EEG 2021
by Multiple authors