The German Government's "Energy Strategy"

The German Government has, at the end of September, adopted a new energy strategy (the "Strategy"). The Strategy is said to be directed towards achieving Germany's key energy policy goals of climate protection, economic efficiency and security of energy supplies.

Nuclear power is considered to be a "bridge" towards an energy supply increasingly based on alternative energy. As a result, the strategy extends the remaining operating lifespan of existing nuclear power plants by up to 14 years; a previous centre-left Government had decided they should be phased out by 2021. In addition, targets have been set for the proportion of electricity sourced from clean energy sources to increase to 50% of total electricity generated within the next 20 years, and up to 80% within the next 40 years.

Policy background

One of the biggest challenges of the 21st century is to secure a "reliable, economic and environmentally compatible energy supply". The Strategy aims to achieve a central policy goal with regard to Germany's energy sector: Germany wants to be regarded as "one of the most energy efficient and environmentally friendly economies in the world". Attaining this goal is a political necessity for the current German Government in light of: (1) increasing global energy demand and resulting price rises; and (2) the increasing dependency of Germany on energy imports.

Key elements of the "energy strategy"

The German Government has sought to put in place a long-term strategy through to 2050 which involves "conventional energy carriers becoming ever-increasingly replaced by renewable energy". The key elements of the Strategy are:

Extension of the remaining operating time of nuclear power plants

Nuclear power is considered to be a "bridging technology" for the purpose of assisting the gradual replacement of conventionally generated electricity with electricity generated from renewable and clean energy sources. The Strategy also seeks to create further opportunities to increase existing funding for the promotion of renewable energy and energy efficiency measures.

The remaining lifespan of 17 nuclear power plants is to be extended by up to 12 years. Nuclear power plants that started operating before 1980 have their lifespan extended by 8 years. This includes the nuclear power plants Biblis A (RWE), Brunsbuettel (Vattenfall/E.ON), Isar 1 (E.ON), Phillipsburg 1 (EnBW), Neckarwestheim 1 (EnBW) and Unterweser (E.ON). The younger nuclear plants have their lifespan extended by up to 14 years.

In exchange for extending the lifespan of existing nuclear power plants, the German Government expects to receive a share of the additional profits generated, which it will take via a new tax on nuclear fuel rods. According to the Financial Times, the tax will mean that the four companies with nuclear generation assets in Germany, E.ON, RWE, EnBW and Vattenfall, will pay €2.3 billion per year over the next six years. On this basis, finance minister Wolfgang Schäuble expects the tax to generate €13.8 billion by 2016, when it is expected to expire.

The German Government has also reached an agreement with the four power companies that they will pay €300 million per year into a special fund to promote the development of renewable energy in 2011 and 2012. In the four years after that, they will pay €200 million per year, amounting to a total renewables contribution of €1.4 billion by late 2016.

The companies' largest contribution to next-generation energy projects will start in 2017, when the fuel rod tax will be replaced by a renewables levy payable on each kilowatt hour of electricity generated, which is expected to result in additional funding of €15 billion for renewable energy projects.

Expansion of wind energy (offshore and onshore)

The Strategy also seeks to promote the development of renewable energy, with a particular emphasis on wind energy, especially offshore wind. The aim is to achieve 25 GW of installed offshore wind generation capacity by 2030, which will require investment in the region of €75 billion. The German Government will start a special "Offshore Wind Energy" programme in 2011 with a €5 billion of credit to be provided by the State bank "Kreditanstalt für Wiederaufbau" (KfW). The Government also envisages simplifying administrative authorisation and consenting procedures for wind projects.

Another key area highlighted for development and investment is the transmission and distribution of electricity generated by wind energy from the coast to areas of high population density where demand for power is highest. The German Government therefore aims to accelerate the construction of transmission networks.

The strategy also provides for the importation of "green electricity" by Germany, such as solar energy from North Africa.

Renovation of existing buildings

Existing buildings account for up to 40% of Germany's total electricity consumption. As a result, the German Government will introduce stricter laws from 2012 to promote the renovation of existing buildings which will put the financial burden of renovation on property owners and tenants. The aim is that by 2050 all buildings will be renovated to the highest EU standard of "Zero Emissions", which will involve the implementation of energy efficiency measures relating to heating, insulation and ventilation and the installation of automatic and remote control technology and "smart" electricity meters.

Outlook

It is unlikely that the Strategy will be implemented to the letter. First of all, the opposition announced already that it will challenge the law granting the extension of the lifespan of the nuclear power plants at the Federal Constitutional Court if the Government does not ask the upper house of the German parliament ("Bundesrat") for its consent. However, the Government is unlikely to make this request as the governing parties have at present no majority in the Bundesrat. The outcome of such proceedings at the Federal Constitutional Court is open.

Furthermore, a number of players in the German energy sector complained that their interests are not sufficiently reflected in the Strategy. This applies in particular to the numerous small and medium-sized energy supply companies which are often community-owned. They argue that the Strategy does not provide sufficient incentives for the enhancement of competition, for investments in the distribution networks and for the supply with natural gas.

The contents of this publication, current at the date of publication set out above, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication.

Herbert Smith LLP, Gleiss Lutz and Stibbe are three independent firms which have a formal alliance.

© Herbert Smith LLP 2010