Headline: Federal States Introduce Schemes for Citizen Participation in Wind Energy Projects - Part 1

On 20 April 2016 the federal state of Mecklenburg-Vorpommern enacted the so-called “Citizen and Municipal Participation Law” in an effort to boost acceptance for new wind energy projects and ensure they add value to local economies. Thuringia has also adopted a set of voluntary guidelines for “Fair Wind Energy “ that aim to enhance the economic participation of citizens and towns in the wind energy sector. Boris Gotchev outlines the different approaches taken by the two federal states to improve economic participation and reports on his ongoing research.

Mecklenburg-Vorpommern is a pioneer within the German energy transition. Statistically, 130% of Mecklenburg-Vorpommern’s electricity demand is met through renewable energy generated within the state (most of this through wind power), which ranks third in a comparison of federal states undertaken by the Renewable Energies Agency. Mecklenburg-Vorpommern is now treading new ground with a legal initiative to promote participation in wind energy. Three years in the making, the Citizen and Municipal Participation Law was recently enacted by the state parliament in Schwerin. The legislation aims to improve public acceptance of new wind turbines and lift local value creation by providing opportunities for the economic participation of local residents and neighbouring municipalities. To do this, the legislation requires that developers set up a development company for each new wind energy project and offer a stake of up to 10% in the new development to citizens and towns located within a five-kilometre radius of the project. To ensure a low investment threshold, the legislation stipulates that the price of individual shares may not exceed five hundred euros.

The Citizen and Municipal Participation Act – Option B

Alternatively, the legislation allows for developers to invite citizens to invest in a savings product. In the so-called “Option B”, citizens living within a five-kilometre radius of the development are invited to invest in a fixed-term deposit scheme. The interest payable on the deposit varies with the profit generated by the development. This option enables citizens to share in any profits made through the project without incurring any risk. Developers can also choose to offer municipalities payment of an annual “compensation levy” on income generated by the wind farm. While municipalities are free to choose between the two options on offer, citizens are not always presented with the option of purchasing savings products. Alternative solutions developed at the local level are also permitted under the new legislation, reflecting a policy that favours voluntary action over regulation. Examples of this could include preferential electricity pricing schemes, but ultimately any alternative solution would need to be signed off by citizens and municipalities.

The legislation is motivated by the state government’s declared goal of doubling installed wind power capacity from the current level of 3 000 MW to 6 000 MW by the year 2025 – with resistance to new projects growing in communities, this is unlikely to be achieved unless local acceptance can be lifted. The lack of support in communities for new developments can be traced back to the meagre impact of wind farms on local economies in the region, with few local developers and revenues from land leases flowing to land owners located outside the region. Community wind farms – an ownership model that often succeeds in maximising local value creation – are rare in these regions, where incomes and asset formation are comparatively low by German standards and local land ownership by citizens and municipalities is limited. Wind power is an important economic factor however, and Mecklenburg-Vorpommern boasts the second highest average number of employees in the renewable energy sector. With little hope of voluntary models of participation flourishing under the existing regulatory regime – despite recent support for such models from the industry – the state government has opted to impose regulatory constraints on developers. The new legislation aims to make citizen participation the rule rather than the exception as a means to strengthen local value creation and build acceptance.

Thuringia joins Mecklenburg-Vorpommern with guidelines for “fair wind energy”

Mecklenburg-Vorpommern is treading new ground in Germany with its legislative intervention. The measure takes its cue from Denmark, which introduced a national civic participation scheme in 2009 that was unprecedented in Europe. But Mecklenburg-Vorpommern is not the only German federal state seeking to encourage citizen and community participation in wind farm development through interventions at the state level.

A similar measure was recently introduced in Thuringia. There, the federal state’s energy agency ThEGA established an office for Wind Energy Services in 2015. Under the slogan “Fair partners for wind energy”, the office rolled out a certification programme for wind energy project developers willing to subscribe to the agency’s guidelines. The five guidelines include a pledge to “develop opportunities for the direct financial participation of citizens, businesses, and municipalities in Thuringia.” The precise form of participation is negotiated on a case-by-case basis between ThEGA and the respective developers, with options including the issuing of shares in the development company, savings bonds, or participation certificates. The guidelines merely require that citizens be offered a “direct” form of participation. Unlike in Mecklenburg-Vorpommern, the Thuringian scheme is not focussed on individual projects. Instead, developers are awarded the “Fair partner” seal for a period of twelve months. In doing so, the scheme aims to enable land owners and communities to identify suitable partners who have pledged to uphold a particular code of business practice. Ninety project developers have been informed about the scheme to date, leading to thirty inquiries and applications to the scheme and the successful certification of fourteen developers, including two citizen-owned energy cooperatives. Thirty-seven such cooperatives exist in Thuringia, primarily in the solar energy sector. Mecklenburg-Vorpommern is home to about half as many cooperatives and these are spread across the solar and biogas sectors.

The Citizen Participation Law and “Fair Wind Energy Thuringia” in comparison

In terms of their motivation and objectives – acceptance and value creation – the two initiatives are practically identical. In Thuringia state authorities also realized that, with nearly ninety per cent of investors based outside the state, the value created by wind farms was not benefiting local economies. However the two federal states have taken different steps to address this situation. Like Mecklenburg-Vorpommern’s Participation Law, it seems likely that the Thuringian approach was inspired by yet another scheme, after ThEGA representatives visited the Steinfurt District of North Rhine-Westphalia, where local administrators had previously issued Guidelines for community wind farms. The guidelines include the aspirational goal of ensuring that a minimum of 25% of the equity in new wind farms is owned by local citizens.

Impacts and impulses: research perspectives on participation

All this raises two questions for social scientists and decision-makers: What social impacts and outcomes do these approaches lead to in practice? And will other federal states adopt similar measures in the near future? With respect to the first, it is worth noting that, even before the implementation of the initiative in Mecklenburg-Vorpommern, the Danish experience suggested that such approaches do not automatically lead to greater acceptance. In only 50% of all new developments in Denmark are more than half of the shares made available to citizens actually purchased, and wind energy projects there continue to face resistance. In addition to this, the new legislation has been criticised for failing to facilitate public involvement, although this central element of citizen participation is crucial to fostering acceptance. Ultimately, answering this question calls for careful study and scientific analysis of the outcome of the legislation’s implementation. In its recommendation to the state parliament of 6 April 2016, the State Committee for Energy Affairs called for an evaluation of the legislation’s effects to be conducted in three years, and the ministry has already commissioned a working group comprising representatives from project developers, cities, and municipalities as well as banks and investors to monitor its implementation.

The impact of the Thuringian scheme also remains unclear. Since the introduction of the new guidelines, only community wind farms have been established in the Steinfurt area – and on a voluntarily basis. But the guidelines adopted there are more narrowly defined (Thuringia does not, for example, require that community-owned shares account for at least of 25% of overall shareholder equity) and address a smaller population than Thuringia’s state-level scheme. Here too, it would be advisable to monitor the effects of the scheme’s implementation.

As for the second question, one can only assume that the relevant agencies and departments in other federal states, which will soon or are currently facing similar challenges, will be observing developments in both states. In Brandenburg – with 5 GW of installed capacity, Germany’s No. 2 in wind energy – the Executive Committee of the Social Democrats already decided in the summer of 2015 that the state should follow the example of Mecklenburg-Vorpommern. Both initiatives underscore the importance of regulatory frameworks at the state level as drivers for the growth of financial participation. While major decisions around the energy transition are taken at the federal level, the concrete details of its implementation are a matter for regional administrations. It remains to be seen whether challenges resulting from the adoption of the 2016 EEG reforms will cause federal states to become the major drivers of the expansion of renewable energy projects with citizen and community participation. This is an issue that I will follow up in another post here soon.

Header image: istock/PsychoShadowMaker