The German Federal Parliament and Council have passed an amendment to the German Renewables Act 2009 revising the feed-in tariff for electricity generated from solar radiation

Shortly after the German federal elections in September 2009, the parties of the new governing coalition announced plans to reduce subsidies for solar electricity. The Federal Parliament and Council have now passed an amendment to the German Renewables Act 2009 (GRA) revising the feed-in tariff for electricity generated from solar radiation. Effective as of 1 July 2010, the feed-in tariff is now granted to installations in areas designated in a land-use plan as commercial or industrial areas and to installations along highways. Furthermore, additional areas will benefit from the extended definition of “converted land”. For newly installed roof installations the feed-in tariff is reduced by 13 per cent and for newly installed field installations generally by 12 per cent (in addition to the reduction on 1 January 2011 already set forth in the GRA). For installations starting operation on or after 1 October 2010 there will be a further reduction of three per cent. At the same time the amount of newly-installed capacity of solar electricity in Germany will be consolidated at 3,000 megawatts (MW) per year.

>Promotion of Solar Electricity Pursuant to Current German Renewables Act 2009

The promotion of solar energy under the GRA comprises a differentiated feed-in tariff system and annual degression.

Tariff System

The GRA provides for a fixed feed-in tariff for a period of 20 years plus the year in which the installation was commissioned. The tariff differentiates between solar electricity generated by installations attached to or on top of buildings (“roof installations”) and field installations. Intending to prefer roof installations, the GRA initially promoted these with an increased feed-in tariff ranging from 43.01 to 33 (euro) cents/kwh depending on the size of the respective installation, whereas field installations were entitled to a feed-in tariff of only 31.94 (euro) cents/kwh. As a consequence, 80 per cent of the capacity of solar electricity installations in Germany is currently through roof installations.

Annual Degression of Feed-In Tariff

Pursuant to the GRA, the fixed feed-in tariffs are being reduced by an annual degression to factor in technological development and lower production costs. For field installations, the degression percentage generally amounts to 10 per cent in 2010 and nine per cent from 2011 onwards. This general degression will be increased by 1.0 percentage point as soon as the capacity of the installations exceeds certain amounts – that being 1,500 MW in the year 2009, 1,700 MW in 2010, and 1,900 MW in 2011. In the event that capacity falls below a certain amount - 1,000 MW in the year 2009, 1,100 MW in 2010 or 1,200 MW in 2011 - the general degression percentage will be decreased by 1.0 percentage point. In 2009, the capacity of newly registered solar electricity installations exceeded the limit of 1,500 MW. Accordingly, for field installations starting their operation in 2010, the Federal Network Agency announced a decreased feed-in tariff of 28.43 (euro) cents/kwh independent of the amendment to the GRA.

Amendments on 1 July 2010 / 1 October 2010

The aforementioned provisions of the GRA regarding the tariff system remain in force for installations in operation before 1 July 2010. However, the amendment to the provisions of the GRA entitles further installations to the feed-in tariff.

Newly Entitled Installations

Pursuant to the amendment, the feed-in tariff is now also granted for the first time to

  • installations in areas designated in a land-use plan as commercial or industrial areas irrespective of the previous use of the area; and
  • installations along highways (“Autobahn”) or railway tracks built within a distance of 110 metres of the roadside or railway.
  • In addition, the amendment is intended to increase the use of land converted from a differing previous use for renewable energy purposes. The amended GRA extends the classes of land which qualify for the feed-in tariff, from the existing types, such as areas converted from military or economic use (e.g., landfill, former industrial or commercial use areas) as converted land, to also include areas formerly used for traffic or residential construction purposes.

Finally, installations connected to the grid after 31 December 2014 will still be entitled to the feed-in tariff as this “deadline” was cancelled.

Reduction of Feed-In Tariff

In addition to the annual degression already effective since 1 January 2010 the amendment further reduces the feed-in tariff paid to solar electricity installations (affecting all solar electricity installations except for field installations) which are subject to a binding land-use plan approved before 25 March 2010 and begin operation before 2011. Pursuant to the amendment, the feed-in tariff for roof installations of any size is reduced by 13 per cent or, if the roof installation starts operation on or after 1 October 2010, by 16 per cent. The exact amount of the applicable reduction for field installations depends on the characteristics of each plot of land. To increase the use of converted land for renewable energy purposes, field installations on this land benefit from a reduction of only eight per cent or, if the installation starts operation on or after 1 October 2010, of 11 per cent. All other field installations including those on plots of sealed land (e.g., land next to highways or railway tracks) are reduced by 12 per cent or, if the installation starts operation on or after 1 October 2010, by 11 per cent. A significant change for investors is the almost complete abolition of the feed-in tariff for field installations on farmland, also effective as of 1 July 2010. Newly installed field installations on farmland are only entitled to the feed-in tariff if the farmland is subject to a binding land-use plan approved before 25 March 2010 and has been used as farmland during the previous three years.

Future Degression

The annual degression relating to solar electricity installations provided for in the GRA remains in force. Therefore, further annual reductions will occur from 1 January 2011 onwards. However, to encourage an annual increase in the capacity of solar electricity installations from 2,500 to 3,500 MW, the limits for a revised degression percentage are amended. The annual degression of nine per cent from the year 2011 onwards (see above) is reduced by 1.0 percentage point in 2011 and by 2.5 percentage points from the year 2012 onwards as soon as the capacity of the installations registered within the previous year falls below 2,500 MW and by 2.0 percentage points in 2011 or 5.0 percentage points from the year 2012 onwards as soon as the capacity falls short of the further limit of 2,000 MW. In the event of the newly registered capacity of solar electricity exceeding the limit of 3,500 MW, the degression increases by 1.0 percentage point in 2011 and by 3.0 percentage points in 2012. For every 1,000 MW over the limit, an additional 1.0 percentage point in 2011 and an additional 3.0 percentage points in 2012 apply.

Summary

According to the Federal Government, the reductions will help reduce costs for electricity customers by EUR 2 billion. The Federal Government claims, however, that the future feed-in tariff still allows for profitable investments in solar energy in Germany given technological developments and lower production costs. The “two-step” reduction on 1 July 2010 and 1 October 2010, a tribute to the intervention of the Federal Council, is intended to allow for a “soft landing” for the solar industry. Further, the fact that commercial and industrial areas, irrespective of the previous use of the area, and installations along highways (“Autobahn”) or railway tracks are entitled to the feed- in tariff provides for new opportunies to build solar parks in Germany.  

Please click here to see an Overview of the New Feed-In Tariff for Solar Electricity