On February 24, 2022, Russia invaded Ukraine, escalating the Russo-Ukrainian war. Areas of Europe lost access to Russian gas due to implementing boycotts, inflation grew exponentially, and energy security became a tangible concern for many European nations. Russia’s grip on natural gas caused a spike in the price of gas and electricity, amplified by the already existing struggle in Europe to meet energy demand through the winter season. Germany was one of the countries affected, with Russia reducing its access to natural gas, which now accounts for around a quarter of the nation’s consumption, compared to over half prior to the war.[1]
Consequently, Germany’s cabinet revised the Renewable Energy Sources Act (EEG) and multiple energy laws, producing the ‘Easter Package’.[2] Two notable principles that underpin the Easter Package are:
- Renewable energy as a matter of national security
- Renewable energy is in the overriding public interest and serves public safety.[3]
These two principles are now being enshrined into German law. Importantly, the second principle is not simply an assertion that renewable energy is overwhelmingly in the public interest, it is also the driving force behind the Renewable Energy Sources Act (RES Act).
This act stipulates the “primacy of renewable energy” specifying that: “when different interests are weighed up, renewables are to be viewed as a priority interest until greenhouse gas neutrality is attained.”
This implies that not only is a renewable energy transition in the public’s interest, but it can now override public interest pursuant to the German legal system. In conjunction with emergency powers adopted by multiple EU governments during the COVID-19 pandemic, a slight increase in governmental authority is occurring in parts of Europe.
Ambitious targets and German political structure
Germany’s Easter Package is highly ambitious. To give perspective, in 2021 Germany had a total of 28,230 onshore turbines, with a collective capacity of 56 GW.[4] According to the Easter Package, this needs to more than double to 115 GW in the next eight years; a far shorter time span than what it took to establish the existing turbines.
Additionally, this goal needs to be achieved during record lows of gross expansion. For example, 2017 saw Germany’s highest gross expansion with 5.3 GW. However, this dropped to <1 GW in 2019, and barely recovered in 2021 with 1.6 GW.[5] Whilst 2022 did see a 25% increase from the previous year, German lobby groups such as BWE claim it is still far from the Governments expansion targets.[6] Compare this with Germany’s aim to install 10 GW of new onshore wind per year from 2025 onwards.
Germany is often considered one of Europe’s leaders in wind energy, and these policy changes are clearly ambitious for Germany, and by extension for the European Union as a collective.[7] [8] The Easter Package reveals a shifting mindset, one that is now forced to recognise the interconnectedness of nations, and the unavoidable threat of climate change issues and lack of energy security. Even as Environmental, Social, and Governance (ESG) now begins driving EU and UK policy, questions arise concerning the balancing act of public interest and the direction governments choose to take.
Germany is structured as a federal state and parliamentary democracy. It is stipulated in Germany’s Basic Law that all governmental powers come from the people, who assign said powers to the parliaments (Bundestag and State parliaments) for a legislative period.[9] The unavoidable term that defines Germany’s political system is democracy, meaning that German supreme power resides with the citizens, specifically the rule of the majority.[10]
Germany also has a low score of power distance, defined as “the extent to which the less powerful members of institutions and organisations within a country expect and accept that power is distributed unequally.”[11] German society expects a more even distribution of power and authority. It can be difficult then, for a country which is democratic, individualistic, and highly decentralised, to enshrine into law that something may override public interest.
Policy making that prioritises what the ruling body perceive as the overarching good, rather than the will of the majority, is associated more so with monarchies or societies with a higher score of power distance. This is not to assert that the German Easter Package or emergency COVID-19 powers are inherently harmful violations of the public’s autonomy per se. However, it does indicate a shift and highlights the challenges that democratic republics will increasingly encounter when unprecedented events take place.
The decision to view renewables “as a priority interest until greenhouse gas neutrality is attained,” carries the assumption that renewables as a priority, and public interest, are opposing forces. If this were not the case, there would be no need to enshrine into law that renewables can supersede public interest in the name of national security. This is particularly relevant to the permitting process, which allows the public to oppose and intervene with developments.
The permitting process and renewable energy
The permitting process in Germany has become a barrier to renewable energy expansion in recent years, with a significant drop in permits issued for onshore wind developments; “issued licenses dropping by 70 percent over three years.”
For example, 1228 permits were issued between January and September in 2016, compared to only 351 issued in the first three quarters of 2019.[12] Additionally, an estimated 10 GW of turbine capacity was delayed in 2021 by licensing processes.5 This indicates two key problems with the current process:
- The permitting process in Germany is a balancing act between upholding stringent regulations, and expediency
- Renewable energy projects are subject to significant opposition from various groups, particularly private individuals, and environmental associations.
This might suggest that renewable energy and public interest are opposing forces, however, a holistic viewpoint challenges that. For example, prioritising renewables could provide greater stability in national energy supply and demand and would also safeguard the nation’s energy source through uncertain times and events. It could ensure housing and infrastructure continue to function adequately; and jobs could be more secure. Public interest tends to value security and safety in a broad sense, to which energy security is imperative. Therefore, it is not inherent that public interest and national security are opposites.
This is illumined by the fact that species protection is overwhelmingly the most frequently cited reason for a complaint against wind turbine generators in Germany.[13] It is evident there are details around the processes, and implications of renewable energy that are barriers to the public. The issue is not therefore that public interest and energy security are inherently opposites, but rather that current methodologies have not sufficiently aligned the two.
Aligning the public with renewable energy
While it is true that a percentage of the population may always be resistant, a great deal of the incongruency between these two elements lies more so in the details. For example, in the case of Germany it could be that:
- A proportion of the population does not sufficiently understand renewable energy or how it functions,
- Their fears of species detriment may be overestimated, and they lack the tools to know that,
- They may distrust their government and therefore regard the push for renewables with suspicion by proxy,
- They use the permitting process to express their wider frustrations within the system,
- They are highly influenced by the narratives of partisan politics, or perhaps they do not trust the quality and integrity of the projects themselves.
Hence, there is a lot that can align the population with renewable targets, however, it requires a multi-faceted approach, and the recognition that the reasons for the incongruency reflect wider societal, cultural, and political issues.
There are many tools available that can aid in aligning public interest with renewable energy goals:
- Information campaigns
- Educational programmes and the education system itself
- Local panel discussions
- Community consultations
- Insurance
Insurance specifically has the potential to be a powerful gatekeeper of integrity and quality when it comes to developments, particularly renewable energy projects.
Insurance and renewable energy
Stereotypically, insurance is viewed with suspicion, and a lack of transparency seems to be the common denominator. However, the baseline of insurance is sound; the world inherently contains risk, and understanding, learning from, and mediating risk, remain the necessary and responsible courses of action. To do this, risk must be quantified to the extent that it can be, and then valued. Quantifying and valuing risk allows for well informed decision making. Risk can never truly be eliminated, because the certainty required for that is not achievable, however, choosing to not engage or quantify risk to any extent means that decisions are made blindly. Moreover, it is often through the process of engaging with risk that potentials are realised, and the risks worth taking are revealed. In other words, quantifying, and valuing risk, equally allows success and growth to be quantified and valued. The attitude of an insurance company regarding unconventional risk (especially when it pertains to innovation as it does with renewables), is thus important.
Insurance quantifies and evaluates risk to better inform decision-making. While insurance cannot eliminate risk, it can identify whether a risk is worth taking. Projects that are large scale and unprecedented are naturally controversial, due to high-risk profiles. However, such projects can also be necessary to achieving substantial growth in renewable energy. A limitation of insurance in this respect is its tendency to take a cookie cutter approach.
Bespoke underwriting, however, takes an alternative approach and evaluates risk on a case-by-case basis. This allows risk to be thoroughly evaluated and can integrate the net positive impacts of a development into the due diligence process. Additionally, changes to environmental policy and governance, or world events, can be reflected in insurance decision making via the underwriting process.
Germany’s Easter Package and the EU’s response to the Russo-Ukrainian War and energy security are prime examples. Insurance companies can use bespoke underwriting to filter projects and elevate the ones that meet industry best practice and offer net positive gain. Moreover, bespoke underwriting allows for regularisation, and if possible, avoids further litigation. This allows best industry practice to be a collaboration between developer, community, and insurer.
This is how Insurance has the potential to be a powerful gatekeeper of quality, integrity, and best practice. In the case of wind energy in Germany for example, insurers can prioritise developments that:
- are in the interest of the public and national security,
- have maintained best industry practices,
- have engaged with communities,
- and have done their due diligence regarding Environmental Impact Assessment (EIA) and mediating measures.
Good developments can become stalled by permit challenges submitted by frustrated individuals and associations. In this instance insurers act as a barrier between ‘good’ developments and the misuse of the permitting process.
Equally, insurers can act as barriers by refusing to insure projects from developers who have not undertaken all measures available to them to minimize the impact on communities and the environment. This approach would safeguard from projects that may cause unnecessary, unjustifiable, or severe damage. In the German case for example, insurers can use tools like Permit Challenge products to evaluate the merits of a wind development, whether it adheres to best industry practice, and if it serves a positive net gain in relation to energy, the environment and species, and the community.
The political impacts of Germany’s Easter Package
It is unclear how Germany’s Easter Package will unfold, but the package does set a precedent. France is following suit with a similar idea: President Macron made an appearance at the offshore wind farm Saint-Nazaire, where he announced that “France needs to get serious about renewable energy and speed up processes, including, slashing down how long it takes for judicial authorities to examine complaints local communities often file against such projects.” Macron added that he wants “to double the speed of building wind parks in France.”[14]
Moreover, with the escalation of the Russo-Ukrainian war, the European Commission has submitted a proposal that will implement the principle of ‘overriding public interest’ EU wide.[15] If this is passed and implemented, this principle will be mandated in every Member State. Moreover, the response of the German (and French) public is an element yet to be factored into the equation. Partisan allegiance could change in the population if a large proportion of the public respond negatively to the Easter Package and permitting process reformations.
With the rise of ESG, corporate responsibility may also be evaluated. A decade ago, the thought of ESG becoming tangible and necessary was foreign, and climate change issues did not have such widespread concern or investment. As ESG expands, and synthesises environmental, social, and governance, insurance companies may become gatekeepers of quality, integrity, and best practice. This highlights the importance of the underwriting process itself, through which unconventional or complex risks can be valued and insured successfully.
Written by Catherine Orman, who is an assistant underwriter at MX Underwriting.
For more information on MX Underwriting and how it can help you transfer the risk of permit challenges delaying your project timeline, please visit: www.mxunderwriting.eu.
