Government introduces bidding processes for freestanding PV installations
On 28 January 2015, the German Federal Cabinet (Bundeskabinett) enacted an ordinance introducing competitive bidding processes to determine the financial support for new freestanding photovoltaic (PV) installations.1 The first auctions for freestanding PV will serve as pilot projects, setting the direction for the design of the bidding processes that are scheduled to replace the statutory tariffs for all technologies starting 2017. The first auction is planned to take place on 15 April 2015. The Federal Network Agency should publish the related tender announcement this week.
Under the Renewable Energy Sources Act (Erneuerbare-Energien-Gesetz, "EEG") as reformed in 2014, the current system of financial support to renewable energy installations by way of statutory feed-in tariffs and market premiums will be replaced by competitive bidding processes starting 2017. For freestanding PV, however, bidding processes were made mandatory with immediate effect. After extensive public consultation on the appropriate design of the bidding processes, the Federal Government has now enacted the ordinance governing the procedure for the first freestanding PV auctions (the "Ordinance"). The aim is to gain hands-on experience in these pilot auctions, which will then be evaluated and used to develop the design for the bidding processes for all technologies. The Ordinance will enter into force on the day following its publication in the Federal Gazette (Bundesgesetzblatt), which should take place shortly.
The Ordinance sets out the following procedural rules:
(1) Bid dates. The auctions are held by the Federal Network Agency (Bundesnetzagentur). The first auction is set to take place on 15 April 2015 with a volume of 150 MW, followed by bid dates on 1 August 2015 (150 MW) and 1 December 2015 (100 MW). Further auctions are scheduled for 1 April, 1 August and 1 December in 2016 and 2017. The Federal Network Agency will announce the individual auctions six to eight weeks in advance via its website.
(2) Auction volume. The annual volume of the auctions will decrease over time (500 MW in 2015, 400 MW in 2016 and 300 MW in 2017 – 400 MW on average). If an auction’s volume limit is not reached by the accepted bids, the next auction’s volume will be raised by the amount corresponding to the difference between the volume of the previous auction and the accepted bids.
1 Verordnung zur Einführung von Ausschreibungen der finanziellen Förderung für Freiflächenanlagen sowie zur Änderung weiterer Verordnungen zur Förderung der erneuerbaren Energien. The Ordinance can be found here (in German).
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(3) Maximum bid value. In all tenders a maximum bid value will apply which bidders may not exceed. The value is based on Section 51(2) EEG 2014, which prescribes the statutory reference amount for the financial support of PV installations attached to buildings (currently 10.9 Euro Cents per kilowatt hour, but subject to monthly adjustments). This value was considered quite high, but was chosen nonetheless in order to allow for risk premiums, as well as taking into consideration the declining market segment of freestanding PV installations.
(4) Basic bidding principles. Multiple bids per auction are allowed. Individual bids must amount to at least 100 kW and may not exceed 10 MW. Bidders must moreover provide information on the land on which the installation is planned to be constructed, in order to foresee and adequately take into account potentially conflicting land usage. In this context, they are also required to submit (at least) the copy of a competent local government’s decision to enact or alter a local zoning plan which would allow the construction of the planned PV installation. However, submitting decisions of a more advanced planning stage (i.e. an enacted zoning plan or a decision to carry out a public consultation of the draft plan, cf. Section 3(2) Federal Building Code) will entail a relaxation of the security payments (see below).
(5) Security payments and penalties. Bidders are required to provide a security payment of EUR 4 per kW of the bid volume to the Federal Network Agency in order for the bid to be allowed. For successful bidders, a second security payment of EUR 50 per kW is due. Both payments may be reduced by 50% if the bidder submits the copy of a zoning plan allowing the construction of the installation as planned or the local government’s decision to carry out a public consultation of the draft zoning plan with the bid (see above). Successful bidders who do not apply for a certificate of support (Förderberechtigung) within 24 months after commission of the plant have to pay a penalty of up to EUR 50 per kW based on the bid volume.
(6) Financial support; pay-as-bid and uniform pricing. If the total bid volume exceeds the auction’s value, valid bids will be accepted from lowest to highest bid value until the volume of the auction is first reached or exceeded. The value of the accepted bids replaces the relevant statutory reference amount for freestanding PV set out in Section 23 (1) sentence 2 EEG. In principle, the financial support awarded will amount to the value offered in the bid (pay-as-bid system). However, in order to gather a broader experience, the uniform pricing system will be used for the auctions on 1 August and 1 December 2015, i.e. all successful bidders will receive financial support based on the value of the highest bid accepted; if the auction’s volume is not reached in these auctions, the aforementioned maximum value will be awarded.
(7) Legal remedies. The Federal Network Agency’s decision to accept a bid cannot be challenged by third parties. Unsuccessful bidders may merely seek a ruling of the competent Higher Regional Court to oblige the Federal Network Agency to accept their bids as well (Verpflichtungsklage).
The Ordinance primarily serves to gather experience with the competitive bidding process, which will become mandatory for all renewable technologies in 2017. From this perspective, the pilot tender procedures deserve close attention with respect to a number of issues. One important point to consider is the maximum bid
value, which is currently based on Section 51(2) EEG 2014. This was considered a fairly high limit and the Federal Cabinet has already stated it will monitor the effects of this value. Moreover, in order to counteract possible strategic bidding behavior, the Federal Network Agency has been authorized to change the maximum value as needed. Furthermore, the effects of the different pricing mechanisms (pay-as-bid vs. uniform pricing) on the bidding behavior and the bid value should be closely monitored. The experience gathered in the first year of the pilot project will likely affect which of the procedures will be selected once the general transition to the bidding process for renewable energy plants is made.
It remains to be seen how much additional capacity will actually be realized following the 2015 auctions. While the governing coalition originally agreed on a 400 MW per year objective, the risk that supported projects would not be realized was a concern. The Federal Cabinet ultimately maintained the principle of 400 MW additional capacity on annual average, but decided to raise the first year's volume to 500 MW in order to account for the possibility of non-implementation.
Finally, the Ordinance directly affects on-going freestanding PV projects. The statutory reference amounts apply only to installations commissioned within six months following the announcement of the first tender. All installations commissioned after this date will be eligible for public funding only on the basis of the tender procedures.
For further information, please contact:
Prof. Dr. Joachim Scherer, LL.M.
E-Mail: Joachim.Scherer@ bakermckenzie.com
Dr. Janet Kerstin Butler
E-Mail: Janet.Butler@ bakermckenzie.com
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