German legislator stops feed-in tariff and introduces a competitive method of determining remuneration levels for electricity generated from renewable energies sources

Written on 8 Aug 2016

On 8 July 2016 the drafting of the revised Renewable Energies Act (EEG 2017) was finalised. On this day the German Federal Council (Bundesrat) resolved not to submit the draft EEG 2017 to the parliamentary mediation committee (Vermittlungsausschuss). Further changes to the draft act and a renewed resolution of the German Parliament (Bundestag) are, therefore, not to be expected. The draft EEG 2017 or the “Act for the introduction of auctions for electricity from renewable energy sources and of further changes of the legislation regarding renewable energies” as it is called officially was brought before parliament by the governing coalition’s parliamentary groups and amended by the recommendations of the parliamentary committee for economy and energy will. Save for the outstanding signature from the Federal President and publication in the Federal Law Gazette, the Act will enter into force on 1 January 2017.

The core element of the revised act is the much debated paradigm shift regarding the financial promotion of electricity generated from renewable energy sources. The act will shift this away from the feed-in tariff with its statutorily determined level, and towards a remuneration level determined amongst the providers in a free competition. Henceforth, the electricity generated in renewable energy plants will only be remunerated if these plants have taken part in a tender, succeeded in an auction and received the award. Consequently, the EEG 2017 relinquishes several features that were characteristic for the promotion of renewable energies since the Feed-in of Electricity Act 1990 (Stromeinspeisegesetz – StrEG). An example feature that will be relinquished is the grid operator’s obligation to immediately and preferentially transmit and remunerate the whole quantity of offered electricity generated from renewable energy sources.

The tenders and the auctions will be managed by the Federal Network Agency (Bundesnetzagentur). In the course of such an auction the relevant beneficiary and the applicable reference value (anzulegender Wert) (i. e. the aggregated amount of the remuneration, being the sum of direct marketing proceeds to be paid by the direct marketer and the market premium to be paid by the grid operator) will be determined by the award. This applies for onshore wind energy plants, offshore wind energy plants, solar and biomass energy plants as follows:

a) In future the quantity of installed capacity taking part in the tender proceedings will be the central tool to control the quantity of the additional installation of generation capacity. EEG 2017 provides for a corridor for additional installations of onshore wind turbines with an installed capacity of annually 2,800 Megawatt (MW) in 2017 to 2019 and of 2,900 MW, respectively as of 2020.

Bidding dates have been determined as follows: 1 May 2017 (800 MW), 1 August 2017 (1,000 MW) und 1 November 2017 (1,000 MW). In 2018 and 2019 700 MW installed capacity shall be offered on the bidding dates 1 February, 1 May, 1 August and 1 October. As of 2020 the offered capacity shall be increased to 1,000 MW for the offering date 1 February and to 950 MW for the bidding dates 1 June and 1 October.

Onshore wind turbines with an installed capacity of up to 750 kW, prototypes with an aggregated installed capacity of up to 125 MW as well as turbines commissioned before 1 January 2019 (if permitted before 1 January 2017) are exempt from the award-requirement. However, the beneficiary of the permit shall be free to opt into the auction regime by issuing a written declaration to the Federal Network Agency.

Wind turbines can only take part in the tenders and the auctions if they have already received a permit under the Federal Immission Control Act (Bundesimmissionsschutzgesetz – BimSchG). The bid is related to a remuneration amount based on a one-step reference yield model (einstufiges Ertragswert-Modell). Awards for new wind turbines will be limited in specific regions where grid bottlenecks are imminent. Furthermore, the EEG2017 sets forth special provisions for citizen owned energy companies (Bürgerenergiegesellschaften).

b) Offshore wind turbines are excluded from the tenders and the auctions if prototypes are concerned or if unconditional grid connection commitment or connection capacity has been obtained for the relevant wind farm before 1 January 2017, provided commissioning will occur before 1 January 2021. Until 2020 the installed offshore capacity shall reach 6.5 MW. The regime for planning, permitting and promotion that is currently spread over several acts, like, for instance, the EEG, the Energy Industry Act (Energiewirtschaftsgesetz – EnWG) and the Offshore Installation Ordinance (Seeanlagenverordnung – SeeAnlVO) will be concentrated within the Wind Energy Offshore Act that is part of the EEG 2017. That Act will also apply to all offshore wind turbines to be commissioned as of 2020. Areas for future offshore wind farms shall be pre-evaluated by a governmental entity within a so-called central model which will apply from 2025. Within the transition period (commissioning until 2026) tenders will be conducted on 1 March 2017 and on 1 March 2018 in which only existing projects can participate. The cut-off date for existing projects is 1 August 2016.

c) After the auction model has been tested successfully in three prototype tendering proceedings for solar plants in April, August and December 2015, the remuneration for solar plants will in the future also be determined in tenders and auctions. The capacity to be tendered in these proceedings shall amount to 200 MW at each of the bidding dates, 1 February, 1 June and 1 October. Solar plants with an installed capacity up to andincluding 150 kW are excluded as well as solar plants permitted until 1 January 2017 and to be commissioned until 1 January 2019.

According to the opinion of the Federal Ministry of Economy and Energy there is not enough competition in the markets for water power, geothermal energy, landfill, sewage and mine gas. Consequently, there will be no tenders and auctions for projects using these technologies.

Conclusion

The paradigm shift from the statutorily fixed feed-in tariff to a competitively determined level of financial promotion for electricity generated by renewable energy sources has already been called a basic principle under the EEG 2014. However, the object of the tender proceedings and the design of the auctions were not yet defined and were, therefore, the subject of significant speculation. This caused investors and other market participants to be noticeably cautious as to whether these new initiatives would go ahead. Finally however the new EEG 2017 provides for answers to many questions. This is much appreciated by investors and other market participants. Speculation and uncertainty have been replaced by reliable statutory provisions which will presumably be applicable longer than one election period. Practical experience from the first rounds of tenders and the related project realization will prove whether or not the design of the tenders and the auctions satisfies the practical needs of the providers and meets the aims of the legislator.

Our experts at all our German locations are ready to answer all your legal questions arising from the auctions for the specific technologies as well as all other questions in the context of the new EEG 2017.