Germany Proposes Compensation for Offshore Wind Delays

07/02/2012| 11:21am US/Eastern

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-- Proposals include compensation payments to wind farm operators

-- Limits liabilities of power grid operators, allows costs roll-over to customers

-- Government wants proposals to be implemented into law as soon as possible

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FRANKFURT--Germany Monday presented proposals to speed the expansion of offshore wind farms, addressing important liability issues related to delays in connecting generating facilities to the power grid as well as grid outages after the wind farms have started operations.

In a written statement, the Environment and Economics ministries said wind-farm operators will be entitled to fixed compensation payments if grid connections are delayed or interrupted. The proposals also include a ceiling for grid operators' financial liabilities, which allows them to slap any additional costs on to consumers' power bills.

The proposals come after repeated warnings from power utilities that delays are jeopardizing an ambitious target to install 10,000 megawatts of offshore wind power generation capacity by 2020. This target is a key element of the government's energy roadmap through 2050, by when at least 80% of the country's electricity consumption is expected to be supplied from renewable energies.

Utilities have also expressed concern at slow progress in connecting wind farms off Germany's North Sea coast, with RWE AG (>> RWE AG) saying this is threatening the economic viability of its showcase, EUR1-billion, Nordsee Ost wind farm. Originally expected to begin operations at the end of this year, Nordsee Ost is now set to start producing power sometime in 2014.

Grid operator TenneT TSO GmbH--a unit of Dutch state-owned grid operator TenneT Holding BV--has said there are delays due to lengthy approval procedures and technical difficulties, faced by subcontractors like German engineering giant Siemens AG (SI), in increasing the grid's capacity and connecting it to the new offshore facilities.

The ministries said that in the event of a broken connection, operators of offshore wind farms will receive 90% of fixed rates they would have received for feeding the produced electricity into the grid. The compensation will be paid from the 11th consecutive day of delay or interruption.

The proposals also include a cap on financial liabilities that grid operators may face, the ministries said.

Provided that the delays or grid failure haven't been caused deliberately by grid operators, their liabilities will be capped at EUR100 million per damage case. Additional costs can be passed on to customers' power bills in form of a "liability apportionment," the ministries said.

TenneT and RWE both welcomed the government's proposals.

"The ministers' proposal is essential for setting the further course in developing offshore wind energy," said TenneT board member Lex Hartmann in a statement.

"Generally, we welcome today's proposal for liability issues," said Hans Buenting, chief executive of RWE AG's (>> RWE AG) renewable unit RWE Innogy. Buenting said that a quick implementation of the proposals should help regain investors' trust in offshore wind as a solid income stream, but that it is too early for a detailed evaluation of the proposals.

The ministries said that the proposals will be further developed over the summer, and that legislation is expected to be implemented as soon as possible.

Write to Jan Hromadko at jan.hromadko@dowjones.com

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