Who owns the wind?

The regulatory framework in the area of public law will effectively have to be developed so as to ensure that significantly more areas are available for installing wind turbines. But, sadly, the latest developments suggest rather an opposite trend. According to the CDU/FDP Coalition Agreement for North-Rhine Westphalia, a rule should be introduced where wind turbines should be built 1,500 metres away from residential housing. The potential area where wind turbines could be installed would thus shrink by 80%. If we extrapolated this trend to the whole of Germany (in Bavaria there is already the 10H rule in place), this would mean the end of wind power and probably of the climate protection. Policy makers will always claim that this should protect citizens from the negative impacts. Oddly, in municipalities where many citizens participate in wind farms (also financially), hardly any objections were noted. This begs the question: where does the capital financing the German energy transition come from?

The last years‘ developments show that the majority of wind

turbines are not in the citizens‘ hands, but are owned by institutional

investors, i.e. banks, insurance companies, investment funds etc., who – especially in recent years – have acquired them from project developers. True cases where power plants are owned by citizens –mainly by locals – have become very rare and this waning trend will intensify given the discontinuation of power auction privileges (starting from 2018). Typically, wind farms are sold in a bidding procedure not necessarily to local citizens‘ cooperatives but to the above-mentioned types of investors who place the best bids. The investment pressures (alongside the current interest rates) lead to a situation where a capital investment in a wind farm with 20 years of a statutorily guaranteed rate of return in a best rating federal state is extremely attractive. But besides the specific source of capital of the operator, discussed should be the situation of local citizens, who in the end are indeed negatively

affected by wind turbines (and I do not mean here the farmers

leasing the land), but do not receive any compensation for it.

From a bit more abstract perspective, the question arises as to what the mutual relations between participants in a project are. In the end, operators receive the remuneration from the electricity market, pay lease to land owners. But citizens of a specific district participate in the profits from energy supply only very indirectly (meaning slightly higher business tax revenue), but rather not financially. An exception are wind farms which are operated directly by municipalities (e.g. the city of Pegnitz with 7 wind turbines) or wind farms owned by utilities whose 100% of shares are owned by municipalities.

 

In the end, wind could be regarded as common property made available to a wind farm operator against a concession and for a definite period. If the concession fee flew directly to the pocket of the relevant municipality, this would enable an appropriate reconciliation of interests on both ends. This probably seems strange at the first glance, but is not unusual. For deep geothermal energy, being a resource governed by national mining law, a concession fee is required based on regulations of mining law. Currently, concessions are awarded in a two-tier procedure (exploration license and permit) on a first-come-first-served basis. The objective clearly defined in mining law is to optimally use the resource.

The concession fee is low, but it is very likely to be raised when it comes to the exploitation of the energy stored in the Earth. In Switzerland, appropriate concession fees are also charged for the exploitation of hydropower. To answer the question asked in the title of this article, it seems not that odd to charge a fee also for „the wind“, a fee which would then flow to the public pocket, because, in the end, wind should be regarded as common property.

After all, it‘s all about the “internalisation of external costs”, a

concept which plays an important role in helping avoid misallocations of resources. To ensure that the allocation function of the price, a concept famous in socio-liberal market economies, is effective also when it comes to exploiting natural resources, natural ecosystems should not be burdened or depleted free of cost in the future. In addition to such production factors as labour and capital, also natural resources should get a price tag, which on one hand leads us to the already debated CO2 tax. By extension, it should be thus logical to appropriately remunerate

regions and municipalities with favourable wind conditions also for the wind understood as being a municipality‘s public asset. Thus, in the case of wind projects, not only the owner of the land would have a share of the profit but also municipalities acting as administrators of the wind being an environmental resource and public property deployed in such projects.

 

In the end, wind can be seen also as fuel which, due to differentiated

wind conditions, significantly determines the profitability of projects. It is thus hardly acceptable for residents living close to wind farms to see that wind farm project developers reap 100% of the profits using this fuel for free, while all the detriment caused by the operation of the power plant (shadowing, negative visual impacts etc.) falls on the shoulders of the residents.

In addition to these considerations, which are certainly of a rather

abstract nature, there should be a [specific] political debate as to whose capital the energy transition should actually promote. It is a

non-debatable fact that wind farms in citizen ownership or owned by state-owned enterprises (utilities) enjoy a significantly higher level of acceptance than a wind farm owned by an investment fund. In the light of the challenges posed by the expected insufficient degree of expansion [of renewables] as discussed above, this should certainly be an aspect to address by the regulator. This could be achieved simply through incentives to be offered under regional marketing models, which would obligate local utilities to a greater extent to generate energy to be consumed in their areas of supply also by themselves in a decentralised manner, as far as possible. Sadly, the developments suggest an opposite trend. Mainly small and medium sized utilities (owned by municipalities with up to 75,000 residents) are very reluctant to launch or even develop projects by themselves. The auction model (where privileges for public utilities would not apply) involves too much risk.

Finally, the issue of transmission networks should be briefly discussed.

In the last decade, many municipalities have repurchased their transmission networks from private-sector entities and begun to act as network operators again (albeit using Private Public Partnership models). This is indeed advantageous in terms of the decentralised structures to be developed. Especially issues such as load management in the distribution network should be also dealt with ideally through local partnership – whether this is done in association with others or ultimately as a regional network operator is certainly conditional upon locality. German transmission networks, however, (which also offer operators hefty returns through German network charges) are partly in

foreign ownership. For example, 90% of Tennet‘s shares are owned by the Dutch government; the ownership structure of Amprion is shown below.

This begs the question of whether it wouldn‘t be easier (and fairer) to build the network structures if the regions concerned participated directly also here and the network charges (constituting highly secure returns) did not ultimately flow to the pockets of extraneous shareholders, as is currently the case, e.g. the Medical Pension Fund.

It should be emphasised that the necessary expansion of renewable

energies in Germany will be only able to function if the ownership structure issue is openly questioned and debated. A strongly decentralised structure of supply should ideally build on decentralised ownership structures and the central infrastructure should also ideally be in public ownership. The idea of wind concessions, which alone seems to be abstract, should be allowed and would immensely advance the energy transition in Germany, increase social acceptance, and help broaden sources of municipal financing.