Winds of change increase the risk of energy disputes

By Ulrich Helm, Partner, Signature Litigation Frankfurt

As geopolitical conflicts disrupt global supply chains, energy policies are evolving rapidly. This is most apparent in Europe, where governments are balancing the enhancement of energy security with managing the transition to net-zero.

Governmental policies are also driving energy companies to reconsider their major offshore wind investments, creating fundamental shifts at a strategic corporate level. 

Trading offshore wind investments for oil and gas production, and vice versa, there has been a transactional shift from proactive green capital recycling into divestments, exits, and structured regulatory swap agreements. 

This has led energy companies and institutional investors to unwind their offshore wind commitments in favour of LNG and conventional oil and gas production. A distinct deal type has emerged as US-focused developers offload their European wind assets and European majors exit their US wind commitments to re-enter the gas market.

Given the changing priorities, many developers are reconsidering their investment in both major offshore wind and gas projects. This increases the risk of disputes relating to existing contracts, investor claims, regulatory commitments, and grid connection queues. 

Increasingly, international energy disputes stem from government policy changes. The UK government’s Contracts for Difference (CfD) model, which unlocks investment in low-carbon electricity generation, is being emulated elsewhere. Currently, the EU is set to ensure that national-level support schemes follow the two-way CfD model across Europe. Full implementation is mandated by July 2027.

Despite the scheme’s success, CfD Allocation Round 5 failed to secure any new offshore wind bids in September 2023, resulting in legal disputes, contract modifications, and regulatory challenges.

To align its energy market with updated EU market rules, the federal government in Germany is implementing revised subsidy and permitting frameworks. The Renewable Energy Act (EEG) 2027 draft reform and the Infrastructure Future Act of 2026 will overhaul financial incentives and planning laws, including a transition of support systems toward two-way CfDs.

The EEG’s structural shift creates a substantial risk for legal disputes, including: private sector litigation against the state for curtailment compensation, the protection of legitimate expectations, and EU state aid and regulatory infringements including two-way CfD clawbacks. 

President Trump remains vociferously opposed to both onshore and offshore wind projects. A strong advocate of fossil fuel energy, he has continued to focus on putting his campaign slogan: “Drill, baby drill” into operation. At Trump’s behest, a wave of US offshore wind project cancellations has taken place this year. 

Against this background, the risk of disputes is inescapable – in particular, as a result of complexities in the wind-ups of CfDs and long-term Power Purchase Agreements (PPAs). Inevitably, the legal challenges in exchanging or exiting long-term offshore wind investments increase that risk.   

For a developer who has been awarded a CfD or entered into a long-term PPA, withdrawal can trigger penalties or result in the loss of the entire contract, potentially affecting the value of any deal to transfer the project. Typically, offshore wind projects involve multiple parties and joint ventures: When one party changes its strategy and seeks to divest and pivot toward gas, contentious issues arise, leading to potential disputes in relation to exit and pre-emption rights, tag-along/drag-along provisions, and deadlock resolution mechanisms.

As governments overturn existing decisions and introduce new rules, investors are filing investment treaty claims (such as under the Energy Charter Treaty) when their investments in fossil fuels or renewables are impacted.

Repeated changes of energy policy changes increase the potential for investor claims even further. They often centre on legitimate expectations where developers have made decisions predicated on the consistency of previous policy and subsidy frameworks.

So, what happens when a mothballed project is subsequently revived after capital has been redirected elsewhere? 

Invariably, residual environmental and decommissioning obligations become contentious: If the infrastructure has been partially installed before the mothballing decision, questions arise about who bears the cost and liability for decommissioning or remediation. Grid connection queue disputes can become more likely: Grid connection offers are time-limited in many jurisdictions, and queue positions become lost if they are not exercised. 

In a revived project, that could mean re-entering the queue years behind competitors. Disputes might arise over whether a grid connection agreement survived a dormant period, or whether a new application is needed. Investors could bring legitimate expectations claims. For example, a government that encouraged the mothballing of wind projects (e.g., by redirecting subsidies to gas) and later reversed course, may face claims from investors who relied on the policy shift.

Tensions between traditional fossil fuel investments, ambitious net-zero decarbonisation, and evolving geopolitical interventions mean that the legal landscape in international energy will remain in a state of flux. For energy companies, this creates legal risks, as well as financial and reputational risks. These risks are not only complex, but are themselves in a state of flux. 

One thing is certain: the winds of change will keep blowing.