Renewables Arbitration - a Perspective from Germany

Clyde & Co’s Young Arbitration Group provides a unique insight into international arbitration issues through the lens of young international arbitration practitioners working across different jurisdictions. In this series with Daily Jus, Clyde & Co explores the role of arbitration in renewable energy disputes.

In Germany, renewable energy projects are being built in the wind sector (offshore and onshore), photovoltaic (PV), concentrated solar power (CSP), hydropower, geothermal and biomass, striving to achieve EU and national climate targets. Offshore wind makes up a major share in the renewable energy sector in Germany and often involves the most technically challenging disputes, due to factors like large-scale investments and new technologies. As a result, offshore wind projects account for a significant percentage of renewables arbitrations in Germany, which is why the focus of this article will be on offshore wind energy disputes.

As investments in renewables grow and projects become larger, disputes are increasingly common and technically more complex. This is also owed to the fact that these projects often employ new technologies such as floating offshore wind, novel forms of corrosion protection or simply the latest and most powerful turbines. Disputes can be of regulatory or contractual nature. This article focuses on contractual disputes as the regulatory disputes are under the jurisdiction of German courts. These disputes will therefore only be mentioned briefly here for the sake of completeness. 

For contractual disputes, Germany provides an arbitration friendly legislative framework, effective court support on evidentiary issues and novel institutional tools to resolve complex multi-party and multi-level disputes with all stakeholders in the contractual hierarchy. 

The Renewable energy landscape in Germany

EU Targets 

The EU's offshore renewable energy targets aim for significant capacity increases of at least 60 gigawatt (GW) of offshore wind and 1 GW of ocean energy by 2030, scaling up to 300 GW of offshore wind and 40 GW of ocean energy by 2050. These goals are part of a broader strategy (see EU COM/2020/741) to reduce emissions, enhance energy security, and position the EU as a leader in offshore energy technologies. The strategy includes coordinated grid planning, streamlined permitting, and investment support.

German Targets and Legal Framework 

By the end of 2023, Germany had 1,566 offshore wind turbines with a combined capacity of nearly 8.5 GW off the North Sea and Baltic coasts. An additional 3.72 GW is under construction, slated for commissioning by 2026. Through tendering rounds from 2022 to 2027, Germany plans to add 8 GW by 2029, 15.5 GW by 2031, and 6 GW by 2032. Starting in 2028, 2 GW will be tendered annually as per the 2023 Area Development Plan. 
The Offshore Wind Energy Act (WindSeeG) outlines Germany's ambitious total offshore wind capacity targets: at least 30 GW by 2030, 40 GW by 2035, and 70 GW by 2045. In addition, the WindSeeG regulates details of auctions by the Federal Grid Agency (BNetzA). WindSeeG, the legal framework for offshore wind is contained in the Renewable Energies Sources Act (EEG) and the German Energy Industry Act (EnWG) and accompanying secondary legislation and regulation. The EnWG sets out the transmission system operator (TSO)’s obligations. Further relevant laws and regulations include the Seeanlagenverordnung (SeeAnlV) and the Federal Nature Conservation Act (BNatSchG). Recent reforms of the WindSeeG and EEG include expedited permitting processes and allocation adjustments to support accelerated deployment, especially in the North and Baltic Seas.

Reasons for Disputes in Offshore Wind Projects 

Offshore wind projects often involve multinational stakeholders and complex, multi-party contracts that are often financed by third parties. The extensive contracts with numerous annexes are often based on the FIDIC suite of contracts or at least its key provisions and structure. The common use of knock-for-knock clauses in the international offshore context is less prevalent in contracts with German parties and German applicable law, with its fault-based liability regime standing in contrast to the common law concept of knock-for-knock.  

Common reasons for disputes in this sector include: 

• Delay: Renewable energy projects often face delays, caused by supply chain issues, bad weather, or regulatory holdups, leading to disputes over liquidated damages, contractual breaches, or general compensation claims. Problems often arise where contractors are required to give notice for an extension of time or increased costs within given deadlines (e.g. 20.1 FIDIC Yellow Book) and whether variations orders are still within the scope of the contract.     
• Interface issues: Offshore wind farms typically involve multiple contractors and sub-contractors working on various aspects, such as foundation installation, cabling, and turbine installation. Interface disputes are usually the result of a lack of coordination between different parties involved or ambiguities in the contract.  
• Design responsibility: Disagreements over design responsibility often arise due to a misalignment in understanding individual design risks and responsibilities or due to ambiguous contract drafting. This issue is particularly pertinent where the tasks are not clearly allocated to the contractor or sub-contractors (design and built) but remain, fully or partially, with the employer or the responsibilities have been transferred to replacement contractors or sub-contractors. Moreover, design responsibility is particularly challenging when novel technologies are chosen for the project and no long-term data is available.  
• Vessel availability: Offshore wind projects rely heavily on specialized vessels for foundations, cables, installation of monopiles, transition pieces and operation and maintenance. Limited availability or unexpected vessel delays can derail project timelines, leading to claims for compensation and considerable knock-on effects. This was particularly prevalent during the COVID pandemic. 
• Incorrect information: Misrepresentation or incorrect soil data can lead to disputes when foundations fail or designs and pile driving require significant modifications, raising costs and delaying construction. Soil data tends to rely on scattered probes being taken and conclusions drawn for the distance in-between.  
• Cost Increases: Rising material costs, labour shortages, or regulatory changes can lead to disagreements over contract pricing or requests for cost adjustments. Cost increases and delays can also arise from variation orders from the employer with the cardinal-change-rule often applying.  
• Insolvency: The insolvency of the employer, contractors or sub-contractors during construction can delay or completely halt project progress and lead to disputes regarding payments, unfinished work, and damages. Should an arbitration or Dispute Adjudication Board (DAB) already be in progress when a party or intervenor goes into insolvency, the arbitration is continued against the administrator of the insolvent party, where German law applies to the insolvency proceedings.   
• Defects: Defects in key components, such as corrosion protection, inter-array cables, turbine blades, or transition pieces, can result in major repair costs and lengthy downtime, prompting claims for warranty breaches or defective performance. The costs are particularly high when the defects require offshore rectification. 
• Permissioning (before or after sale of project): Securing necessary permissions and permits is critical for the timely delivery of projects. Delays or disputes over permitting, especially after the sale of the project, often escalate into arbitration.
• Grid Connection Disputes can also arise with the grid operator concerning the connection or off-take of energy. These are currently resolved exclusively in state courts.  

Key Offerings

Services for mitigating and managing disputes in Germany’s renewable energy sector encompass several key areas such as the following: 

• Structured finance is provided to ensure funding arrangements and protective contracts (e.g. parent company guarantees);
• Contract development and negotiation use the FIDIC contract suite to address project risks;
• During project execution, Dispute Adjudication Boards (DABs) are employed to facilitate early resolution of conflicts;
• Post-construction, efficient operations and maintenance claims are managed. Expertise in arbitration is applied to resolve disputes over delays, defects, and post-M&A issues, with a focus on safeguarding client interests through all construction phases; and 
• Procedural guidance covers document management, expert witnesses, and handling complex arbitration cases.

Arbitration as a Preferred Method to Resolve Disputes

Germany has a strong arbitration culture. The following factors make arbitration an attractive choice for resolving disputes in the renewable energy sector:

• Specialized Expertise: Many disputes in renewable energy require technical expertise, whether in engineering, environmental science, or finance. An arbitral tribunal may include industry experts who do not necessarily have a legal background or training, ensuring that the decision-makers understand the complexities involved.
• Confidentiality: Unlike state court litigation, arbitration is confidential, allowing parties to protect sensitive information. Given the proprietary nature of much renewable energy technology, this may pose a significant advantage.
• Enforceability: Germany is a signatory to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”), which currently allows arbitration awards to be enforced in 173 countries. This is particularly valuable for international investors and developers in the renewable sector.

Frameworks for Energy Arbitration: 

For ad hoc commercial arbitrations (domestic and international), parties may resort to the German Arbitration Act (10th book of the German Code of Civil Procedure (ZPO) which is almost a verbatim adoption of the UNCITRAL (United Nations Commission On International Trade Law) Model Law on International Commercial Arbitration (2006) with very few (helpful) exceptions. If the parties prefer the oversight of an arbitral institution, they often pick the Rules of the German Arbitration Institute (DIS) (2018) in cases where German parties of German law are involved. 

Third Party Notices

Since March 2014, the DIS also provides Supplementary Rules for Third-Party Notices (2024). This is a particularly interesting tool for energy arbitrations in Germany because it allows additional parties with an interest to be included as interveners (not joinders or additional parties) in the arbitration. This feature is especially useful in complex energy disputes involving multiple stakeholders, such as contractors, suppliers, and lenders. By integrating the option to issue third-party notices, procedural flexibility and efficiency are enhanced, reducing the risk of parallel proceedings and conflicting decisions, and ensuring more effective resolution of subsequent arbitrations or litigations concerning recourse claims. 

Investment Arbitration

Germany is a party to the Energy Charter Treaty (ECT) which provides an essential framework for foreign investors in the renewable energy sector, offering protections and a platform for investor-state dispute resolution. The ECT’s provisions are particularly relevant given the increasing complexity of renewable projects and the rising involvement of international investors. A notable example is the recent Strabag and others v. Germany case which concerns investments in offshore wind energy projects in the German North Sea and related permits. This ICSID arbitration was initiated under the ECT in 2019 following the German government’s decision to phase out support for certain renewable energy projects, alleging that the policy shift negatively impacted their investments. This case highlights the ECT’s continuing relevance as a safeguard for investors facing regulatory changes that could affect project viability and profitability in Germany’s renewables market.

Conclusion

Germany's ambitious renewable energy targets and the complexity of offshore wind projects are likely to result in an increase of disputes in the coming years. Arbitration offers a specialized and efficient forum for resolving these conflicts, with its adaptability to technical and financial complexities. As the renewables sector continues to evolve, proactive contract management, comprehensive dispute resolution strategies, and industry-specific arbitration expertise will contribute to minimizing risks and facilitating a smooth “green” transition.

The series contunues next week with a perspective from Dubai. 

This article was originally published on Daily Jus on Thursday 31st October, with thanks to Jus Mundi & Jus Connect, and is available here: