A possible Protocol to the Cape Town Convention on renewable energy equipment

A possible Protocol to the Cape Town Convention on renewable energy equipment Abstract The International Institute for the Unification of Private Law is currently considering the feasibility of a possible Protocol to the Convention on International Interests in Mobile Equipment (Cape Town Convention) on matters specific to renewable energy equipment. The protection of the world climate requires global cooperation. A switch from fossil energy resources to the increased generation of energy from renewable resources can reduce greenhouse gas emissions, but meeting the worldwide targets for an increased market share for renewables requires an enormous investment in renewable energy equipment. The secured transactions regime of the Cape Town Convention system whose strong protection of the secured creditor allows a reduction in borrowing costs for the financing of high-value equipment could facilitate such financing. Even though renewable energy equipment, such as wind turbines, solar panels, and other assets used in hydropower, geothermal, or biomass projects, is typically stationary and differs from the types of high-value mobile assets covered by the Cape Town Convention system so far, the general principles of this system are flexible enough to allow its extension to renewable energy equipment in general. Different categories of renewable energy equipment, however, are subject to different financing practices, and the legal issues they face are not identical. The strongest demand for a Protocol on renewable energy equipment would certainly be in the area of offshore wind energy equipment. In the interests of the viability of such a Protocol as an international instrument, other categories of renewable energy equipment should be included as well, but this requires a thorough assessment of whether these potentially involve conflicts between the rights of different secured creditors that could be solved under the rules of the Cape Town Convention and whether financing practices in project finance transactions could benefit from the availability of an additional security interest under international law. I. Introduction The International Institute for the Unification of Private Law (Unidroit) is currently considering the feasibility of a new Protocol to the 2001 Convention on International Interests in Mobile Equipment (Cape Town Convention), which would extend the regime of proprietary security under the Cape Town Convention system to renewable energy equipment. There is enormous growth in the market for renewable energies worldwide, which creates a significant need for investment in assets such as wind turbines, solar panels, or turbines for hydroelectric dams. The availability of effective proprietary security rights for financiers of such an investment, which is the hallmark of the regime of proprietary security under the Cape Town Convention system, could be expected to contribute to the facilitation of such an investment in a similar way as the aircraft financing industry has benefited from the reduction of the costs of credit that has already been achieved under the relevant Protocol to the Cape Town Convention. Moreover, the promotion of renewable energy and climate protection is an issue that lends itself to international cooperation, which further strengthens the case for international legal harmonization in this area of law. This article intends to have closer look at some of the legal problems that might arise in relation to secured transactions concerning renewable energy equipment and to discuss whether the extension of the Cape Town Convention system could be a feasible solution to these problems. This system has already been shown to be quite adaptable in the preparation of the recent draft Protocol on Agricultural, Construction and Mining Equipment (MAC Protocol). This experience shows that, at least from a legal standpoint, the rules of the Cape Town Convention could be amended so as to apply to the renewable energy equipment financing market as well, but the question is also which parts of the market might require what kind of solution, keeping in mind that a possible Protocol on renewable energy equipment can be expected to succeed only if it is likely to receive a substantial measure of support not only from governments but also from industry and other interested sectors.1 II. The idea of extending the Unidroit Cape Town Convention system to the financing of renewable energy equipment The financing of renewable energy equipment is as of yet not specifically covered by any international instrument. The enormous success that the existing system of the Unidroit Cape Town Convention and its Protocols has had in the facilitation of secured transactions and leasing agreements concerning the types of mobile equipment covered so far2 has motivated the idea of extending this system to the financing of renewable energy equipment. 1. The objective of the Cape Town Convention system: the reduction of borrowing costs through the strong protection of secured creditors The Cape Town Convention provides for a system of registered international interests with clear priority rules and strong remedies and insolvency protection for creditors. With its specific focus on certain types of high-value mobile equipment, the Cape Town Convention regime operates apart from instruments directed at the harmonization of secured transactions law in general.3 For the categories of assets in relation to which it is already in force—that is, for aircraft objects—the regime under the Cape Town Convention has become a globally accepted standard,4 and the legal certainty and strong creditor protection afforded by the regime of the Cape Town Convention has had a beneficial economic effect by allowing debtors to obtain credit at more favourable rates due to lower risk-based premiums on borrowing costs.5 It is expected that the Cape Town Convention will lead to the total reduction of worldwide aircraft financing costs by up to US $160 billion in the years from 2009 to 2030.6 2. Cape Town Convention and its Protocols The Cape Town Convention system is comprised of the Cape Town Convention itself, which sets out the general principles of this system’s secured transactions regime for mobile assets of high value, and the different Protocols to the Convention. The following three Protocols have already been adopted: the 2001 Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment (Aircraft Protocol), which has attracted 69 contracting parties,7 the 2007 Luxembourg Protocol to the Convention on International Interests in Mobile Equipment on Matters specific to Railway Rolling Stock (Rail Protocol),8 and the 2012 Berlin Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Space Assets (Space Protocol);9 the latter two not yet having come into force. Each of these Protocols has a double function; each are necessary as instruments that provide for the application of the Convention to the category of objects covered by the respective Protocols, and each also contains sector-specific rules, amending the general rules of the Convention according to the needs of the different industry sectors.10 However, going beyond the types of assets covered by the existing three Protocols, which are specifically enumerated in Article 2(3) of the Cape Town Convention, Unidroit is currently considering, or working on, the following different additional Protocols: the draft Protocol on Agricultural, Construction and Mining Equipment (MAC Protocol), where work is already at a rather advanced stage,11 a possible Protocol on ships,12 and a possible future Protocol on renewable energy equipment, which is the topic of this article. Such new Protocols would extend the Cape Town Convention system to new types of assets, taking into account the specific needs and peculiarities of the relevant market and possibly covering issues that are entirely different from the matters arising under the previous Protocols. 3. The project history of a possible Protocol on renewable energy equipment The idea of a Protocol on renewable energy equipment was suggested to the Unidroit Secretariat following a request in 2011 from practice concerning matters specific to offshore wind power generation and similar equipment.13 The Unidroit Secretariat prepared a preliminary study to the Unidroit Governing Council in 2013 that concluded that such a Protocol could be a suitable solution to address existing legal issues in this field.14 It was then decided by the Unidroit General Assembly in 2013 to include preparatory work on a Protocol on the specific topic of offshore power generation in the Unidroit Work Programme for the years 2014 to 2016.15 In 2016, the Unidroit Secretariat provided an update to the 2013 study that confirmed and refined the findings of that earlier study.16 The Unidroit General Assembly decided to expand the topic of the possible new Protocol in the Work Programme for the years 2017 to 2019 from offshore power generation to renewable energy equipment in general.17 Offshore power generation by its nature was thought to be a topic that only relatively few contracting States would be interested in, and there was the expectation that there would be more potential support for this Protocol if it had a more general scope.18 Unidroit, however, has allocated in its current Work Programme only a low priority status to this project.19 For the time being, the Unidroit Secretariat is primarily occupied with the implementation of the Rail and Space Protocols and the negotiation and preparation of the draft MAC Protocol. Therefore, more substantial efforts concerning the preparation of a possible Protocol on renewable energy equipment are unlikely to be undertaken by Unidroit before the year 2020, and, thus, if this Protocol ever sees the light of day, it may not be for at least 10 more years. So far, however, the project is still at a stage where it is primarily being discussed within Unidroit itself. Involvement from the practice side has been rather limited as of yet,20 and there has not yet been a broader debate on this matter, even though some support for such a project can already be found in academic legal literature.21 III. Some data and developments concerning the market for the financing of renewable energy equipment 1. Demand for financing of renewable energy equipment The importance of renewable energy generation is set to rise enormously over the coming years. Currently, about 19.3 per cent of the total (final) energy consumed in all economies worldwide is generated from renewable energy sources.22 Renewables are the fastest-growing energy source,23 mainly due to a concerted political decision in favour of the promotion and support of renewable energy in order to reduce greenhouse gas emissions as the most important factor contributing to man-made climate change.24 In the 2015 Paris Agreement on Climate Change, participating States have agreed on climate protection goals—that is, to hold the increase in the global average temperature below two degrees Celsius above pre-industrial levels and to pursue efforts to limit it further to 1.5 degrees Celsius.25 To achieve these goals, more than 170 States worldwide have set themselves targets to increase the market share for renewable energy generation.26 For example, the European Union (EU) has set itself a target that the share of renewable energy as a proportion of the final energy consumption in the EU is to rise to 20 per cent in 2020 and to 27 per cent by 2030,27 each Member State contributing to a different degree to this overall goal—for example, Sweden with 50 per cent and Germany with 30 per cent.28 In China, the share of renewable energy is to rise to 15 per cent of primary energy consumption by 2020 and to 20 per cent by 2030.29 In the USA, different targets have been set at the State level—for example, California has set itself a target of a 50 per cent share for renewable energy generation by 2030, and Texas is to achieve a fixed figure of renewables production, which is set at 10,000 megawatts in the year 2025.30 Achieving these targets requires a continuous investment in renewable energy production worldwide. In 2016 alone, there was a new global investment in renewable energy production of US $241.6 billion.31 Continuing reductions in the costs of renewable energy production were offset by an increase in the installations volume.32 All of this clearly shows the potential market size for a possible Protocol on renewable energy. If there can be even a slight reduction of the costs of financing for renewable energy equipment through the preparation of a new Protocol to the Cape Town Convention, similar to the effects of the Aircraft Protocol, then the colossal size of the renewable energy market means that in absolute terms the benefits for operators of such equipment that seek financing for the installation of new equipment would be enormous. This would also have additional indirect positive effects on the economy as a whole through lower prices for energy as a result of such lower costs of installation. 2. Demand for green bonds There is also a growing demand for investment opportunities in renewable energy equipment through the issuance of green bonds. Green bonds are bonds where the investment is exclusively used to finance projects that are environment friendly or that address climate change issues.33 Investment in such bonds is sought after both by environmentally conscious retail investors and by institutional investors that seek to invest their funds in renewable energy investments with reliable income streams, whether as a commercial decision or because they have set their own climate-protection targets. This is an especially interesting development in regard to the Cape Town Convention system when banks seek to market these investments as covered green bonds.34 Covered bonds in general must be backed by qualifying collateral,35 and where bonds are issued as covered green bonds, it is necessary for them to be backed by collateral that is both commercially valuable in the sense that it can generate a reliable income stream and that has a clear climate-friendly nature. Renewable energy equipment is therefore a prime candidate for qualifying as collateral for covered green bonds, but this requires the availability of clearly defined and effective security rights over this type of assets, which could be provided under a sector-specific Protocol to the Cape Town Convention. IV. The use of proprietary security interests in secured asset finance and project finance for renewable energy equipment Financing comes in many forms; one very common and general distinction is made between traditional asset finance, on the one hand, and project finance, on the other. While there may be overlaps and middle grounds between them, one main basis for the distinction between these two basic concepts of financing is the degree to which the lender is, or wants to be, concerned with the financed project as a going concern (as opposed to it merely serving as collateral for a fixed-income loan to the borrower).36 The Aircraft Protocol, whose success clearly inspired the project of a possible Protocol on renewable energy equipment, covers the aircraft financing market, which can be said to be primarily concerned with asset finance,37 whereas renewable energy financing covers both asset finance and project finance. This difference also has consequences with respect to the role of proprietary security rights in the respective types of financing structures. 1. Security interests in asset financing With some justification, asset financing can be regarded as the typical field of application of proprietary security rights over movable collateral. In the financing practices for renewable energy equipment, asset-financing transactions have traditionally been used mainly by larger utility companies as balance-sheet corporate financing for their renewable energy projects such as wind farms.38 However, there are also possible roles for asset financing as a short- or medium-term credit for smaller projects, like a single wind turbine on farmland or solar panels installed on the roof of buildings. Put in very general terms, the main characteristics of an asset-financing transaction are that the lender is usually interested in obtaining a fixed income stream from the repayment of a loan that is secured with collateral whose acquisition has been financed by the borrower with the credit capital. In the event of a default under the secured loan, the creditor is not necessarily interested in further support of the debtor’s business. Instead, the creditor might want to terminate the loan and demand immediate repayment, even if this effectively puts the debtor’s business at an end. The creditor will then simply enforce its security rights and seek preferential satisfaction or pursue its claims against the insolvency administrator of the debtor. In an asset-financing transaction, the decision to grant financing is therefore based upon a valuation of the creditworthiness of the borrower, which determines whether the borrower will be able to repay the loan with the agreed interest, and of the value of the assets given as collateral, which determines whether the creditor will be able to satisfy his claims for repayment through an enforcement of the collateral if this should become necessary. This explains the role of proprietary security rights in a typical asset-financing transaction; security rights are used in order to give the lender a security over certain assets of the borrower, especially those that are acquired with the loan capital, which may be enforced for the repayment of the loan, usually by either selling or appropriating the collateral. Thus, strong enforcement rights for the creditor are very important, and risk premiums as part of the financing costs can be lower if creditors can obtain such reliable rights as under the Cape Town Convention. 2. Security interests in project finance The counterpart to asset financing is a project-financing structure. In the financing of renewable energy equipment, project-financing structures are usually applied for the financing of very large-scale renewable energy projects,39 such as offshore wind parks or hydroelectric dams, the latter being especially prevalent in developing countries. In a project-financing structure, the whole project, including the investment, its assets, and the eventual income flows (revenue), are legally separated from the sponsoring entity—that is, the entity that is behind the project and seeks outside financing for it, by being tied to a special purpose vehicle.40 The lender is entitled to participate in the project’s cash flow for a return on its investment, either through a profit-sharing formula or through an agreement on a fixed interest income that is payable out of the revenue from the project. The lender bases its decision whether or not to grant credit on the project’s expected cash flow,41 and, in the case of default, he is more inclined to seeking to continue to generate revenue from the project by supporting the continuation of its operation.42 Appropriating or selling the project’s assets is less appealing to a project-financing lender. These differences also lead to different objectives of the use of proprietary security rights in a project project-financing structure. In a project-financing transaction, typically all of the available assets of the project are encumbered in favour of the project’s lenders.43 However, since these lenders will typically be reluctant to enforce their security rights, the main purpose of such security rights is not the possibility of enforcement but, rather, the possibility of fending off other creditors who will not have the possibility of interfering with the continuation of the project on the basis of having obtained a proprietary interest in its assets. The role of proprietary security in project financing has thus been described as a shield, not a sword, for the secured creditor.44 The lender will enforce his or her rights only as a strategy of last resort where the project has ultimately failed and where there is no longer an expectation of obtaining revenue from its cash flow. However, there are also situations where the project entity, like any other borrower, might grant security over some of its assets to other creditors for additional (asset-based) financing, especially as acquisition financing. This will be compatible with the overall structure of the project-financing transaction as long as the principal lenders do not lose control over the project’s cash flow. Therefore, such security rights for other creditors will likely cover non-essential or replaceable assets only. V. Characteristics of the Cape Town Convention system and their application in the financing of renewable energy equipment in general The Cape Town Convention system is built upon some general characteristic principles both in regard to its scope of application and in regard to the operation of a system of proprietary security rights in movable assets in general. Even though renewable energy equipment, which is typically stationary machinery, is generally quite different from the specific types of movable assets that are covered by the Cape Town Convention system so far, these general characteristics of the Cape Town Convention system have proven to be quite flexible, allowing its extension to types of assets that were not premeditated by the Convention’s drafters. 1. The criteria of categories of high-value, mobile, and uniquely identifiable equipment Article 51(1) of the Cape Town Convention allows the extension of the Cape Town Convention system to objects of other categories of high-value, mobile equipment through additional Protocols. None of these requirements constitutes an impediment to the extension of the Cape Town Convention to renewable energy equipment. The high-value criterion outbalances the extra costs and effort of registration under the Cape Town Convention system. Renewable energy assets should usually be of sufficiently high value, at least if certain low- or medium-prize classes of assets such as individual solar panels are not included.45 The element of mobility, which was evident in aircraft, rail, and space assets, is understood in a much less strict sense now. Specifically, under the rules of the draft MAC Protocol, there is no specific reference to such a requirement. Instead, it is inherently regarded as sufficient for inclusion that such equipment is likely to be exported.46 If this interpretation is applied, the requirement of mobility is fulfilled even by most types of renewable energy equipment. In referring to certain categories of equipment, Article 51(1) of the Cape Town Convention also requires that it must be possible to come up with a clear definition of the categories of assets to be covered by an additional Protocol. One of the primary tasks for the drafters of a possible Protocol on renewable energy equipment would be to come up with a workable and precise definition of the specific categories of assets to be covered. It would probably be very difficult to define such equipment in a way that is both precise and sufficiently open-ended to allow for future technological developments. However, the draft MAC Protocol contains a novel approach that could also be usefully applied in a possible Protocol on renewable energy equipment. The scope of application of the draft MAC Protocol is defined by way of a reference to the World Customs Organization’s Harmonized System, which was originally developed in order to harmonize taxation requirements. This system covers assets that make up 98 per cent of the combined world export trade volume and organizes these assets into a list of 5,205 six-digit object codes (HS codes).47 Instead of an attempt to include an autonomous definition of the categories of mining, agricultural, and construction assets to which the draft MAC Protocol is intended to apply, that draft Protocol lists in its annexes the relevant HS codes that cover the assets that are meant to be covered.48 Such an approach could also be used for renewable energy equipment that is covered by specific HS codes as well.49 Any assets that are to be covered by an additional Protocol to the Cape Town Convention must be uniquely identifiable; otherwise, they cannot be registered under the system of asset-based registration as provided for by the Cape Town Convention system.50 Requiring the registrant to give an individual description of assets such as specific wind turbines or solar panels would create the problem that an inadvertent failure to give an exact description could result in the registration not being retrievable from a search of the register and, therefore, being regarded as ineffective. A possible solution to this problem is provided by Article XVII of the draft MAC Protocol, which provides that registration requires the indication of the asset’s serial number as allocated by its manufacturer,51 together with additional information that is to be determined in the registry regulations. While manufacturers’ serial numbers are not a perfect method for the identification of an asset, since the same number occasionally may have been allocated twice, either by the same manufacturer or several different manufacturers, they are regarded as being specific enough to be used as the indexing criterion for the register under the draft MAC Protocol.52 In rare cases, where a priority search in the register for a single serial number should retrieve several search results that relate to different assets, the searcher can use the mandatory additional information (such as the manufacturer’s name or the asset’s model designation) in order to determine which of the registrations retrieved by the search is the relevant one.53 Requiring such additional information as an indexing criterion would create the risk of invalidity of the registration due to even minor errors in the indication of such information; if it is only required as additional information that is not in itself an indexing criterion, this consequence will apply only where such errors are so severe as to be seriously misleading.54 2. Non-possessory registered movable property security interest Traditionally, many legal systems have been very reluctant to allow the creation of non-possessory security interests in movable property. Even as of today, it is still not uncommon to limit the scope of application of registration systems for non-possessory security interests to certain types of assets55 or classes of creditors.56 A fundamental principle of the Cape Town Convention system, however, is that it allows the assets covered by the Protocols to be used as objects of a non-possessory registered movable property security interest. This effect might tend to be overlooked because it is regarded as self-evident for assets such as aircraft, where registration of security rights was already very common under national law,57 but it could certainly have important practical relevance in regard to renewable energy equipment where there are no specialist registers under national law. 3. Insolvency protection and strong remedies for creditors The insolvency protection of the creditor under the Cape Town Convention is widely acknowledged as forming part of the main reasons for the success of the Convention.58 Such protection would also be relevant in the renewable energy context, and this also includes a preferential satisfaction from the proceeds of a sale of the encumbered asset. Many provisions of the Convention are based on the strong remedies of the creditor, especially the rules on prompt enforcement and on the exercise of self-help remedies;59 however, they were drafted with assets in mind such as aircraft, which very quickly lose their value if they are not properly maintained. Renewable energy equipment will often not be easily removable in practice—for example, in the case of an offshore wind turbine. There is therefore probably less practical interest in a right to ensure the immediate removal of the asset. 4. Clear system of priority of registered international interests, including conflicts with immovable property rights The Cape Town Convention system provides for a clear system of priority between the conflicting proprietary interests in the assets covered. International interests that are registered in the International Registers under the Cape Town Convention system take priority over any conflicting unregistered interests and over other interests that are registered later.60 Thus, a creditor holding an international interest does not have to be concerned about possible priority conflicts with other competing interests in the same asset under the rules of the applicable national law, especially its regime for proprietary security over movable assets, whether or not the latter interests are registered in a national register. Concerning renewable energy equipment, however, there is probably less potential for such priority conflicts with competing movable property security rights. In a project-financing transaction, the lender can take control of the dealings of the project entity, and this should protect against the possibility of the creation of conflicting security rights over the project’s assets.61 Even if this is not possible for the lender, the risk that a creditor’s security will be lost due to a third party acquiring rights in the assets free of the earlier encumbrance is rather small. The principles of good faith purchase usually require a transfer of possession,62 which is not likely to occur in relation to renewable energy equipment in general, which typically remains stationary, once it has been delivered to the operator and is installed on-site, for the whole length of its economic life cycle. The same applies to the requirements for the protection of a buyer under the rules of some legal systems protecting sales in the ordinary course of business.63 There is, however, the possibility of priority conflicts with conflicting immovable property rights where the renewable energy equipment is physically attached or otherwise associated to the land. Under the rules of national property law, this often results in the loss of the separate legal identity of that equipment as a movable asset, where ownership of the equipment passes to the owner of the immovable, or at least in the extension of the latter’s rights to the equipment.64 This problem did not have to be dealt with in the Convention itself and in the first three Protocols since the objects of those Protocols—that is, aircraft objects, railway rolling stock, and space assets—do not generally become closely associated to the land. For mining, agricultural, and construction equipment, this is more likely, and the draft MAC Protocol includes specific rules dealing with this conflict.65 This shows that the Cape Town Convention system, especially due to the flexibility provided by the distinction between the general Convention and the more specific Protocols, has the potential to deal with such conflicts even if these were not foreseen when drafting the Convention. However, the question of which policies to follow in regard to the conflicts with immovable property law has proven to be very controversial in the context of the negotiation of the draft MAC Protocol. It has certainly not been regarded as a straightforward issue to give general priority to the international interest. Instead, as a compromise solution, three options have been suggested in the draft MAC Protocol that allow States to make a choice as to whether, and to which extent, to retain the application of the rules of their immovable property law vis-à-vis the application of the rules of the Convention.66 Arguably, the issue of an association with immovable property law will be even more prevalent concerning many types of renewable energy equipment than in the context of the draft MAC Protocol, where this is often regarded as a lesser problem in practice.67 A possible Protocol on renewable energy equipment would lose much of its potential impact if the rules of national immovable property law could override its effects. Therefore, the extent to which a possible Protocol on renewable energy equipment can become a success very much depends upon whether contracting States will be more willing in this context to give precedence to the rules of the Cape Town Convention system over their own immovable property law. 5. Security interest under uniform rules of international law Finally, one other core characteristic of the Cape Town Convention system is that it provides for the creation of a security interest under uniform rules of international law.68 This relieves the secured creditor from having to investigate and comply with varying requirements under different national laws.69 This effect would be equally welcome in relation to the financing of renewable energy equipment. Here, there is also the additional factor that in many respects the outcomes under national property law in regard to security rights in renewable energy equipment are not very clear, especially with respect to the conflicts with immovable property law.70 Being able to rely on the application of uniform rules under the Cape Town Convention system would give investors a better and much more reliable position in comparison to, in many cases, the vague state of the existing, often judge-made, law. VI. Some general categories of renewable energy equipment and their specific issues concerning proprietary security rights There are many different types of renewable energy equipment, and the specific legal issues arising in relation to proprietary security rights over these diverse categories of renewable energy equipment are quite different from each other. As a consequence, while the preceding section has shown that in general there are no legal obstacles to the extension of the Cape Town Convention system to renewable energy equipment, the benefits to be derived from an application of these rules to the different types of such equipment vary greatly. 1. Onshore wind farms Wind energy is a booming market in many parts of the world, having grown from 74 gigawatts installed capacity in 2008 to 487 gigawatts in 2016; the majority being installed in onshore wind farms.71 The price of onshore wind turbines is close to US $1 mio per megawatt,72 so the total investment on equipment for a wind farm of 278 large turbines with one gigawatt total capacity can equal up to US $1.3 billion.73 A. Property rights in the wind turbine versus property rights in the land Problems often arise in regard to security rights over wind turbines because of conflicts between the property rights in the wind turbine, on the one hand, and property rights in the land, on the other hand. Typically, wind farm operators do not own the land that the wind turbines are built upon; instead, the operator concludes a long-term leasing contract with the landowner entitling him or her to the erection of the wind turbine and its subsequent operation, with specific provisions covering the removal of the wind turbine at the end of the lease. This arrangement, however, may have the effect that the wind turbine could be regarded as becoming part of the immovable property under the rules of national property law. If this should be the case, which is an issue that has given rise to disputes in a number of jurisdictions,74 this would have severe consequences. On the one hand, any security rights existing as movable property rights in the equipment before its installation would be lost, simply because the turbine would no longer be an item of movable property. On the other hand, the rights of the secured creditors that hold security rights over the immovable property would automatically extend to the wind turbine once it is part of the land. Conversely, there are also situations where the interests of the landowner might be negatively affected; if the wind turbine is regarded as part of the immovable property, a lien of a repairer of the wind turbine under national law could extend to the land as well. Landowners might regard this as a risk that could prevent them from making their land available for wind energy use. B. Uncertainties in the application of national laws in regard to ownership of onshore wind energy equipment The question whether the wind turbine becomes part of the immovable property is therefore very important in practice. This issue, however, is typically not specifically regulated by statute but, rather, depends upon the application of general principles of immovable property law, which has caused considerable difficulties in practice. The traditional general position that is derived from the Roman law principle of superficies solo cedit75 is that the permanent affixation of an asset to land usually has the effect that the asset is no longer a movable asset and becomes part of the immovable.76 At least on the basis of their outward appearance, wind turbines, which include a tower of up to 160 metres in height that is erected on the land,77 would appear to be permanently affixed to the land and no longer movable in the natural sense of the term. In order to avoid the consequence that the wind turbine is to be regarded as becoming part of the land, which would—as described above—severely affect the financing of such equipment, it would therefore have to be shown that the case of wind turbine erected by a tenant on the landlord’s land could fall under an exception to this general rule. This issue cannot be answered without any doubts and difficulties, as is demonstrated by recent case law from different jurisdictions. In Germany, for example, there has been an intense debate for nearly 20 years of the proprietary effects of the erection of a wind turbine on land owned by another person. Some legal writers have argued that wind turbines, except for the concrete base on which the structure is erected, should be regarded as a kind of mounted machinery that is never part of the land itself.78 This thinking, however, is difficult to reconcile with the spirit of sections 93 and 94 of the Bürgerliches Gesetzbuch (German Civil Code [BGB]), which are based upon the principle of superficies solo cedit, and it has accordingly been rejected by the courts, which hold that, at least in principle, the owner of the land acquires ownership of a wind turbine erected on his property.79 However, there has been no unanimity as to whether and under which circumstances an exception to this rule should apply, specifically the rule on Scheinbestandteile in section 95 of the BGB, according to which such movable assets which are affixed to the real property for a temporary purpose only, do not become part of the land. Some courts and legal writers have been of the opinion that the decisive criterion in this respect should be whether the movable asset was intended to be attached to the land for its complete economic life cycle.80 Others have preferred the view that it should be decisive whether the operator of the wind turbine reserved the right to remove it during the duration of the lease or at its end.81 In 2017, the German Bundesgerichtshof (Supreme Court) decided in favour of the latter view, holding that the wind turbine does not become part of the property of the landowner if the operator has the intention, when installing the equipment, to remove the wind turbine at a later point of time.82 However, this decision does not overrule earlier appeal court cases where it has been held that, where there was an option for the landowner to acquire the wind turbine at the end of the lease for its remaining value, the ownership of the wind turbine would pass to the landowner at the moment of its installation.83 In the USA, this issue has in the past also been disputed. In US case law, it is also generally accepted that the physical connection between the equipment and the land on which it has been installed prima facie allows the conclusion that the equipment is an improvement to the real property, which becomes part of the latter. However, in 2016, it was confirmed by an Appellate Court decision that a wind turbine may remain a movable asset as a so-called trade fixture that may remain subject to separate ownership rights.84 The Court held that this exception applies to the installation of wind turbines if it is clear from the agreement of the parties (that is, the landowner and the operator of the equipment) that they did not have an intent to permanently improve the property by its installation.85 In the case to be decided by the Appellate Court of Illinois, it was regarded as being sufficient that the operator reserved the right to remove the wind turbine and that the landowner had a corresponding right to demand removal,86 even if the foundation of the wind turbine was allowed to remain buried in the land, which the Court held to be irrelevant because this would not affect the use of the immovable property as farmland.87 C. Use of superficies rights In other legal systems, wind turbines are regarded as property that is separate from the land if they are erected on the basis of limited proprietary rights over the land held by the operator, where these rights give the latter a proprietary entitlement to erect a structure on the land. After its Roman law origins, these rights are called superficies rights. For example, under French law, where the operator holds a bail emphytéotique over the immovable property of the landowner,88 the rule in Articles 552ff of the French Code Civil, which is based upon the principle of superficies solo cedit, does not apply, and the wind turbine remains movable property of the operator. Similar provisions exist under other national laws as well.89 As an instrument to be applied in the international financing of wind energy equipment, however, such limited property rights over the land have to be regarded with caution. The creation of such rights would have to comply with different requirements under the applicable national law, and at least in German law, it has been held that such rights can protect the ownership rights of the operator in the wind turbine only if they are validly created at the moment of installation,90 which may not always be guaranteed due to time-consuming procedures under national law. D. Statutory security rights of the landowner extending to the renewable energy equipment Even if a wind turbine is regarded as a movable asset, conflicts might arise between the consensual security rights over the equipment and the statutory security rights of the landowner, which might be entitled under national law to an ex lege security right over movable assets brought on the landowner’s land (landlord’s lien). In practice, the landlord will sign a waiver of his or her rights in order to avoid that any landlord’s lien might interfere with the consensual security rights of the operator’s creditor, but then there are additional questions as to whether such an agreement will be binding against third parties. E. Conclusion: Demand for legal certainty for the financing of onshore wind energy equipment There is certainly a need for more clarity concerning the legal situation of onshore wind farms. While the existing national law will usually contain rules that allow, if properly applied, the use of onshore wind turbines as collateral for the creditors of the operator, these solutions tend to rely on judge-made rules that are somewhat uncertain and whose outcomes can be difficult to predict. For example, the decisions in the German and US court cases cited have the objective of supporting the financing of wind farms by giving protection to the rights of the wind farm operator and his or her creditors. However, by emphasizing the role of the subjective intentions of the parties vis-à-vis the objective facts, these decisions are somewhat difficult to reconcile with the general principles of immovable property law.91 Moreover, there is still some ambiguity as to the precise content of the agreement that is required to achieve this protection: what happens if there is merely an option for the landowner to demand removal or if the obligation to remove covers only parts of the wind turbine and not the foundations? Under US case law, this would appear to be sufficient where those parts that are not removed do not have any remaining value. Under German law, this is less clear, and some dicta suggest that the question whether there is a remaining value should be irrelevant. Moreover, there is at least some discussion as to whether there could be a differentiation between different parts of the wind turbine—for example, concerning the foundations, the tower, and the turbine parts and rotors at the top.92 The latter parts of equipment could be regarded as movable assets even where the tower and the foundation are not. The situation is even more difficult if electric power lines and substations that are necessary for the operation of a wind park are taken into consideration as possible items of collateral as well. The application of the Cape Town Convention could be helpful here by creating an international and reliable standard for the question under which conditions and to what extent a wind turbine can be regarded as movable property in which an international interest can be created. However, this result can only be achieved if States are willing to let the Cape Town rules take precedence over their own national rules of immovable property law. From the experience of the draft MAC Protocol, it seems that this is possible, but States are rather reluctant to do this.93 Concerning onshore wind energy, however, the task will be even more difficult because here this is not merely a side issue but constitutes a core problem. 2. Offshore wind farms Wind farms that are installed at offshore sites can generate much more power than onshore wind farms due to more favourable wind conditions offshore and fewer requirements to comply with planning law restrictions.94 Especially in European waters, offshore wind energy generation has already grown to a sizeable share of the energy production,95 while the capacity installed worldwide has grown from 0.8 gigawatts installed capacity in 2006 to 14.4 gigawatts in 2016.96 The installation costs for offshore wind farms are higher than for onshore wind farms; offshore wind farms with a total capacity of up to 0.6 gigawatts consisting of 175 wind turbines can require a total investment of £1.8 billion.97 A. Uncertainty concerning applicable property law regime for offshore wind farms For offshore wind farms, a source of considerable problems in the financing practices for such equipment is its offshore location, which can create uncertainties in regard to the determination of the applicable national property law regime.98 For offshore wind farms that are located in the area of the littoral State’s territorial sea—that is, up to 12 nautical miles from the coast baseline99—the applicable property law regime is that of the littoral State.100 In the sea area, however, that is defined as the exclusive economic zone—that is, the zone adjacent to the territorial sea that stretches out for up to 200 nautical miles from the coast baseline101—the issue is not so clear. Only a few jurisdictions have specific statutory conflicts-of-law rules providing for the applicability of the coastal State’s law to property law issues in the exclusive economic zone.102 If there is no such specific statute, the issue has to be dealt with on the basis of general principles of private international law. The majority of academic legal writers have generally favoured the application of the law of the coastal State.103 However, the application of other traditional criteria of private international law would lead to markedly different results—for example, on the basis of a reference to the home law of the owner.104 Alternatively, there could be a reference to the last location of the asset inside the territorial sea105 or to the law of the flag of the transporting vessel.106 Similarly, it has been suggested that the rule of the law of the flag could cover floating assets other than ships,107 which could also include floating wind turbines. All of these suggestions could point to the application of different laws with potentially different property law regimes and this makes it difficult for the parties to a transaction to determine which property law requirements need to be complied with. The absence of a reported body of case law further adds to the existing uncertainties in this regard. In practice, market participants seek to ensure that security rights are created or transferred only onshore or in the territorial sea and to avoid transporting the asset through jurisdictions where their rights might not be recognized.108 Additionally, the ownership of the wind turbines itself is often transferred to a separate special purpose vehicle whose shares are pledged to the project’s creditors so that these shares can be used as collateral. B. Uncertainty concerning the application of general principles of national immovable property law to offshore assets In addition to these problems concerning the determination of the applicable property law regime, there is also a general uncertainty concerning its application to offshore assets. Generally, for offshore assets, similar problems arise as in relation to onshore wind farms concerning the proprietary effects of the physical affixation of a movable asset to the land.109 Applying the criteria developed by the courts for onshore wind turbines, it is probably even less clear in relation to offshore wind turbines under which circumstances these assets should not be regarded as having lost their nature as a movable asset as a consequence of their onsite installation. For onshore wind turbines, the courts have primarily looked to the agreement between the operator and the owner of the land,110 but such an agreement does not exist for offshore assets, and it is unclear whether the terms of the operator’s licence by the authorities of the littoral State (which are typically not concerned with proprietary effects) should be relevant instead. C. Unavailability of immovable property interests for offshore assets Real property rights cannot be created or registered in relation to offshore assets in the exclusive economic zone or beyond,111 and the same typically applies, at least for private parties, within the territorial waters, where ownership of the seabed is usually claimed by the coastal State.112 Therefore, some methods of secured financing that are available for onshore wind parks in order to overcome or at least protect against the problems of the use of movable property security rights cannot be applied in relation to offshore wind parks. Secured lenders do not have the option of registering a security over the immovable property that would extend under certain conditions to the wind turbine. Also, superficies rights, which would be necessary under some legal regimes as the basis for the installation of a wind turbine on land that is not owned by the operator, are not available.113 D. Registration of offshore assets in national registers does not ensure cross-border recognition of security interests Where parties have originally created a security interest in offshore wind energy generation equipment before its installation under the provisions of a legal system that does not require registration of non-possessory security over movable assets, there is high risk that this security will not be upheld in a cross-border dispute. If the equipment is installed at its offshore location, a court in a foreign forum might apply a property law regime that has stricter publicity requirements. For example, a security ownership created under German law without registration or direct possession by the secured creditor will not be upheld as a proprietary security right under the laws of another jurisdiction where non-possessory proprietary security rights over movables are subject to a requirement of publicity by registration.114 However, even where a security over the offshore wind energy equipment has been registered before its installation in a national system of registration for security over movables, either in a general debtor-indexed register115 or in a specific register for offshore assets,116 this does not ensure the cross-border recognition of the security. In an eventual dispute arising after the offshore installation of the equipment, the courts in a foreign forum might apply a regime for proprietary security over movables that takes a different view in regard to the necessary registration—for example, by requiring registration in a specific register on a national level.117 If the registration that was effected pre-installation is not regarded as equivalent under the applicable law, this might result in the security being ineffective against third parties. E. Lack of specific statutory provisions on enforcement in offshore assets Finally, there are additional uncertainties concerning the enforcement of security rights over offshore wind energy equipment. National procedural rules that are based upon the acting of a bailiff or the secured creditor taking possession of the collateral are typically not easily applied to the enforcement regarding offshore assets. While it is possible for the parties to include in their security agreement some rules on the steps to be undertaken for enforcement, it will—in the absence of specific statutory provisions on the enforcement of offshore assets—be difficult to predict whether these rules will be upheld by the courts. Having a uniform set of rules on enforcement regarding offshore assets under a possible Protocol on renewable energy equipment could provide clarity, and these rules could take into account the difficulties of obtaining direct possession of offshore assets and the need to focus, for example, on connections to the mainland power grid and on a participation in revenue streams, similarly to the approach of the Space Protocol.118 F. Conclusion: Demand for clarification of the property law regime for offshore wind energy equipment The extension of the Cape Town Convention to offshore wind energy equipment would provide for rights under international law, and there would therefore no longer be a need for an application of uncertain conflict-of-law rules. The harmonization effects of such a possible Protocol would also extend to issues of substantive property law. Offshore wind turbines would be regarded as movable property, and they would be subject to uniform rules on the creation and registration of international interests, solving the current uncertainties with respect to the requirements of upholding the assets’ nature as items of movable property as well as issues of enforcement. Since such a project would cover offshore assets only, it is also to be expected that there would be less resistance from contracting States that might otherwise, especially in relation to onshore assets, be reluctant to let an international legal regime take precedence over their traditional national principles of immovable property law. 3. Solar energy equipment Solar energy has become another important source for renewable energy generation, having grown from a global capacity of six gigawatts in 2006 to 303 gigawatts in 2016.119 A. Large-scale solar power generation Large-scale solar power generation systems include concentrated solar power systems, where mirrors or lenses are used to concentrate a large area of sunlight or solar thermal energy onto a small area, and photovoltaic power stations, where a large number of photovoltaic modules are installed on one site in order to deliver power at the utility level. Unlike wind farms, these structures typically are more likely to be built on land that is owned by the operator of the power station. This has important consequences. Usually, large-scale solar power generation plants are financed through project-financing structures. The project’s creditors will then usually be holding immovable property security rights over the land in addition to security rights over the solar power equipment itself, if available under the applicable national property law regime.120 Thus, there is usually no risk of conflicts between real and personal property security rights because both types of security rights are held by the same creditor, and this reduces the extent to which there is demand for an answer to such priority conflicts on the basis of an extension of the Cape Town Convention system.121 Moreover, the value of individual solar panels is too low to warrant the creation of individually registered security rights. Under the asset-based registration system of the Cape Town Convention, even if registration costs are kept low, the costs and efforts necessary for registration of a security interest are worthwhile only if the registered assets have a certain minimum value. The price for solar panels has fallen over 80 per cent from 2010 to 2017,122 and the average prize for solar panel of five kilowatts averages about US $10,000.123 It would not be cost-effective to register such small ticket items in an international register that requires asset-based registration. For such assets of comparatively low value, it would be much more appropriate to use a system that is based upon a general debtor-indexed register for proprietary security instead, such as the regime suggested by the United Nations Commission on International Trade Law’s (UNCITRAL) 2016 Model Law on Secured Transactions. B. Small-scale solar power generation Small-scale solar power generation mainly covers the installation of photovoltaic panels that are mounted on the roof of buildings or other structures by individuals or non-utility companies and that supply electric power for local users (as opposed to energy generation at utility level). The potential usefulness of the application of the Cape Town Convention system to this type of renewable energy equipment appears to be limited, mainly due to the low value of individual solar panels, which would not justify the costs and effort of registration. Moreover, this type of renewable energy generation is often operated by individuals or small- and medium-sized enterprises, in relation to which the application of a requirement of registration in an international register would be unreasonable. 4. Project finance for other large-scale renewable energy projects, especially financing of hydroelectric projects Finally, for other types of large-scale renewable energy equipment projects that are financed on the basis of a project-financing structure, especially the financing of hydroelectric projects,124 there are some doubts as to whether this is a segment of the financing market where the application of the rules of the Cape Town Convention system would be useful. Hydro power is still by far the largest source of renewable energy generation, owing primarily to hydroelectric dams.125 As mentioned earlier, in such project-financing transactions, the project’s creditors, who provide the financing for the project, will seek to obtain proprietary security interests over all of the project’s assets in order to fend off any competing creditors.126 Thus, there is a need for reliable and clearly defined rules on proprietary security in movables under which the project’s creditors can take a proprietary position in the project entity’s assets and also over its shares. However, such projects are invariably built upon land that is either State owned or owned by the project entity, and this reduces the potential for conflicts between immovable property creditors, on the one hand, and secured creditors holding security over movable assets of the project, on the other hand.127 Assuming that the applicable national law allows for the creation of security rights over the whole of the project’s assets, the project’s creditors would not necessarily obtain an additional benefit from being able to register a separate international interest in individual components of the project. Generally, in such project-financing transactions, the creditors who provided the financing for the project are not primarily interested in enforcement of their security, and they will prefer, if possible and if economically reasonable, to continue the operation of the project in order to generate further revenue. If a new Protocol on renewable energy equipment would allow the creation of an international interest under the Cape Town Convention system over some of the project’s assets, these creditors would therefore seek to obtain this international interest primarily to prevent the risk that such a priority position could be obtained by other creditors.128 Project-financing creditors with a strong financial interest in the project could not tolerate the risk that competing creditors could obtain a proprietary interest over core assets of the project, such as the turbines of a hydroelectric dam, which would allow them to blockade, even if only temporarily, the continued operation of the project. In sum, the availability of an international interest under the Cape Town Convention system would not do any harm, but it would not confer much additional benefit. Its main effect would be that the project-financing creditors, who would generally seek to obtain any available proprietary security over all of the project’s assets, would also register in the international register as holders of an international interest. Instead of an asset-specific regime under a new Protocol to the Cape Town Convention, the availability of reliable and clearly defined rules on proprietary security in movables in general would be more important for the interests of such project-financing creditors.129 VII. Conclusions Unidroit’s project of a possible Protocol to the Cape Town Convention on renewable energy equipment is still in its early stages.130 Broader studies will have to be undertaken and more in-depth data from the market practice collected before this idea for a possible Protocol can be developed into a more concrete proposal. Therefore, at this stage, it would be premature to come to a definite conclusion as to whether such a Protocol is likely to find the necessary support by practitioners and contracting States or what its concrete scope of application should be. However, in this short and preliminary assessment, it has been possible to demonstrate that there are no general impediments to the extension of the Cape Town Convention system to renewable energy equipment in general.131 Even though these assets are markedly different from the assets covered by the existing Protocols, the general principles of the Cape Town Convention system have proven to be quite flexible. Moreover, the principal objectives of the secured transactions regime under the Cape Town Convention would appear to have a potentially positive effect on the position of secured creditors holding proprietary security rights over renewable energy equipment. Among the different general categories of renewable energy equipment, the highest demand for such a new Protocol would probably be in the offshore wind sector.132 Here, the legal problems seem to be most severe, owing to the fact that there is often already considerable uncertainty as to the determination of the applicable law. It is also not to be expected that a sufficiently reliable body of case law will develop any time soon that would clarify the situation, and in view of the enormous size of the investments, there is a strong interest in a reliable solution with internationally recognized proprietary rights. Still, it should be taken into consideration that the total number of contracting States that could take an interest in a project for this specific segment could be somewhat limited as it would be restricted to coastal States with offshore wind projects. From the institutional perspective of Unidroit, the prospects for the viability of a Protocol on renewable energy equipment might therefore be increased if it also included at least some other types of renewable energy equipment. However, the success of such a new Protocol in relation to other categories of renewable energy equipment will depend largely upon the willingness of the contracting States to allow the Cape Town Convention rules to interfere with their national immovable property law.133 However, if a Protocol on renewable energy equipment should eventually come into force, it would surely have great potential to positively impact the financing practices of the renewable energy equipment to be covered. Apart from the other issues already referred to in this article, such a Protocol could also cover the possibility of extending the international interest to revenue claims in line with project-financing practices, taking inspiration from the Space Protocol,134 and this principle could possibly extend to the licences necessary for the operation of renewable energy equipment or to the feed-in tariffs under national law under which renewable energy generators are guaranteed to be paid a cost-based price for the renewable electricity they supply to the grid. Another possibility would be to allow new forms of financing that are based on the existence of separate security rights in different parts of the renewable energy objects, again following the example of the Space Protocol.135 This would allow for a security interest, for example, that is based upon retention of ownership agreement to cover the generator of a wind turbine only, while other parts of the turbine are in the unencumbered ownership of the operator. It should be noted, however, that in some areas of financing for renewable energy equipment such a new Protocol to the Cape Town Convention would not be very relevant. Where renewable energy equipment is financed through project financing and where there is also no potential for conflicts between land ownership and rights in the movable asset, the additional protection for the registered secured creditor does not appear to be necessary.136 Therefore, in the future preparatory work on this Protocol, Unidroit should continue seeking to identify which areas have specific requirements and demand for such a Protocol, while other areas of project financing would probably be better served with law reform projects on the basis of other models. This work should focus on the former to seek whether the necessary industry support can be found, especially since States will be reluctant to let the rules of the Cape Town Conventions system override their national immovable property law without such specific support. Thus, there is clearly much work to be done before this idea of a possible Protocol on renewable energy equipment can become a reality. Still, due to the sheer potential market size, such a Protocol can be expected have a considerable positive impact, both commercially and in regard to climate protection, and, therefore, it is highly recommended that Unidroit continues this work. Footnotes 1 Cf. Roy Goode, ‘From Acorn to Oak Tree: the Development of the Cape Town Convention and Protocols’, 17 (2012) Uniform Law Review, 599, at 600. 2 Roy Goode, ‘The Priority Rules under the Cape Town Convention and Protocols’, 1 (2012) Cape Town Convention Journal, 95. 3 Cf. recommendation 4(a) of the UNCITRAL Legislative Guide on Secured Transactions (2010), which exempts mobile assets covered by the Cape Town Convention from the scope of application of the Guide, see https://www.uncitral.org/pdf/english/texts/ security-lg/e/09-82670_Ebook-Guide_09-04-10English.pdf (accessed 19 April 2018). 4 Cf. Phil Durham and Kenneth Basch, ‘Cape Town Convention Closing Opinions in Aircraft Finance Transactions: Custom, Standards and Practice’, 4 (2015) Cape Town Convention Journal, 3 et seq. 5 Roy Goode, Official Commentary to the Convention on International Interests in Mobile Equipment and Luxembourg Protocol thereto on Matters Specific to Railway Rolling Stock (Rome, Unidroit Books, 2014; 2nd edn), para. 2.1. 6 Vadim Linetsky, Economic Benefits of the Cape Town Treaty (2009), pp. 2 et seq., see http://www.awg.aero/assets/docs/economicbenefitsofCapeTown.pdf (accessed 19 April 2018). 7 Source: http://www.unidroit.org/status-2001capetown-aircraft (accessed 19 April 2018). 8 The Luxembourg Protocol has so far been ratified only by Gabon, Luxembourg, and the European Union, http://www.unidroit.org/status-2007luxembourg-rail (accessed 19 April 2018). 9 The Berlin Protocol has not yet been ratified by any State, see: http://www.unidroit.org/status-2012-space (accessed 19 April 2018). 10 Cf. Art. 6(2) of the Convention; Goode (n 1) 603 et seq. 11 See generally Marek Dubovec, Charles Mooney, and William Brydie-Watson, ‘The Mining, Agricultural and Construction Equipment Protocol to the Cape Town Convention Project: The Current Status’, 21 (2016) Uniform Law Review, 332 et seq.; Benjamin von Bodungen and Ole Böger, ‘Neue Rechtsregeln für den kreditfinanzierten Handel mit Ausrüstungsgegenständen für Landwirtschaft, Bauindustrie und Bergbau’, (2017) Wertpapier-Mitteilungen, 1241 et seq. 12 See generally Ole Böger, ‘The Case for a New Protocol to the Cape Town Convention Covering Security over Ships’, 5 (2016) Cape Town Convention Journal, 1 et seq.; Roy Goode, ‘Battening down your Security Interests: How the Shipping Industry can Benefit from the Unidroit Convention on International Interests in Mobile Equipment’, (2000) Lloyd’s Maritime and Commercial Law Quarterly, 161 et seq. 13 Unidroit 2013 – C.D. (92) 5 (c)/(d), para. 105. 14 Unidroit 2013 – C.D. (92) 5 (c)/(d), paras. 179 et seq. 15 Unidroit 2013 – A.G. (72) 9, App. 3. 16 Unidroit 2016 – C.D. (95) 13 Add. 5. 17 Unidroit 2016 – A.G. (75) 8, para. 44. 18 Unidroit 2016 – C.D. (95) 15, para. 272; Unidroit 2016 – C.D. (95) 13 Add. 5, para. 13. 19 Unidroit 2016 – A.G. (75) 3 corr. 20 See Unidroit 2016 – C.D. (95) 13 Add. 5, para. 38. 21 See Anna Gottschall, Die Besicherung von Offshore-Windkraftanlagen nach deutschem und US-amerikanischem Recht (Dissertation Köln 2011), at 173 et seq. 22 Renewable Energy Policy Network for the 21st Century (REN21), Renewables 2017 Global Status Report (2017) at 30, available at http://www.ren21.net/gsr-2017 (accessed 19 April 2018). 23 United States Energy Information Administration, International Energy Outlook 2017, at 20, available at https://www.eia.gov/outlooks/ieo/pdf/0484(2017).pdf (accessed 19 April 2018). 24 Cf. Art. 4(1) of the Paris Agreement. 25 Art. 2(1). 26 Art. 3 of Directive 2009/28/EC on the promotion of the use of energy from renewable sources; REN21 (n 22) 30, 197 et seq. 27 REN21 (n 22) 197. 28 REN21 (n 22) 197 et seq. 29 REN21 (n 22) 197. 30 See the data on the website of the National Conference of State Legislatures, http://www.ncsl.org/research/energy/renewable-portfolio-standards.aspx (accessed 19 April 2018). 31 REN21 (n 22) 21. 32 REN21 (n 22) 24. 33 In 2017, there has been a global issuance of over US $ 100bn in green bonds, see https://www.climatebonds.net/2017/11/breaking-2017-green-bond-record-100bn-global-issuance-reached-during-cop23 (accessed 19 April 2018). 34 In Germany: Pfandbrief under the Pfandbriefgesetz. 35 See generally Hugh Beale, Michael Bridge, Louise Gullifer, and Eva Lomnicka, The Law of Security and Title-based Finance (Oxford, OUP, 2012; 2nd edn), para. 2.30. 36 John Finnerty, Project Financing: Asset-based Financial Engineering (New York, John Wiley, 2007; 2nd edn), at 1 et seq. 37 See the overview of financing practices in Goode (n 1) para. 2.4. 38 See the OECD Business and Finance Outlook 2016, at 148, available at http://www.oecd.org/daf/inv/investment-policy/BFO-2016-Ch5-Green-Energy.pdf (accessed 19 April 2018); Frankfurt School of Finance & Management-UNEP Collaborating Centre for Climate & Sustainable Energy Finance (FS-UNEP), Global Trends in Renewable Energy Investment 2017, at 50, available at http://fs-unep-centre.org/sites/default/files/publications/globaltrendsinrenewableenergyinvestment2017.pdf (accessed 19 April 2018). 39 John Dewar, International Project Finance (Oxford, OUP, 2011), at 1. 40 Dewar (n 39) 1. 41 Cf. Dewar (n 39) 1; Mark Sundahl, The Cape Town Convention: Its Application to Space Assets and Relation to the Law of Outer Space (Leiden, Nijhoff, 2013), at 4 et seq. 42 Cf. Philip Wood, Project Finance, Securitisations, Subordinated Debt (London, Sweet & Maxwell, 2007; 2nd edn), paras. 5-004, 5-020. 43 Cf. Dewar (n 39) 2; Wood (n 42) para. 5-005. 44 Wood (n 42) para. 5-003. 45 Cf. Unidroit 2016 – C.D. (95) 13 Add. 5, para. 37. 46 See Unidroit 2016 – C.D. (95) 7(c), paras. 7 et seq. 47 See Unidroit 2017 – Study 72K – CGE2 – Doc. 4, paras. 2 et seq. and Appendix I. 48 Art. I(2)(a), (b) and (k) juncto Annexes 1 to 3 of the draft MAC Protocol, see for the latest draft text Unidroit 2017 – Study 72K – CGE2 – Report, Appendix III. 49 See the list of HS Codes in Appendix A to Unidroit 2016 – C.D. (95) 13 Add. 5. Cf. generally Izaak Wind, HS Codes and the Renewable Energy Sector (2009), available at https://www.ictsd.org/downloads/2009/04/hs-codes-and-the-renewable-energy-sector_izaak-wind.pdf (accessed 19 April 2018). 50 Goode (n 1) para. 2.109. 51 The application of this approach to renewable energy equipment presupposes that this equipment is serialised and that serialisation occurs not only for parts rather than the complete equipment, cf. Unidroit 2016 – C.D. (95) 13 Add. 5, para. 39. 52 Unidroit 2017 – Study 72K – CGE2 – Doc. 11, paras. 26 et seq. 53 Unidroit 2017 – Study 72K – CGE2 – Doc. 11, para. 50. 54 Unidroit 2017 – Study 72K – CGE2 – Doc. 11, paras. 58 et seq. 55 For an overview over various types of asset-specific registration systems, see Ulrich Drobnig and Ole Böger, Proprietary Security in Movable Assets (Oxford and München, OUP and Sellier, 2015), at 442 et seq. 56 See, for example, the registered security under the Italian Legge Bancaria, art. 46 which is restricted to banks as creditors. 57 Cf. Drobnig and Böger (n 55) 443. 58 Art. 30 of the Convention juncto Art. X Aircraft Protocol. Cf. Anthony Saunders and Ingo Walter, Proposed Unidroit Convention on International Interests in Mobile Equipment: Economic Impact Assessment (1998), at 11 et seq., available at http://www.awg.aero/assets/docs/EIA.pdf (accessed 19 April 2018); von Bodungen and Böger (n 11) 1243, 1249 et seq. 59 Cf. Arts. 8 et seq. of the Convention; Goode (n 1) paras. 4.78 et seq. and 4.108 et seq. 60 Art. 29(1) of the Convention; Goode (n 1) para. 4.183. 61 Wood (n 42) para. 5-010. 62 See the general rule in German law: sec. 932 Bürgerliches Gesetzbuch (German Civil Code, abbrev. BGB); France: art. 2276 Code Civil; Italy: art. 1153 Codice Civile. 63 See English Law: sec. 25 Sale of Goods Act 1979; United States: secs. 1-201 (9), 9-320 (a) UCC. 64 See the in-depth jurisdictional analysis in Unidroit 2017 – Study 72K – CGE2 – Doc. 4, Appendix IV. 65 Art. VII of the 2017 draft (n 48). 66 Art. VII Alternatives A to C of the 2017 draft (n 48). 67 Cf. Unidroit 2015 – Study 72K – SG3 – Doc. 5, para. 93; von Bodungen and Böger (n 11) 1248. 68 Goode (n 1) para. 2.5. 69 Böger (n 12) 85 et seq. 70 See below at VI.1. 71 REN21 (n 22) 88 et seq. 72 See the data in International Renewable Energy Agency (IRENA), Renewable Power Generation Costs in 2017 (2018), at 91 et seq, available at https://www.irena.org/-/media/Files/IRENA/Agency/Publication/2018/Jan/IRENA_2017_Power_Costs_2018.pdf (accessed 19 April 2018). 73 Fosen Vind in Norway, the largest onshore project in Europe, see FS-UNEP (n 38) 26. 74 See below at VI.1.B. 75 See Dig. 41.1.26.pr.; Dig. 43.17.3.7. Cf. Leopold Wenger, ‘Superficies solo cedit’, 88 (1933) Philologus, at 254. 76 For French law, see arts. 524 et seq. Code Civil; for Germany, see secs. 94 juncto 93 BGB; in Scottish law, this is called the principle of accession. For English law, see the House of Lords decision in Elitestone v Morris [1997] 1 WLR 687. 77 Height of the tallest wind turbines in Nowy Tomyśl in Poland. 78 Bernd Peters, ‘Windkraftanlagen und §§ 93 ff. BGB’, (2007) Wertpapier-Mitteilungen, 2003, at 2008. 79Bundesgerichtshof (Supreme Court), decision of 7 April 2017, V ZR 52/16, (2017) Wertpapier-Mitteilungen, 1081; Oberlandesgericht (Court of Appeal) Koblenz, decision of 21 September 2006, 5 U 738/06, (2007) Zeitschrift für Insolvenzrecht, 292. 80 See Hans Ganter, ‘Die Sicherungsübereignung von Windkraftanlagen als Scheinbestandteil eines fremden Grundstücks’, (2002) Wertpapier-Mitteilungen, 105, at 108; Malte Stieper, in Staudingers Kommentar zum BGB (München, Sellier, 2017), § 95 BGB para. 11. 81 Cf. Oberlandesgericht Schleswig, decision of 26 August 2005, 14 U 9/05, (2005) Wertpapier-Mitteilungen, 1909; Peters (n 78) 2005 et seq. 82Bundesgerichtshof (n 79) para. 14. 83 See Oberlandesgericht Koblenz (n 79). 84 On the law of trade fixtures in general see Alphonse Squillante, ‘The Law of Fixtures’, 15 (1987) Hofstra Law Review, 191, at 239-46. 85 AUI Construction Group v. Vaessen, 67 NE 3d 500 - Ill: App. Ct., 2nd Dist. 2016, at paras. 18 et seq. This is in line with earlier case law from Energrey Enterprises v. Oak Creek Energy Systems (E.D. Cal. 1990), 119 B.R. 739. 86 AUI Construction Group v. Vaessen (n 85) para. 20. 87 AUI Construction Group v. Vaessen (n 85) paras. 35 et seq. 88 Arts. L.451-1 et seq. Code rural. 89 See, for example, Austria: Superädifikat, sec. 435 Allgemeines Bürgerliches Gesetzbuch (Civil Code); Germany: sec. 1 Erbbaurechtsgesetz; Italy: diritto di superficie, arts. 952 et seq. Codice Civile. 90Oberlandesgericht Koblenz (n 79); Ganter (n 80) 106; for the contrary view see Peters (n 78) 2005. 91 Cf. Stieper (n 80) 11. Leif Böttcher, ‘Das Meer als Rechtsraum: Anwendbarkeit deutschen Sachenrechts auf Offshore-Windkraftanlagen und Möglichkeiten der Kreditsicherung’, (2011) Rheinische Notar-Zeitschrift, 589, at 599. 92 Cf. Peters (n 78) 2004. 93 See above at V.4. 94 See Rosemary Lyster and Adrian Bradbrook, Energy Law and the Environment (Cambridge, Cambridge University Press, 2006), at 20. 95 Unidroit 2016 – C.D. (95) 13 Add. 5, para. 12; REN21 (n 22) 89. 96 REN21 (n 22) 89. 97 London Array, the largest offshore wind farm in the world, see http://www.4coffshore.com/windfarms/london-array-phase-1-united-kingdom-uk14.html (accessed 19 April 2018). 98 See generally also Unidroit 2013 – C.D. (92) 5 (c)/(d), paras. 121 et seq. 99 See Arts. 3 et seq. of the United Nations Convention on the Law of the Sea (UNCLOS) of 1982. 100 The territorial sea forms part of the sovereign territory of the littoral State under Art. 3 UNCLOS. 101 Arts. 55 et seq. UNCLOS. 102 See art. 2613(2) of the Romanian Civil Code of 2009/2011; United States Outer Shelf Act, 43 USC § 1333. 103 There is an especially broad discussion of this issue in the German academic literature, but the reasoning of the following authors appears to be largely based upon general concepts of private international law: Gottschall (n 21) 50 et seq.; Böttcher (n 91) 595; Christiane Wendehorst, in Münchener Kommentar zum Bürgerlichen Gesetzbuch (München, Beck, 2018; 7th edn), Art. 45 EGBGB para. 22 (fn. 36); Wolfgang Wurmnest, ‘Windige Geschäfte? Zur Bestellung von Sicherungsrechten an Offshore-Windanlagen’, 72 (2008) Rabels Zeitschrift für ausländisches und internationales Privatrecht, 236, at 248. 104 See, e.g., Gerhard Kegel, Internationales Privatrecht (München, Beck, 1987; 6th edn), at 13. In later editions of this monography, however, this approach was no longer followed, see 9th edn München 2004, at 18. 105 This reasoning would be based upon an analogy to the rule in Art. VIII of the Treaty on Principles Governing the Activities of States in the Exploration and Use of Outer Space, including the Moon and Other Celestial Bodies of 1967 (Outer Space Treaty), according to which property rights in assets launched into outer space are not affected; see generally Böttcher (n 91) 593 et seq. 106 See for this traditional rule Gian Venturini, ‘Property’, in Rene David et al. (eds.), International Encyclopedia of Comparative Law, Vol. III, chap. 21 (Tübingen, Mohr, 1974), para. 12. 107 Wendehorst (n 103) para. 22. 108 See generally Unidroit 2013 – C.D. (92) 5 (c)/(d), paras. 161 et seq.; see also Steffen Blomberg, The Realisation of Offshore Wind Park Projects in Germany (Hamburg, Anchor, 2013), at 65. 109 See Unidroit 2013 – C.D. (92) 5 (c)/(d), paras. 142 et seq.; Böttcher (n 91) 598 et seq. 110 See above VI.1.B. 111 See for German law Wurmnest (n 103) 252; for the discussion in the United States, see Rachael Salcido, ‘Law Applicable on the Outer Continental Shelf and in the Exclusive Economic Zone’, 58 (2010) American Journal of Comparative Law, 407, at 427. 112 In England, ownership of the territorial sea is claimed by the Crown, see Glen Plant, ‘Offshore Wind Energy Development: the Challenges for English Law’, 8 (2003) Journal of Planning & Environment Law, 939, at 945 (fn. 35); Geoffrey Marston, ‘The Incorporation of Continental Shelf Rights into United Kingdom Law’, 45 (1996) International & Comparative Law Quarterly, 13, at 23; for German law see Bundesgerichtshof, decision of 22 June 1989, III ZR 266/87, BGHZ 108, 110; Böttcher (n 91) 596 et seq.; for the situation in the United States, see the decision United States v Texas, 339 U.S. 707 (United States Supreme Court 1950). 113 In the territorial sea, however, such superficies rights might be available if the coastal State as owner agrees to their creation, see Böttcher (n 91) 597 et seq. 114 See Austrian Oberster Gerichtshof (Supreme Court), decision of 14 December 1983, 3 Ob 126/83, JBl 1984, 550; Heinz-Peter Mansel, in Staudingers Kommentar zum BGB (München, Sellier, 2015), Art. 43 EGBGB para. 1306. 115 Such as the United States UCC art. 9 or the English Companies Register, see generally Drobnig and Böger (n 55) 438 et seq. On the effects of such registration regimes as one-sided conflict-of-laws rules see Unidroit 2013 – C.D. (92) 5 (c)/(d), para. 152. 116 See Norwegian law, which allows, for example, the registration of installations for the exploitation of subsea resources, see Lov om sjøfarten 1994 (Maritime Code), Sec. 39. 117 For such a view see the cases The Ship ‘Betty Ott’ v General Bills Ltd [1992] 1 NZLR 655 (New Zealand Court of Appeal) and the Brazilian Appeals Court decision in the OSX-3 case of 2016, cf. Böger (n 12) 81 et seq. Both cases have since been reversed, by statute (New Zealand) or on appeal (Brazil). 118 Cf. Arts. I(2)(a), IX et seq.; see Unidroit 2013 – C.D. (92) 5 (c)/(d), paras. 176 et seq. 119 REN21 (n 22) 66. 120 There may be restrictions to the availability of non-possessory registered security under national law, see footnotes 55 and 56. 121 Cf. above V.4. 122 IRENA (n 72) 61. 123 See the market data available at https://news.energysage.com/how-much-does-the-average-solar-panel-installation-cost-in-the-u-s/ (accessed 19 April 2018). 124 The 2016 Unidroit study mentions other types of biomass and geothermal energy generation as well, see Unidroit 2016 – C.D. (95) 13 Add. 5, Appendix A. 125 REN21 (n 22) 21, 57 et seq. 126 See above IV.2. 127 See above V.4 and VI.3.A. 128 See above IV.2. 129 Cf. the UNCITRAL Legislative Guide on Secured Transactions and the Model Law referred to above in VI.3.A. 130 See above II.3. 131 See above V. 132 See above VI.2. 133 See above V.4 and VI.1.E. 134 Cf. Arts. I(2)(a), IX et seq.; Martin Stanford, ‘The Availability of a New Form of Financing for Commercial Space Activities’, 1 (2012) Cape Town Convention Journal, 109, at 121 et seq. 135 Art. I(2)(k). 136 See above VI.3.A and VI.4. © The Author(s) (2018). Published by Oxford University Press on behalf of Unidroit. All rights reserved. For permissions, please email journals.permissions@oup.com This article is published and distributed under the terms of the Oxford University Press, Standard Journals Publication Model (https://academic.oup.com/journals/pages/about_us/legal/notices) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Uniform Law Review/Revue De Droit Uniforme Oxford University Press

A possible Protocol to the Cape Town Convention on renewable energy equipment

Uniform Law Review/Revue De Droit Uniforme , Volume Advance Article (2) – Apr 30, 2018

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Abstract

Abstract The International Institute for the Unification of Private Law is currently considering the feasibility of a possible Protocol to the Convention on International Interests in Mobile Equipment (Cape Town Convention) on matters specific to renewable energy equipment. The protection of the world climate requires global cooperation. A switch from fossil energy resources to the increased generation of energy from renewable resources can reduce greenhouse gas emissions, but meeting the worldwide targets for an increased market share for renewables requires an enormous investment in renewable energy equipment. The secured transactions regime of the Cape Town Convention system whose strong protection of the secured creditor allows a reduction in borrowing costs for the financing of high-value equipment could facilitate such financing. Even though renewable energy equipment, such as wind turbines, solar panels, and other assets used in hydropower, geothermal, or biomass projects, is typically stationary and differs from the types of high-value mobile assets covered by the Cape Town Convention system so far, the general principles of this system are flexible enough to allow its extension to renewable energy equipment in general. Different categories of renewable energy equipment, however, are subject to different financing practices, and the legal issues they face are not identical. The strongest demand for a Protocol on renewable energy equipment would certainly be in the area of offshore wind energy equipment. In the interests of the viability of such a Protocol as an international instrument, other categories of renewable energy equipment should be included as well, but this requires a thorough assessment of whether these potentially involve conflicts between the rights of different secured creditors that could be solved under the rules of the Cape Town Convention and whether financing practices in project finance transactions could benefit from the availability of an additional security interest under international law. I. Introduction The International Institute for the Unification of Private Law (Unidroit) is currently considering the feasibility of a new Protocol to the 2001 Convention on International Interests in Mobile Equipment (Cape Town Convention), which would extend the regime of proprietary security under the Cape Town Convention system to renewable energy equipment. There is enormous growth in the market for renewable energies worldwide, which creates a significant need for investment in assets such as wind turbines, solar panels, or turbines for hydroelectric dams. The availability of effective proprietary security rights for financiers of such an investment, which is the hallmark of the regime of proprietary security under the Cape Town Convention system, could be expected to contribute to the facilitation of such an investment in a similar way as the aircraft financing industry has benefited from the reduction of the costs of credit that has already been achieved under the relevant Protocol to the Cape Town Convention. Moreover, the promotion of renewable energy and climate protection is an issue that lends itself to international cooperation, which further strengthens the case for international legal harmonization in this area of law. This article intends to have closer look at some of the legal problems that might arise in relation to secured transactions concerning renewable energy equipment and to discuss whether the extension of the Cape Town Convention system could be a feasible solution to these problems. This system has already been shown to be quite adaptable in the preparation of the recent draft Protocol on Agricultural, Construction and Mining Equipment (MAC Protocol). This experience shows that, at least from a legal standpoint, the rules of the Cape Town Convention could be amended so as to apply to the renewable energy equipment financing market as well, but the question is also which parts of the market might require what kind of solution, keeping in mind that a possible Protocol on renewable energy equipment can be expected to succeed only if it is likely to receive a substantial measure of support not only from governments but also from industry and other interested sectors.1 II. The idea of extending the Unidroit Cape Town Convention system to the financing of renewable energy equipment The financing of renewable energy equipment is as of yet not specifically covered by any international instrument. The enormous success that the existing system of the Unidroit Cape Town Convention and its Protocols has had in the facilitation of secured transactions and leasing agreements concerning the types of mobile equipment covered so far2 has motivated the idea of extending this system to the financing of renewable energy equipment. 1. The objective of the Cape Town Convention system: the reduction of borrowing costs through the strong protection of secured creditors The Cape Town Convention provides for a system of registered international interests with clear priority rules and strong remedies and insolvency protection for creditors. With its specific focus on certain types of high-value mobile equipment, the Cape Town Convention regime operates apart from instruments directed at the harmonization of secured transactions law in general.3 For the categories of assets in relation to which it is already in force—that is, for aircraft objects—the regime under the Cape Town Convention has become a globally accepted standard,4 and the legal certainty and strong creditor protection afforded by the regime of the Cape Town Convention has had a beneficial economic effect by allowing debtors to obtain credit at more favourable rates due to lower risk-based premiums on borrowing costs.5 It is expected that the Cape Town Convention will lead to the total reduction of worldwide aircraft financing costs by up to US $160 billion in the years from 2009 to 2030.6 2. Cape Town Convention and its Protocols The Cape Town Convention system is comprised of the Cape Town Convention itself, which sets out the general principles of this system’s secured transactions regime for mobile assets of high value, and the different Protocols to the Convention. The following three Protocols have already been adopted: the 2001 Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment (Aircraft Protocol), which has attracted 69 contracting parties,7 the 2007 Luxembourg Protocol to the Convention on International Interests in Mobile Equipment on Matters specific to Railway Rolling Stock (Rail Protocol),8 and the 2012 Berlin Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Space Assets (Space Protocol);9 the latter two not yet having come into force. Each of these Protocols has a double function; each are necessary as instruments that provide for the application of the Convention to the category of objects covered by the respective Protocols, and each also contains sector-specific rules, amending the general rules of the Convention according to the needs of the different industry sectors.10 However, going beyond the types of assets covered by the existing three Protocols, which are specifically enumerated in Article 2(3) of the Cape Town Convention, Unidroit is currently considering, or working on, the following different additional Protocols: the draft Protocol on Agricultural, Construction and Mining Equipment (MAC Protocol), where work is already at a rather advanced stage,11 a possible Protocol on ships,12 and a possible future Protocol on renewable energy equipment, which is the topic of this article. Such new Protocols would extend the Cape Town Convention system to new types of assets, taking into account the specific needs and peculiarities of the relevant market and possibly covering issues that are entirely different from the matters arising under the previous Protocols. 3. The project history of a possible Protocol on renewable energy equipment The idea of a Protocol on renewable energy equipment was suggested to the Unidroit Secretariat following a request in 2011 from practice concerning matters specific to offshore wind power generation and similar equipment.13 The Unidroit Secretariat prepared a preliminary study to the Unidroit Governing Council in 2013 that concluded that such a Protocol could be a suitable solution to address existing legal issues in this field.14 It was then decided by the Unidroit General Assembly in 2013 to include preparatory work on a Protocol on the specific topic of offshore power generation in the Unidroit Work Programme for the years 2014 to 2016.15 In 2016, the Unidroit Secretariat provided an update to the 2013 study that confirmed and refined the findings of that earlier study.16 The Unidroit General Assembly decided to expand the topic of the possible new Protocol in the Work Programme for the years 2017 to 2019 from offshore power generation to renewable energy equipment in general.17 Offshore power generation by its nature was thought to be a topic that only relatively few contracting States would be interested in, and there was the expectation that there would be more potential support for this Protocol if it had a more general scope.18 Unidroit, however, has allocated in its current Work Programme only a low priority status to this project.19 For the time being, the Unidroit Secretariat is primarily occupied with the implementation of the Rail and Space Protocols and the negotiation and preparation of the draft MAC Protocol. Therefore, more substantial efforts concerning the preparation of a possible Protocol on renewable energy equipment are unlikely to be undertaken by Unidroit before the year 2020, and, thus, if this Protocol ever sees the light of day, it may not be for at least 10 more years. So far, however, the project is still at a stage where it is primarily being discussed within Unidroit itself. Involvement from the practice side has been rather limited as of yet,20 and there has not yet been a broader debate on this matter, even though some support for such a project can already be found in academic legal literature.21 III. Some data and developments concerning the market for the financing of renewable energy equipment 1. Demand for financing of renewable energy equipment The importance of renewable energy generation is set to rise enormously over the coming years. Currently, about 19.3 per cent of the total (final) energy consumed in all economies worldwide is generated from renewable energy sources.22 Renewables are the fastest-growing energy source,23 mainly due to a concerted political decision in favour of the promotion and support of renewable energy in order to reduce greenhouse gas emissions as the most important factor contributing to man-made climate change.24 In the 2015 Paris Agreement on Climate Change, participating States have agreed on climate protection goals—that is, to hold the increase in the global average temperature below two degrees Celsius above pre-industrial levels and to pursue efforts to limit it further to 1.5 degrees Celsius.25 To achieve these goals, more than 170 States worldwide have set themselves targets to increase the market share for renewable energy generation.26 For example, the European Union (EU) has set itself a target that the share of renewable energy as a proportion of the final energy consumption in the EU is to rise to 20 per cent in 2020 and to 27 per cent by 2030,27 each Member State contributing to a different degree to this overall goal—for example, Sweden with 50 per cent and Germany with 30 per cent.28 In China, the share of renewable energy is to rise to 15 per cent of primary energy consumption by 2020 and to 20 per cent by 2030.29 In the USA, different targets have been set at the State level—for example, California has set itself a target of a 50 per cent share for renewable energy generation by 2030, and Texas is to achieve a fixed figure of renewables production, which is set at 10,000 megawatts in the year 2025.30 Achieving these targets requires a continuous investment in renewable energy production worldwide. In 2016 alone, there was a new global investment in renewable energy production of US $241.6 billion.31 Continuing reductions in the costs of renewable energy production were offset by an increase in the installations volume.32 All of this clearly shows the potential market size for a possible Protocol on renewable energy. If there can be even a slight reduction of the costs of financing for renewable energy equipment through the preparation of a new Protocol to the Cape Town Convention, similar to the effects of the Aircraft Protocol, then the colossal size of the renewable energy market means that in absolute terms the benefits for operators of such equipment that seek financing for the installation of new equipment would be enormous. This would also have additional indirect positive effects on the economy as a whole through lower prices for energy as a result of such lower costs of installation. 2. Demand for green bonds There is also a growing demand for investment opportunities in renewable energy equipment through the issuance of green bonds. Green bonds are bonds where the investment is exclusively used to finance projects that are environment friendly or that address climate change issues.33 Investment in such bonds is sought after both by environmentally conscious retail investors and by institutional investors that seek to invest their funds in renewable energy investments with reliable income streams, whether as a commercial decision or because they have set their own climate-protection targets. This is an especially interesting development in regard to the Cape Town Convention system when banks seek to market these investments as covered green bonds.34 Covered bonds in general must be backed by qualifying collateral,35 and where bonds are issued as covered green bonds, it is necessary for them to be backed by collateral that is both commercially valuable in the sense that it can generate a reliable income stream and that has a clear climate-friendly nature. Renewable energy equipment is therefore a prime candidate for qualifying as collateral for covered green bonds, but this requires the availability of clearly defined and effective security rights over this type of assets, which could be provided under a sector-specific Protocol to the Cape Town Convention. IV. The use of proprietary security interests in secured asset finance and project finance for renewable energy equipment Financing comes in many forms; one very common and general distinction is made between traditional asset finance, on the one hand, and project finance, on the other. While there may be overlaps and middle grounds between them, one main basis for the distinction between these two basic concepts of financing is the degree to which the lender is, or wants to be, concerned with the financed project as a going concern (as opposed to it merely serving as collateral for a fixed-income loan to the borrower).36 The Aircraft Protocol, whose success clearly inspired the project of a possible Protocol on renewable energy equipment, covers the aircraft financing market, which can be said to be primarily concerned with asset finance,37 whereas renewable energy financing covers both asset finance and project finance. This difference also has consequences with respect to the role of proprietary security rights in the respective types of financing structures. 1. Security interests in asset financing With some justification, asset financing can be regarded as the typical field of application of proprietary security rights over movable collateral. In the financing practices for renewable energy equipment, asset-financing transactions have traditionally been used mainly by larger utility companies as balance-sheet corporate financing for their renewable energy projects such as wind farms.38 However, there are also possible roles for asset financing as a short- or medium-term credit for smaller projects, like a single wind turbine on farmland or solar panels installed on the roof of buildings. Put in very general terms, the main characteristics of an asset-financing transaction are that the lender is usually interested in obtaining a fixed income stream from the repayment of a loan that is secured with collateral whose acquisition has been financed by the borrower with the credit capital. In the event of a default under the secured loan, the creditor is not necessarily interested in further support of the debtor’s business. Instead, the creditor might want to terminate the loan and demand immediate repayment, even if this effectively puts the debtor’s business at an end. The creditor will then simply enforce its security rights and seek preferential satisfaction or pursue its claims against the insolvency administrator of the debtor. In an asset-financing transaction, the decision to grant financing is therefore based upon a valuation of the creditworthiness of the borrower, which determines whether the borrower will be able to repay the loan with the agreed interest, and of the value of the assets given as collateral, which determines whether the creditor will be able to satisfy his claims for repayment through an enforcement of the collateral if this should become necessary. This explains the role of proprietary security rights in a typical asset-financing transaction; security rights are used in order to give the lender a security over certain assets of the borrower, especially those that are acquired with the loan capital, which may be enforced for the repayment of the loan, usually by either selling or appropriating the collateral. Thus, strong enforcement rights for the creditor are very important, and risk premiums as part of the financing costs can be lower if creditors can obtain such reliable rights as under the Cape Town Convention. 2. Security interests in project finance The counterpart to asset financing is a project-financing structure. In the financing of renewable energy equipment, project-financing structures are usually applied for the financing of very large-scale renewable energy projects,39 such as offshore wind parks or hydroelectric dams, the latter being especially prevalent in developing countries. In a project-financing structure, the whole project, including the investment, its assets, and the eventual income flows (revenue), are legally separated from the sponsoring entity—that is, the entity that is behind the project and seeks outside financing for it, by being tied to a special purpose vehicle.40 The lender is entitled to participate in the project’s cash flow for a return on its investment, either through a profit-sharing formula or through an agreement on a fixed interest income that is payable out of the revenue from the project. The lender bases its decision whether or not to grant credit on the project’s expected cash flow,41 and, in the case of default, he is more inclined to seeking to continue to generate revenue from the project by supporting the continuation of its operation.42 Appropriating or selling the project’s assets is less appealing to a project-financing lender. These differences also lead to different objectives of the use of proprietary security rights in a project project-financing structure. In a project-financing transaction, typically all of the available assets of the project are encumbered in favour of the project’s lenders.43 However, since these lenders will typically be reluctant to enforce their security rights, the main purpose of such security rights is not the possibility of enforcement but, rather, the possibility of fending off other creditors who will not have the possibility of interfering with the continuation of the project on the basis of having obtained a proprietary interest in its assets. The role of proprietary security in project financing has thus been described as a shield, not a sword, for the secured creditor.44 The lender will enforce his or her rights only as a strategy of last resort where the project has ultimately failed and where there is no longer an expectation of obtaining revenue from its cash flow. However, there are also situations where the project entity, like any other borrower, might grant security over some of its assets to other creditors for additional (asset-based) financing, especially as acquisition financing. This will be compatible with the overall structure of the project-financing transaction as long as the principal lenders do not lose control over the project’s cash flow. Therefore, such security rights for other creditors will likely cover non-essential or replaceable assets only. V. Characteristics of the Cape Town Convention system and their application in the financing of renewable energy equipment in general The Cape Town Convention system is built upon some general characteristic principles both in regard to its scope of application and in regard to the operation of a system of proprietary security rights in movable assets in general. Even though renewable energy equipment, which is typically stationary machinery, is generally quite different from the specific types of movable assets that are covered by the Cape Town Convention system so far, these general characteristics of the Cape Town Convention system have proven to be quite flexible, allowing its extension to types of assets that were not premeditated by the Convention’s drafters. 1. The criteria of categories of high-value, mobile, and uniquely identifiable equipment Article 51(1) of the Cape Town Convention allows the extension of the Cape Town Convention system to objects of other categories of high-value, mobile equipment through additional Protocols. None of these requirements constitutes an impediment to the extension of the Cape Town Convention to renewable energy equipment. The high-value criterion outbalances the extra costs and effort of registration under the Cape Town Convention system. Renewable energy assets should usually be of sufficiently high value, at least if certain low- or medium-prize classes of assets such as individual solar panels are not included.45 The element of mobility, which was evident in aircraft, rail, and space assets, is understood in a much less strict sense now. Specifically, under the rules of the draft MAC Protocol, there is no specific reference to such a requirement. Instead, it is inherently regarded as sufficient for inclusion that such equipment is likely to be exported.46 If this interpretation is applied, the requirement of mobility is fulfilled even by most types of renewable energy equipment. In referring to certain categories of equipment, Article 51(1) of the Cape Town Convention also requires that it must be possible to come up with a clear definition of the categories of assets to be covered by an additional Protocol. One of the primary tasks for the drafters of a possible Protocol on renewable energy equipment would be to come up with a workable and precise definition of the specific categories of assets to be covered. It would probably be very difficult to define such equipment in a way that is both precise and sufficiently open-ended to allow for future technological developments. However, the draft MAC Protocol contains a novel approach that could also be usefully applied in a possible Protocol on renewable energy equipment. The scope of application of the draft MAC Protocol is defined by way of a reference to the World Customs Organization’s Harmonized System, which was originally developed in order to harmonize taxation requirements. This system covers assets that make up 98 per cent of the combined world export trade volume and organizes these assets into a list of 5,205 six-digit object codes (HS codes).47 Instead of an attempt to include an autonomous definition of the categories of mining, agricultural, and construction assets to which the draft MAC Protocol is intended to apply, that draft Protocol lists in its annexes the relevant HS codes that cover the assets that are meant to be covered.48 Such an approach could also be used for renewable energy equipment that is covered by specific HS codes as well.49 Any assets that are to be covered by an additional Protocol to the Cape Town Convention must be uniquely identifiable; otherwise, they cannot be registered under the system of asset-based registration as provided for by the Cape Town Convention system.50 Requiring the registrant to give an individual description of assets such as specific wind turbines or solar panels would create the problem that an inadvertent failure to give an exact description could result in the registration not being retrievable from a search of the register and, therefore, being regarded as ineffective. A possible solution to this problem is provided by Article XVII of the draft MAC Protocol, which provides that registration requires the indication of the asset’s serial number as allocated by its manufacturer,51 together with additional information that is to be determined in the registry regulations. While manufacturers’ serial numbers are not a perfect method for the identification of an asset, since the same number occasionally may have been allocated twice, either by the same manufacturer or several different manufacturers, they are regarded as being specific enough to be used as the indexing criterion for the register under the draft MAC Protocol.52 In rare cases, where a priority search in the register for a single serial number should retrieve several search results that relate to different assets, the searcher can use the mandatory additional information (such as the manufacturer’s name or the asset’s model designation) in order to determine which of the registrations retrieved by the search is the relevant one.53 Requiring such additional information as an indexing criterion would create the risk of invalidity of the registration due to even minor errors in the indication of such information; if it is only required as additional information that is not in itself an indexing criterion, this consequence will apply only where such errors are so severe as to be seriously misleading.54 2. Non-possessory registered movable property security interest Traditionally, many legal systems have been very reluctant to allow the creation of non-possessory security interests in movable property. Even as of today, it is still not uncommon to limit the scope of application of registration systems for non-possessory security interests to certain types of assets55 or classes of creditors.56 A fundamental principle of the Cape Town Convention system, however, is that it allows the assets covered by the Protocols to be used as objects of a non-possessory registered movable property security interest. This effect might tend to be overlooked because it is regarded as self-evident for assets such as aircraft, where registration of security rights was already very common under national law,57 but it could certainly have important practical relevance in regard to renewable energy equipment where there are no specialist registers under national law. 3. Insolvency protection and strong remedies for creditors The insolvency protection of the creditor under the Cape Town Convention is widely acknowledged as forming part of the main reasons for the success of the Convention.58 Such protection would also be relevant in the renewable energy context, and this also includes a preferential satisfaction from the proceeds of a sale of the encumbered asset. Many provisions of the Convention are based on the strong remedies of the creditor, especially the rules on prompt enforcement and on the exercise of self-help remedies;59 however, they were drafted with assets in mind such as aircraft, which very quickly lose their value if they are not properly maintained. Renewable energy equipment will often not be easily removable in practice—for example, in the case of an offshore wind turbine. There is therefore probably less practical interest in a right to ensure the immediate removal of the asset. 4. Clear system of priority of registered international interests, including conflicts with immovable property rights The Cape Town Convention system provides for a clear system of priority between the conflicting proprietary interests in the assets covered. International interests that are registered in the International Registers under the Cape Town Convention system take priority over any conflicting unregistered interests and over other interests that are registered later.60 Thus, a creditor holding an international interest does not have to be concerned about possible priority conflicts with other competing interests in the same asset under the rules of the applicable national law, especially its regime for proprietary security over movable assets, whether or not the latter interests are registered in a national register. Concerning renewable energy equipment, however, there is probably less potential for such priority conflicts with competing movable property security rights. In a project-financing transaction, the lender can take control of the dealings of the project entity, and this should protect against the possibility of the creation of conflicting security rights over the project’s assets.61 Even if this is not possible for the lender, the risk that a creditor’s security will be lost due to a third party acquiring rights in the assets free of the earlier encumbrance is rather small. The principles of good faith purchase usually require a transfer of possession,62 which is not likely to occur in relation to renewable energy equipment in general, which typically remains stationary, once it has been delivered to the operator and is installed on-site, for the whole length of its economic life cycle. The same applies to the requirements for the protection of a buyer under the rules of some legal systems protecting sales in the ordinary course of business.63 There is, however, the possibility of priority conflicts with conflicting immovable property rights where the renewable energy equipment is physically attached or otherwise associated to the land. Under the rules of national property law, this often results in the loss of the separate legal identity of that equipment as a movable asset, where ownership of the equipment passes to the owner of the immovable, or at least in the extension of the latter’s rights to the equipment.64 This problem did not have to be dealt with in the Convention itself and in the first three Protocols since the objects of those Protocols—that is, aircraft objects, railway rolling stock, and space assets—do not generally become closely associated to the land. For mining, agricultural, and construction equipment, this is more likely, and the draft MAC Protocol includes specific rules dealing with this conflict.65 This shows that the Cape Town Convention system, especially due to the flexibility provided by the distinction between the general Convention and the more specific Protocols, has the potential to deal with such conflicts even if these were not foreseen when drafting the Convention. However, the question of which policies to follow in regard to the conflicts with immovable property law has proven to be very controversial in the context of the negotiation of the draft MAC Protocol. It has certainly not been regarded as a straightforward issue to give general priority to the international interest. Instead, as a compromise solution, three options have been suggested in the draft MAC Protocol that allow States to make a choice as to whether, and to which extent, to retain the application of the rules of their immovable property law vis-à-vis the application of the rules of the Convention.66 Arguably, the issue of an association with immovable property law will be even more prevalent concerning many types of renewable energy equipment than in the context of the draft MAC Protocol, where this is often regarded as a lesser problem in practice.67 A possible Protocol on renewable energy equipment would lose much of its potential impact if the rules of national immovable property law could override its effects. Therefore, the extent to which a possible Protocol on renewable energy equipment can become a success very much depends upon whether contracting States will be more willing in this context to give precedence to the rules of the Cape Town Convention system over their own immovable property law. 5. Security interest under uniform rules of international law Finally, one other core characteristic of the Cape Town Convention system is that it provides for the creation of a security interest under uniform rules of international law.68 This relieves the secured creditor from having to investigate and comply with varying requirements under different national laws.69 This effect would be equally welcome in relation to the financing of renewable energy equipment. Here, there is also the additional factor that in many respects the outcomes under national property law in regard to security rights in renewable energy equipment are not very clear, especially with respect to the conflicts with immovable property law.70 Being able to rely on the application of uniform rules under the Cape Town Convention system would give investors a better and much more reliable position in comparison to, in many cases, the vague state of the existing, often judge-made, law. VI. Some general categories of renewable energy equipment and their specific issues concerning proprietary security rights There are many different types of renewable energy equipment, and the specific legal issues arising in relation to proprietary security rights over these diverse categories of renewable energy equipment are quite different from each other. As a consequence, while the preceding section has shown that in general there are no legal obstacles to the extension of the Cape Town Convention system to renewable energy equipment, the benefits to be derived from an application of these rules to the different types of such equipment vary greatly. 1. Onshore wind farms Wind energy is a booming market in many parts of the world, having grown from 74 gigawatts installed capacity in 2008 to 487 gigawatts in 2016; the majority being installed in onshore wind farms.71 The price of onshore wind turbines is close to US $1 mio per megawatt,72 so the total investment on equipment for a wind farm of 278 large turbines with one gigawatt total capacity can equal up to US $1.3 billion.73 A. Property rights in the wind turbine versus property rights in the land Problems often arise in regard to security rights over wind turbines because of conflicts between the property rights in the wind turbine, on the one hand, and property rights in the land, on the other hand. Typically, wind farm operators do not own the land that the wind turbines are built upon; instead, the operator concludes a long-term leasing contract with the landowner entitling him or her to the erection of the wind turbine and its subsequent operation, with specific provisions covering the removal of the wind turbine at the end of the lease. This arrangement, however, may have the effect that the wind turbine could be regarded as becoming part of the immovable property under the rules of national property law. If this should be the case, which is an issue that has given rise to disputes in a number of jurisdictions,74 this would have severe consequences. On the one hand, any security rights existing as movable property rights in the equipment before its installation would be lost, simply because the turbine would no longer be an item of movable property. On the other hand, the rights of the secured creditors that hold security rights over the immovable property would automatically extend to the wind turbine once it is part of the land. Conversely, there are also situations where the interests of the landowner might be negatively affected; if the wind turbine is regarded as part of the immovable property, a lien of a repairer of the wind turbine under national law could extend to the land as well. Landowners might regard this as a risk that could prevent them from making their land available for wind energy use. B. Uncertainties in the application of national laws in regard to ownership of onshore wind energy equipment The question whether the wind turbine becomes part of the immovable property is therefore very important in practice. This issue, however, is typically not specifically regulated by statute but, rather, depends upon the application of general principles of immovable property law, which has caused considerable difficulties in practice. The traditional general position that is derived from the Roman law principle of superficies solo cedit75 is that the permanent affixation of an asset to land usually has the effect that the asset is no longer a movable asset and becomes part of the immovable.76 At least on the basis of their outward appearance, wind turbines, which include a tower of up to 160 metres in height that is erected on the land,77 would appear to be permanently affixed to the land and no longer movable in the natural sense of the term. In order to avoid the consequence that the wind turbine is to be regarded as becoming part of the land, which would—as described above—severely affect the financing of such equipment, it would therefore have to be shown that the case of wind turbine erected by a tenant on the landlord’s land could fall under an exception to this general rule. This issue cannot be answered without any doubts and difficulties, as is demonstrated by recent case law from different jurisdictions. In Germany, for example, there has been an intense debate for nearly 20 years of the proprietary effects of the erection of a wind turbine on land owned by another person. Some legal writers have argued that wind turbines, except for the concrete base on which the structure is erected, should be regarded as a kind of mounted machinery that is never part of the land itself.78 This thinking, however, is difficult to reconcile with the spirit of sections 93 and 94 of the Bürgerliches Gesetzbuch (German Civil Code [BGB]), which are based upon the principle of superficies solo cedit, and it has accordingly been rejected by the courts, which hold that, at least in principle, the owner of the land acquires ownership of a wind turbine erected on his property.79 However, there has been no unanimity as to whether and under which circumstances an exception to this rule should apply, specifically the rule on Scheinbestandteile in section 95 of the BGB, according to which such movable assets which are affixed to the real property for a temporary purpose only, do not become part of the land. Some courts and legal writers have been of the opinion that the decisive criterion in this respect should be whether the movable asset was intended to be attached to the land for its complete economic life cycle.80 Others have preferred the view that it should be decisive whether the operator of the wind turbine reserved the right to remove it during the duration of the lease or at its end.81 In 2017, the German Bundesgerichtshof (Supreme Court) decided in favour of the latter view, holding that the wind turbine does not become part of the property of the landowner if the operator has the intention, when installing the equipment, to remove the wind turbine at a later point of time.82 However, this decision does not overrule earlier appeal court cases where it has been held that, where there was an option for the landowner to acquire the wind turbine at the end of the lease for its remaining value, the ownership of the wind turbine would pass to the landowner at the moment of its installation.83 In the USA, this issue has in the past also been disputed. In US case law, it is also generally accepted that the physical connection between the equipment and the land on which it has been installed prima facie allows the conclusion that the equipment is an improvement to the real property, which becomes part of the latter. However, in 2016, it was confirmed by an Appellate Court decision that a wind turbine may remain a movable asset as a so-called trade fixture that may remain subject to separate ownership rights.84 The Court held that this exception applies to the installation of wind turbines if it is clear from the agreement of the parties (that is, the landowner and the operator of the equipment) that they did not have an intent to permanently improve the property by its installation.85 In the case to be decided by the Appellate Court of Illinois, it was regarded as being sufficient that the operator reserved the right to remove the wind turbine and that the landowner had a corresponding right to demand removal,86 even if the foundation of the wind turbine was allowed to remain buried in the land, which the Court held to be irrelevant because this would not affect the use of the immovable property as farmland.87 C. Use of superficies rights In other legal systems, wind turbines are regarded as property that is separate from the land if they are erected on the basis of limited proprietary rights over the land held by the operator, where these rights give the latter a proprietary entitlement to erect a structure on the land. After its Roman law origins, these rights are called superficies rights. For example, under French law, where the operator holds a bail emphytéotique over the immovable property of the landowner,88 the rule in Articles 552ff of the French Code Civil, which is based upon the principle of superficies solo cedit, does not apply, and the wind turbine remains movable property of the operator. Similar provisions exist under other national laws as well.89 As an instrument to be applied in the international financing of wind energy equipment, however, such limited property rights over the land have to be regarded with caution. The creation of such rights would have to comply with different requirements under the applicable national law, and at least in German law, it has been held that such rights can protect the ownership rights of the operator in the wind turbine only if they are validly created at the moment of installation,90 which may not always be guaranteed due to time-consuming procedures under national law. D. Statutory security rights of the landowner extending to the renewable energy equipment Even if a wind turbine is regarded as a movable asset, conflicts might arise between the consensual security rights over the equipment and the statutory security rights of the landowner, which might be entitled under national law to an ex lege security right over movable assets brought on the landowner’s land (landlord’s lien). In practice, the landlord will sign a waiver of his or her rights in order to avoid that any landlord’s lien might interfere with the consensual security rights of the operator’s creditor, but then there are additional questions as to whether such an agreement will be binding against third parties. E. Conclusion: Demand for legal certainty for the financing of onshore wind energy equipment There is certainly a need for more clarity concerning the legal situation of onshore wind farms. While the existing national law will usually contain rules that allow, if properly applied, the use of onshore wind turbines as collateral for the creditors of the operator, these solutions tend to rely on judge-made rules that are somewhat uncertain and whose outcomes can be difficult to predict. For example, the decisions in the German and US court cases cited have the objective of supporting the financing of wind farms by giving protection to the rights of the wind farm operator and his or her creditors. However, by emphasizing the role of the subjective intentions of the parties vis-à-vis the objective facts, these decisions are somewhat difficult to reconcile with the general principles of immovable property law.91 Moreover, there is still some ambiguity as to the precise content of the agreement that is required to achieve this protection: what happens if there is merely an option for the landowner to demand removal or if the obligation to remove covers only parts of the wind turbine and not the foundations? Under US case law, this would appear to be sufficient where those parts that are not removed do not have any remaining value. Under German law, this is less clear, and some dicta suggest that the question whether there is a remaining value should be irrelevant. Moreover, there is at least some discussion as to whether there could be a differentiation between different parts of the wind turbine—for example, concerning the foundations, the tower, and the turbine parts and rotors at the top.92 The latter parts of equipment could be regarded as movable assets even where the tower and the foundation are not. The situation is even more difficult if electric power lines and substations that are necessary for the operation of a wind park are taken into consideration as possible items of collateral as well. The application of the Cape Town Convention could be helpful here by creating an international and reliable standard for the question under which conditions and to what extent a wind turbine can be regarded as movable property in which an international interest can be created. However, this result can only be achieved if States are willing to let the Cape Town rules take precedence over their own national rules of immovable property law. From the experience of the draft MAC Protocol, it seems that this is possible, but States are rather reluctant to do this.93 Concerning onshore wind energy, however, the task will be even more difficult because here this is not merely a side issue but constitutes a core problem. 2. Offshore wind farms Wind farms that are installed at offshore sites can generate much more power than onshore wind farms due to more favourable wind conditions offshore and fewer requirements to comply with planning law restrictions.94 Especially in European waters, offshore wind energy generation has already grown to a sizeable share of the energy production,95 while the capacity installed worldwide has grown from 0.8 gigawatts installed capacity in 2006 to 14.4 gigawatts in 2016.96 The installation costs for offshore wind farms are higher than for onshore wind farms; offshore wind farms with a total capacity of up to 0.6 gigawatts consisting of 175 wind turbines can require a total investment of £1.8 billion.97 A. Uncertainty concerning applicable property law regime for offshore wind farms For offshore wind farms, a source of considerable problems in the financing practices for such equipment is its offshore location, which can create uncertainties in regard to the determination of the applicable national property law regime.98 For offshore wind farms that are located in the area of the littoral State’s territorial sea—that is, up to 12 nautical miles from the coast baseline99—the applicable property law regime is that of the littoral State.100 In the sea area, however, that is defined as the exclusive economic zone—that is, the zone adjacent to the territorial sea that stretches out for up to 200 nautical miles from the coast baseline101—the issue is not so clear. Only a few jurisdictions have specific statutory conflicts-of-law rules providing for the applicability of the coastal State’s law to property law issues in the exclusive economic zone.102 If there is no such specific statute, the issue has to be dealt with on the basis of general principles of private international law. The majority of academic legal writers have generally favoured the application of the law of the coastal State.103 However, the application of other traditional criteria of private international law would lead to markedly different results—for example, on the basis of a reference to the home law of the owner.104 Alternatively, there could be a reference to the last location of the asset inside the territorial sea105 or to the law of the flag of the transporting vessel.106 Similarly, it has been suggested that the rule of the law of the flag could cover floating assets other than ships,107 which could also include floating wind turbines. All of these suggestions could point to the application of different laws with potentially different property law regimes and this makes it difficult for the parties to a transaction to determine which property law requirements need to be complied with. The absence of a reported body of case law further adds to the existing uncertainties in this regard. In practice, market participants seek to ensure that security rights are created or transferred only onshore or in the territorial sea and to avoid transporting the asset through jurisdictions where their rights might not be recognized.108 Additionally, the ownership of the wind turbines itself is often transferred to a separate special purpose vehicle whose shares are pledged to the project’s creditors so that these shares can be used as collateral. B. Uncertainty concerning the application of general principles of national immovable property law to offshore assets In addition to these problems concerning the determination of the applicable property law regime, there is also a general uncertainty concerning its application to offshore assets. Generally, for offshore assets, similar problems arise as in relation to onshore wind farms concerning the proprietary effects of the physical affixation of a movable asset to the land.109 Applying the criteria developed by the courts for onshore wind turbines, it is probably even less clear in relation to offshore wind turbines under which circumstances these assets should not be regarded as having lost their nature as a movable asset as a consequence of their onsite installation. For onshore wind turbines, the courts have primarily looked to the agreement between the operator and the owner of the land,110 but such an agreement does not exist for offshore assets, and it is unclear whether the terms of the operator’s licence by the authorities of the littoral State (which are typically not concerned with proprietary effects) should be relevant instead. C. Unavailability of immovable property interests for offshore assets Real property rights cannot be created or registered in relation to offshore assets in the exclusive economic zone or beyond,111 and the same typically applies, at least for private parties, within the territorial waters, where ownership of the seabed is usually claimed by the coastal State.112 Therefore, some methods of secured financing that are available for onshore wind parks in order to overcome or at least protect against the problems of the use of movable property security rights cannot be applied in relation to offshore wind parks. Secured lenders do not have the option of registering a security over the immovable property that would extend under certain conditions to the wind turbine. Also, superficies rights, which would be necessary under some legal regimes as the basis for the installation of a wind turbine on land that is not owned by the operator, are not available.113 D. Registration of offshore assets in national registers does not ensure cross-border recognition of security interests Where parties have originally created a security interest in offshore wind energy generation equipment before its installation under the provisions of a legal system that does not require registration of non-possessory security over movable assets, there is high risk that this security will not be upheld in a cross-border dispute. If the equipment is installed at its offshore location, a court in a foreign forum might apply a property law regime that has stricter publicity requirements. For example, a security ownership created under German law without registration or direct possession by the secured creditor will not be upheld as a proprietary security right under the laws of another jurisdiction where non-possessory proprietary security rights over movables are subject to a requirement of publicity by registration.114 However, even where a security over the offshore wind energy equipment has been registered before its installation in a national system of registration for security over movables, either in a general debtor-indexed register115 or in a specific register for offshore assets,116 this does not ensure the cross-border recognition of the security. In an eventual dispute arising after the offshore installation of the equipment, the courts in a foreign forum might apply a regime for proprietary security over movables that takes a different view in regard to the necessary registration—for example, by requiring registration in a specific register on a national level.117 If the registration that was effected pre-installation is not regarded as equivalent under the applicable law, this might result in the security being ineffective against third parties. E. Lack of specific statutory provisions on enforcement in offshore assets Finally, there are additional uncertainties concerning the enforcement of security rights over offshore wind energy equipment. National procedural rules that are based upon the acting of a bailiff or the secured creditor taking possession of the collateral are typically not easily applied to the enforcement regarding offshore assets. While it is possible for the parties to include in their security agreement some rules on the steps to be undertaken for enforcement, it will—in the absence of specific statutory provisions on the enforcement of offshore assets—be difficult to predict whether these rules will be upheld by the courts. Having a uniform set of rules on enforcement regarding offshore assets under a possible Protocol on renewable energy equipment could provide clarity, and these rules could take into account the difficulties of obtaining direct possession of offshore assets and the need to focus, for example, on connections to the mainland power grid and on a participation in revenue streams, similarly to the approach of the Space Protocol.118 F. Conclusion: Demand for clarification of the property law regime for offshore wind energy equipment The extension of the Cape Town Convention to offshore wind energy equipment would provide for rights under international law, and there would therefore no longer be a need for an application of uncertain conflict-of-law rules. The harmonization effects of such a possible Protocol would also extend to issues of substantive property law. Offshore wind turbines would be regarded as movable property, and they would be subject to uniform rules on the creation and registration of international interests, solving the current uncertainties with respect to the requirements of upholding the assets’ nature as items of movable property as well as issues of enforcement. Since such a project would cover offshore assets only, it is also to be expected that there would be less resistance from contracting States that might otherwise, especially in relation to onshore assets, be reluctant to let an international legal regime take precedence over their traditional national principles of immovable property law. 3. Solar energy equipment Solar energy has become another important source for renewable energy generation, having grown from a global capacity of six gigawatts in 2006 to 303 gigawatts in 2016.119 A. Large-scale solar power generation Large-scale solar power generation systems include concentrated solar power systems, where mirrors or lenses are used to concentrate a large area of sunlight or solar thermal energy onto a small area, and photovoltaic power stations, where a large number of photovoltaic modules are installed on one site in order to deliver power at the utility level. Unlike wind farms, these structures typically are more likely to be built on land that is owned by the operator of the power station. This has important consequences. Usually, large-scale solar power generation plants are financed through project-financing structures. The project’s creditors will then usually be holding immovable property security rights over the land in addition to security rights over the solar power equipment itself, if available under the applicable national property law regime.120 Thus, there is usually no risk of conflicts between real and personal property security rights because both types of security rights are held by the same creditor, and this reduces the extent to which there is demand for an answer to such priority conflicts on the basis of an extension of the Cape Town Convention system.121 Moreover, the value of individual solar panels is too low to warrant the creation of individually registered security rights. Under the asset-based registration system of the Cape Town Convention, even if registration costs are kept low, the costs and efforts necessary for registration of a security interest are worthwhile only if the registered assets have a certain minimum value. The price for solar panels has fallen over 80 per cent from 2010 to 2017,122 and the average prize for solar panel of five kilowatts averages about US $10,000.123 It would not be cost-effective to register such small ticket items in an international register that requires asset-based registration. For such assets of comparatively low value, it would be much more appropriate to use a system that is based upon a general debtor-indexed register for proprietary security instead, such as the regime suggested by the United Nations Commission on International Trade Law’s (UNCITRAL) 2016 Model Law on Secured Transactions. B. Small-scale solar power generation Small-scale solar power generation mainly covers the installation of photovoltaic panels that are mounted on the roof of buildings or other structures by individuals or non-utility companies and that supply electric power for local users (as opposed to energy generation at utility level). The potential usefulness of the application of the Cape Town Convention system to this type of renewable energy equipment appears to be limited, mainly due to the low value of individual solar panels, which would not justify the costs and effort of registration. Moreover, this type of renewable energy generation is often operated by individuals or small- and medium-sized enterprises, in relation to which the application of a requirement of registration in an international register would be unreasonable. 4. Project finance for other large-scale renewable energy projects, especially financing of hydroelectric projects Finally, for other types of large-scale renewable energy equipment projects that are financed on the basis of a project-financing structure, especially the financing of hydroelectric projects,124 there are some doubts as to whether this is a segment of the financing market where the application of the rules of the Cape Town Convention system would be useful. Hydro power is still by far the largest source of renewable energy generation, owing primarily to hydroelectric dams.125 As mentioned earlier, in such project-financing transactions, the project’s creditors, who provide the financing for the project, will seek to obtain proprietary security interests over all of the project’s assets in order to fend off any competing creditors.126 Thus, there is a need for reliable and clearly defined rules on proprietary security in movables under which the project’s creditors can take a proprietary position in the project entity’s assets and also over its shares. However, such projects are invariably built upon land that is either State owned or owned by the project entity, and this reduces the potential for conflicts between immovable property creditors, on the one hand, and secured creditors holding security over movable assets of the project, on the other hand.127 Assuming that the applicable national law allows for the creation of security rights over the whole of the project’s assets, the project’s creditors would not necessarily obtain an additional benefit from being able to register a separate international interest in individual components of the project. Generally, in such project-financing transactions, the creditors who provided the financing for the project are not primarily interested in enforcement of their security, and they will prefer, if possible and if economically reasonable, to continue the operation of the project in order to generate further revenue. If a new Protocol on renewable energy equipment would allow the creation of an international interest under the Cape Town Convention system over some of the project’s assets, these creditors would therefore seek to obtain this international interest primarily to prevent the risk that such a priority position could be obtained by other creditors.128 Project-financing creditors with a strong financial interest in the project could not tolerate the risk that competing creditors could obtain a proprietary interest over core assets of the project, such as the turbines of a hydroelectric dam, which would allow them to blockade, even if only temporarily, the continued operation of the project. In sum, the availability of an international interest under the Cape Town Convention system would not do any harm, but it would not confer much additional benefit. Its main effect would be that the project-financing creditors, who would generally seek to obtain any available proprietary security over all of the project’s assets, would also register in the international register as holders of an international interest. Instead of an asset-specific regime under a new Protocol to the Cape Town Convention, the availability of reliable and clearly defined rules on proprietary security in movables in general would be more important for the interests of such project-financing creditors.129 VII. Conclusions Unidroit’s project of a possible Protocol to the Cape Town Convention on renewable energy equipment is still in its early stages.130 Broader studies will have to be undertaken and more in-depth data from the market practice collected before this idea for a possible Protocol can be developed into a more concrete proposal. Therefore, at this stage, it would be premature to come to a definite conclusion as to whether such a Protocol is likely to find the necessary support by practitioners and contracting States or what its concrete scope of application should be. However, in this short and preliminary assessment, it has been possible to demonstrate that there are no general impediments to the extension of the Cape Town Convention system to renewable energy equipment in general.131 Even though these assets are markedly different from the assets covered by the existing Protocols, the general principles of the Cape Town Convention system have proven to be quite flexible. Moreover, the principal objectives of the secured transactions regime under the Cape Town Convention would appear to have a potentially positive effect on the position of secured creditors holding proprietary security rights over renewable energy equipment. Among the different general categories of renewable energy equipment, the highest demand for such a new Protocol would probably be in the offshore wind sector.132 Here, the legal problems seem to be most severe, owing to the fact that there is often already considerable uncertainty as to the determination of the applicable law. It is also not to be expected that a sufficiently reliable body of case law will develop any time soon that would clarify the situation, and in view of the enormous size of the investments, there is a strong interest in a reliable solution with internationally recognized proprietary rights. Still, it should be taken into consideration that the total number of contracting States that could take an interest in a project for this specific segment could be somewhat limited as it would be restricted to coastal States with offshore wind projects. From the institutional perspective of Unidroit, the prospects for the viability of a Protocol on renewable energy equipment might therefore be increased if it also included at least some other types of renewable energy equipment. However, the success of such a new Protocol in relation to other categories of renewable energy equipment will depend largely upon the willingness of the contracting States to allow the Cape Town Convention rules to interfere with their national immovable property law.133 However, if a Protocol on renewable energy equipment should eventually come into force, it would surely have great potential to positively impact the financing practices of the renewable energy equipment to be covered. Apart from the other issues already referred to in this article, such a Protocol could also cover the possibility of extending the international interest to revenue claims in line with project-financing practices, taking inspiration from the Space Protocol,134 and this principle could possibly extend to the licences necessary for the operation of renewable energy equipment or to the feed-in tariffs under national law under which renewable energy generators are guaranteed to be paid a cost-based price for the renewable electricity they supply to the grid. Another possibility would be to allow new forms of financing that are based on the existence of separate security rights in different parts of the renewable energy objects, again following the example of the Space Protocol.135 This would allow for a security interest, for example, that is based upon retention of ownership agreement to cover the generator of a wind turbine only, while other parts of the turbine are in the unencumbered ownership of the operator. It should be noted, however, that in some areas of financing for renewable energy equipment such a new Protocol to the Cape Town Convention would not be very relevant. Where renewable energy equipment is financed through project financing and where there is also no potential for conflicts between land ownership and rights in the movable asset, the additional protection for the registered secured creditor does not appear to be necessary.136 Therefore, in the future preparatory work on this Protocol, Unidroit should continue seeking to identify which areas have specific requirements and demand for such a Protocol, while other areas of project financing would probably be better served with law reform projects on the basis of other models. This work should focus on the former to seek whether the necessary industry support can be found, especially since States will be reluctant to let the rules of the Cape Town Conventions system override their national immovable property law without such specific support. Thus, there is clearly much work to be done before this idea of a possible Protocol on renewable energy equipment can become a reality. Still, due to the sheer potential market size, such a Protocol can be expected have a considerable positive impact, both commercially and in regard to climate protection, and, therefore, it is highly recommended that Unidroit continues this work. Footnotes 1 Cf. Roy Goode, ‘From Acorn to Oak Tree: the Development of the Cape Town Convention and Protocols’, 17 (2012) Uniform Law Review, 599, at 600. 2 Roy Goode, ‘The Priority Rules under the Cape Town Convention and Protocols’, 1 (2012) Cape Town Convention Journal, 95. 3 Cf. recommendation 4(a) of the UNCITRAL Legislative Guide on Secured Transactions (2010), which exempts mobile assets covered by the Cape Town Convention from the scope of application of the Guide, see https://www.uncitral.org/pdf/english/texts/ security-lg/e/09-82670_Ebook-Guide_09-04-10English.pdf (accessed 19 April 2018). 4 Cf. Phil Durham and Kenneth Basch, ‘Cape Town Convention Closing Opinions in Aircraft Finance Transactions: Custom, Standards and Practice’, 4 (2015) Cape Town Convention Journal, 3 et seq. 5 Roy Goode, Official Commentary to the Convention on International Interests in Mobile Equipment and Luxembourg Protocol thereto on Matters Specific to Railway Rolling Stock (Rome, Unidroit Books, 2014; 2nd edn), para. 2.1. 6 Vadim Linetsky, Economic Benefits of the Cape Town Treaty (2009), pp. 2 et seq., see http://www.awg.aero/assets/docs/economicbenefitsofCapeTown.pdf (accessed 19 April 2018). 7 Source: http://www.unidroit.org/status-2001capetown-aircraft (accessed 19 April 2018). 8 The Luxembourg Protocol has so far been ratified only by Gabon, Luxembourg, and the European Union, http://www.unidroit.org/status-2007luxembourg-rail (accessed 19 April 2018). 9 The Berlin Protocol has not yet been ratified by any State, see: http://www.unidroit.org/status-2012-space (accessed 19 April 2018). 10 Cf. Art. 6(2) of the Convention; Goode (n 1) 603 et seq. 11 See generally Marek Dubovec, Charles Mooney, and William Brydie-Watson, ‘The Mining, Agricultural and Construction Equipment Protocol to the Cape Town Convention Project: The Current Status’, 21 (2016) Uniform Law Review, 332 et seq.; Benjamin von Bodungen and Ole Böger, ‘Neue Rechtsregeln für den kreditfinanzierten Handel mit Ausrüstungsgegenständen für Landwirtschaft, Bauindustrie und Bergbau’, (2017) Wertpapier-Mitteilungen, 1241 et seq. 12 See generally Ole Böger, ‘The Case for a New Protocol to the Cape Town Convention Covering Security over Ships’, 5 (2016) Cape Town Convention Journal, 1 et seq.; Roy Goode, ‘Battening down your Security Interests: How the Shipping Industry can Benefit from the Unidroit Convention on International Interests in Mobile Equipment’, (2000) Lloyd’s Maritime and Commercial Law Quarterly, 161 et seq. 13 Unidroit 2013 – C.D. (92) 5 (c)/(d), para. 105. 14 Unidroit 2013 – C.D. (92) 5 (c)/(d), paras. 179 et seq. 15 Unidroit 2013 – A.G. (72) 9, App. 3. 16 Unidroit 2016 – C.D. (95) 13 Add. 5. 17 Unidroit 2016 – A.G. (75) 8, para. 44. 18 Unidroit 2016 – C.D. (95) 15, para. 272; Unidroit 2016 – C.D. (95) 13 Add. 5, para. 13. 19 Unidroit 2016 – A.G. (75) 3 corr. 20 See Unidroit 2016 – C.D. (95) 13 Add. 5, para. 38. 21 See Anna Gottschall, Die Besicherung von Offshore-Windkraftanlagen nach deutschem und US-amerikanischem Recht (Dissertation Köln 2011), at 173 et seq. 22 Renewable Energy Policy Network for the 21st Century (REN21), Renewables 2017 Global Status Report (2017) at 30, available at http://www.ren21.net/gsr-2017 (accessed 19 April 2018). 23 United States Energy Information Administration, International Energy Outlook 2017, at 20, available at https://www.eia.gov/outlooks/ieo/pdf/0484(2017).pdf (accessed 19 April 2018). 24 Cf. Art. 4(1) of the Paris Agreement. 25 Art. 2(1). 26 Art. 3 of Directive 2009/28/EC on the promotion of the use of energy from renewable sources; REN21 (n 22) 30, 197 et seq. 27 REN21 (n 22) 197. 28 REN21 (n 22) 197 et seq. 29 REN21 (n 22) 197. 30 See the data on the website of the National Conference of State Legislatures, http://www.ncsl.org/research/energy/renewable-portfolio-standards.aspx (accessed 19 April 2018). 31 REN21 (n 22) 21. 32 REN21 (n 22) 24. 33 In 2017, there has been a global issuance of over US $ 100bn in green bonds, see https://www.climatebonds.net/2017/11/breaking-2017-green-bond-record-100bn-global-issuance-reached-during-cop23 (accessed 19 April 2018). 34 In Germany: Pfandbrief under the Pfandbriefgesetz. 35 See generally Hugh Beale, Michael Bridge, Louise Gullifer, and Eva Lomnicka, The Law of Security and Title-based Finance (Oxford, OUP, 2012; 2nd edn), para. 2.30. 36 John Finnerty, Project Financing: Asset-based Financial Engineering (New York, John Wiley, 2007; 2nd edn), at 1 et seq. 37 See the overview of financing practices in Goode (n 1) para. 2.4. 38 See the OECD Business and Finance Outlook 2016, at 148, available at http://www.oecd.org/daf/inv/investment-policy/BFO-2016-Ch5-Green-Energy.pdf (accessed 19 April 2018); Frankfurt School of Finance & Management-UNEP Collaborating Centre for Climate & Sustainable Energy Finance (FS-UNEP), Global Trends in Renewable Energy Investment 2017, at 50, available at http://fs-unep-centre.org/sites/default/files/publications/globaltrendsinrenewableenergyinvestment2017.pdf (accessed 19 April 2018). 39 John Dewar, International Project Finance (Oxford, OUP, 2011), at 1. 40 Dewar (n 39) 1. 41 Cf. Dewar (n 39) 1; Mark Sundahl, The Cape Town Convention: Its Application to Space Assets and Relation to the Law of Outer Space (Leiden, Nijhoff, 2013), at 4 et seq. 42 Cf. Philip Wood, Project Finance, Securitisations, Subordinated Debt (London, Sweet & Maxwell, 2007; 2nd edn), paras. 5-004, 5-020. 43 Cf. Dewar (n 39) 2; Wood (n 42) para. 5-005. 44 Wood (n 42) para. 5-003. 45 Cf. Unidroit 2016 – C.D. (95) 13 Add. 5, para. 37. 46 See Unidroit 2016 – C.D. (95) 7(c), paras. 7 et seq. 47 See Unidroit 2017 – Study 72K – CGE2 – Doc. 4, paras. 2 et seq. and Appendix I. 48 Art. I(2)(a), (b) and (k) juncto Annexes 1 to 3 of the draft MAC Protocol, see for the latest draft text Unidroit 2017 – Study 72K – CGE2 – Report, Appendix III. 49 See the list of HS Codes in Appendix A to Unidroit 2016 – C.D. (95) 13 Add. 5. Cf. generally Izaak Wind, HS Codes and the Renewable Energy Sector (2009), available at https://www.ictsd.org/downloads/2009/04/hs-codes-and-the-renewable-energy-sector_izaak-wind.pdf (accessed 19 April 2018). 50 Goode (n 1) para. 2.109. 51 The application of this approach to renewable energy equipment presupposes that this equipment is serialised and that serialisation occurs not only for parts rather than the complete equipment, cf. Unidroit 2016 – C.D. (95) 13 Add. 5, para. 39. 52 Unidroit 2017 – Study 72K – CGE2 – Doc. 11, paras. 26 et seq. 53 Unidroit 2017 – Study 72K – CGE2 – Doc. 11, para. 50. 54 Unidroit 2017 – Study 72K – CGE2 – Doc. 11, paras. 58 et seq. 55 For an overview over various types of asset-specific registration systems, see Ulrich Drobnig and Ole Böger, Proprietary Security in Movable Assets (Oxford and München, OUP and Sellier, 2015), at 442 et seq. 56 See, for example, the registered security under the Italian Legge Bancaria, art. 46 which is restricted to banks as creditors. 57 Cf. Drobnig and Böger (n 55) 443. 58 Art. 30 of the Convention juncto Art. X Aircraft Protocol. Cf. Anthony Saunders and Ingo Walter, Proposed Unidroit Convention on International Interests in Mobile Equipment: Economic Impact Assessment (1998), at 11 et seq., available at http://www.awg.aero/assets/docs/EIA.pdf (accessed 19 April 2018); von Bodungen and Böger (n 11) 1243, 1249 et seq. 59 Cf. Arts. 8 et seq. of the Convention; Goode (n 1) paras. 4.78 et seq. and 4.108 et seq. 60 Art. 29(1) of the Convention; Goode (n 1) para. 4.183. 61 Wood (n 42) para. 5-010. 62 See the general rule in German law: sec. 932 Bürgerliches Gesetzbuch (German Civil Code, abbrev. BGB); France: art. 2276 Code Civil; Italy: art. 1153 Codice Civile. 63 See English Law: sec. 25 Sale of Goods Act 1979; United States: secs. 1-201 (9), 9-320 (a) UCC. 64 See the in-depth jurisdictional analysis in Unidroit 2017 – Study 72K – CGE2 – Doc. 4, Appendix IV. 65 Art. VII of the 2017 draft (n 48). 66 Art. VII Alternatives A to C of the 2017 draft (n 48). 67 Cf. Unidroit 2015 – Study 72K – SG3 – Doc. 5, para. 93; von Bodungen and Böger (n 11) 1248. 68 Goode (n 1) para. 2.5. 69 Böger (n 12) 85 et seq. 70 See below at VI.1. 71 REN21 (n 22) 88 et seq. 72 See the data in International Renewable Energy Agency (IRENA), Renewable Power Generation Costs in 2017 (2018), at 91 et seq, available at https://www.irena.org/-/media/Files/IRENA/Agency/Publication/2018/Jan/IRENA_2017_Power_Costs_2018.pdf (accessed 19 April 2018). 73 Fosen Vind in Norway, the largest onshore project in Europe, see FS-UNEP (n 38) 26. 74 See below at VI.1.B. 75 See Dig. 41.1.26.pr.; Dig. 43.17.3.7. Cf. Leopold Wenger, ‘Superficies solo cedit’, 88 (1933) Philologus, at 254. 76 For French law, see arts. 524 et seq. Code Civil; for Germany, see secs. 94 juncto 93 BGB; in Scottish law, this is called the principle of accession. For English law, see the House of Lords decision in Elitestone v Morris [1997] 1 WLR 687. 77 Height of the tallest wind turbines in Nowy Tomyśl in Poland. 78 Bernd Peters, ‘Windkraftanlagen und §§ 93 ff. BGB’, (2007) Wertpapier-Mitteilungen, 2003, at 2008. 79Bundesgerichtshof (Supreme Court), decision of 7 April 2017, V ZR 52/16, (2017) Wertpapier-Mitteilungen, 1081; Oberlandesgericht (Court of Appeal) Koblenz, decision of 21 September 2006, 5 U 738/06, (2007) Zeitschrift für Insolvenzrecht, 292. 80 See Hans Ganter, ‘Die Sicherungsübereignung von Windkraftanlagen als Scheinbestandteil eines fremden Grundstücks’, (2002) Wertpapier-Mitteilungen, 105, at 108; Malte Stieper, in Staudingers Kommentar zum BGB (München, Sellier, 2017), § 95 BGB para. 11. 81 Cf. Oberlandesgericht Schleswig, decision of 26 August 2005, 14 U 9/05, (2005) Wertpapier-Mitteilungen, 1909; Peters (n 78) 2005 et seq. 82Bundesgerichtshof (n 79) para. 14. 83 See Oberlandesgericht Koblenz (n 79). 84 On the law of trade fixtures in general see Alphonse Squillante, ‘The Law of Fixtures’, 15 (1987) Hofstra Law Review, 191, at 239-46. 85 AUI Construction Group v. Vaessen, 67 NE 3d 500 - Ill: App. Ct., 2nd Dist. 2016, at paras. 18 et seq. This is in line with earlier case law from Energrey Enterprises v. Oak Creek Energy Systems (E.D. Cal. 1990), 119 B.R. 739. 86 AUI Construction Group v. Vaessen (n 85) para. 20. 87 AUI Construction Group v. Vaessen (n 85) paras. 35 et seq. 88 Arts. L.451-1 et seq. Code rural. 89 See, for example, Austria: Superädifikat, sec. 435 Allgemeines Bürgerliches Gesetzbuch (Civil Code); Germany: sec. 1 Erbbaurechtsgesetz; Italy: diritto di superficie, arts. 952 et seq. Codice Civile. 90Oberlandesgericht Koblenz (n 79); Ganter (n 80) 106; for the contrary view see Peters (n 78) 2005. 91 Cf. Stieper (n 80) 11. Leif Böttcher, ‘Das Meer als Rechtsraum: Anwendbarkeit deutschen Sachenrechts auf Offshore-Windkraftanlagen und Möglichkeiten der Kreditsicherung’, (2011) Rheinische Notar-Zeitschrift, 589, at 599. 92 Cf. Peters (n 78) 2004. 93 See above at V.4. 94 See Rosemary Lyster and Adrian Bradbrook, Energy Law and the Environment (Cambridge, Cambridge University Press, 2006), at 20. 95 Unidroit 2016 – C.D. (95) 13 Add. 5, para. 12; REN21 (n 22) 89. 96 REN21 (n 22) 89. 97 London Array, the largest offshore wind farm in the world, see http://www.4coffshore.com/windfarms/london-array-phase-1-united-kingdom-uk14.html (accessed 19 April 2018). 98 See generally also Unidroit 2013 – C.D. (92) 5 (c)/(d), paras. 121 et seq. 99 See Arts. 3 et seq. of the United Nations Convention on the Law of the Sea (UNCLOS) of 1982. 100 The territorial sea forms part of the sovereign territory of the littoral State under Art. 3 UNCLOS. 101 Arts. 55 et seq. UNCLOS. 102 See art. 2613(2) of the Romanian Civil Code of 2009/2011; United States Outer Shelf Act, 43 USC § 1333. 103 There is an especially broad discussion of this issue in the German academic literature, but the reasoning of the following authors appears to be largely based upon general concepts of private international law: Gottschall (n 21) 50 et seq.; Böttcher (n 91) 595; Christiane Wendehorst, in Münchener Kommentar zum Bürgerlichen Gesetzbuch (München, Beck, 2018; 7th edn), Art. 45 EGBGB para. 22 (fn. 36); Wolfgang Wurmnest, ‘Windige Geschäfte? Zur Bestellung von Sicherungsrechten an Offshore-Windanlagen’, 72 (2008) Rabels Zeitschrift für ausländisches und internationales Privatrecht, 236, at 248. 104 See, e.g., Gerhard Kegel, Internationales Privatrecht (München, Beck, 1987; 6th edn), at 13. In later editions of this monography, however, this approach was no longer followed, see 9th edn München 2004, at 18. 105 This reasoning would be based upon an analogy to the rule in Art. VIII of the Treaty on Principles Governing the Activities of States in the Exploration and Use of Outer Space, including the Moon and Other Celestial Bodies of 1967 (Outer Space Treaty), according to which property rights in assets launched into outer space are not affected; see generally Böttcher (n 91) 593 et seq. 106 See for this traditional rule Gian Venturini, ‘Property’, in Rene David et al. (eds.), International Encyclopedia of Comparative Law, Vol. III, chap. 21 (Tübingen, Mohr, 1974), para. 12. 107 Wendehorst (n 103) para. 22. 108 See generally Unidroit 2013 – C.D. (92) 5 (c)/(d), paras. 161 et seq.; see also Steffen Blomberg, The Realisation of Offshore Wind Park Projects in Germany (Hamburg, Anchor, 2013), at 65. 109 See Unidroit 2013 – C.D. (92) 5 (c)/(d), paras. 142 et seq.; Böttcher (n 91) 598 et seq. 110 See above VI.1.B. 111 See for German law Wurmnest (n 103) 252; for the discussion in the United States, see Rachael Salcido, ‘Law Applicable on the Outer Continental Shelf and in the Exclusive Economic Zone’, 58 (2010) American Journal of Comparative Law, 407, at 427. 112 In England, ownership of the territorial sea is claimed by the Crown, see Glen Plant, ‘Offshore Wind Energy Development: the Challenges for English Law’, 8 (2003) Journal of Planning & Environment Law, 939, at 945 (fn. 35); Geoffrey Marston, ‘The Incorporation of Continental Shelf Rights into United Kingdom Law’, 45 (1996) International & Comparative Law Quarterly, 13, at 23; for German law see Bundesgerichtshof, decision of 22 June 1989, III ZR 266/87, BGHZ 108, 110; Böttcher (n 91) 596 et seq.; for the situation in the United States, see the decision United States v Texas, 339 U.S. 707 (United States Supreme Court 1950). 113 In the territorial sea, however, such superficies rights might be available if the coastal State as owner agrees to their creation, see Böttcher (n 91) 597 et seq. 114 See Austrian Oberster Gerichtshof (Supreme Court), decision of 14 December 1983, 3 Ob 126/83, JBl 1984, 550; Heinz-Peter Mansel, in Staudingers Kommentar zum BGB (München, Sellier, 2015), Art. 43 EGBGB para. 1306. 115 Such as the United States UCC art. 9 or the English Companies Register, see generally Drobnig and Böger (n 55) 438 et seq. On the effects of such registration regimes as one-sided conflict-of-laws rules see Unidroit 2013 – C.D. (92) 5 (c)/(d), para. 152. 116 See Norwegian law, which allows, for example, the registration of installations for the exploitation of subsea resources, see Lov om sjøfarten 1994 (Maritime Code), Sec. 39. 117 For such a view see the cases The Ship ‘Betty Ott’ v General Bills Ltd [1992] 1 NZLR 655 (New Zealand Court of Appeal) and the Brazilian Appeals Court decision in the OSX-3 case of 2016, cf. Böger (n 12) 81 et seq. Both cases have since been reversed, by statute (New Zealand) or on appeal (Brazil). 118 Cf. Arts. I(2)(a), IX et seq.; see Unidroit 2013 – C.D. (92) 5 (c)/(d), paras. 176 et seq. 119 REN21 (n 22) 66. 120 There may be restrictions to the availability of non-possessory registered security under national law, see footnotes 55 and 56. 121 Cf. above V.4. 122 IRENA (n 72) 61. 123 See the market data available at https://news.energysage.com/how-much-does-the-average-solar-panel-installation-cost-in-the-u-s/ (accessed 19 April 2018). 124 The 2016 Unidroit study mentions other types of biomass and geothermal energy generation as well, see Unidroit 2016 – C.D. (95) 13 Add. 5, Appendix A. 125 REN21 (n 22) 21, 57 et seq. 126 See above IV.2. 127 See above V.4 and VI.3.A. 128 See above IV.2. 129 Cf. the UNCITRAL Legislative Guide on Secured Transactions and the Model Law referred to above in VI.3.A. 130 See above II.3. 131 See above V. 132 See above VI.2. 133 See above V.4 and VI.1.E. 134 Cf. Arts. I(2)(a), IX et seq.; Martin Stanford, ‘The Availability of a New Form of Financing for Commercial Space Activities’, 1 (2012) Cape Town Convention Journal, 109, at 121 et seq. 135 Art. I(2)(k). 136 See above VI.3.A and VI.4. © The Author(s) (2018). Published by Oxford University Press on behalf of Unidroit. All rights reserved. For permissions, please email journals.permissions@oup.com This article is published and distributed under the terms of the Oxford University Press, Standard Journals Publication Model (https://academic.oup.com/journals/pages/about_us/legal/notices)

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Published: Apr 30, 2018

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