The Federal Government continues to see the revision of the Renewable Energy Sources Act (Erneuerbare‑Energien‑Gesetz, “EEG”) as a key element of the proposed energy reform. The Government’s draft bill (Regierungsentwurf) of the “EEG 2.0” was adopted by the cabinet on 8 April 2014. Since the “key points” paper relating to the proposed reform was adopted in January 2014, considerable effort has been spent to turn the key points into law. Since 10 February 2014, four working drafts and ministry drafts have quickly followed one another and have been the subject of fierce debate. At a meeting on 1 April (which became known as the “Energy Summit”), the Federal States agreed the main points of the proposed reform. These included the remuneration system for onshore and offshore wind, and the rules applying to producers that consume their own energy. An agreement was also reached with the EU Commission regarding exemptions from the EEG surcharge (EEG‑Umlage) for energy‑intensive industries. The new EEG is planned to enter into force on 1 August 2014, meaning that the timeline for the next steps is ambitious: The Federal Council (Bundesrat) now has the opportunity to comment on the Government’s draft. The Federal Council will likely discuss the draft on 23 May 2014. Debates in Parliament (Bundestag) will take place in May and June, with the first reading scheduled for 8 May 2014. If Parliament adopts the draft before the summer break, the Federal Council may be able to hold its second debate on 11 July 2014. If this should not happen, the next possible date would be 19 September 2014. Given that the Federal States have not yet agreed to all points of the proposed reform, it may be the case that the legislative proceedings may take longer than currently proposed. In this Briefing, we provide an overview of some main elements of the Government’s draft relating to the wind and photovoltaic sectors, at the same time updating our briefing dated February 2014, in which we described the first working draft.
The Government’s draft bill ‑ “EEG 2.0” The draft retains some core elements of the current EEG: Grid operators will still be obliged to connect renewable energy plants to the grid, to off‑take the electricity and to give priority to renewable energy plants in the event of grid bottlenecks. The draft law also maintains in principle the obligation for grid operators to pay feed‑in remuneration for a period of 20 years plus the year in which the plant is first commissioned. However, the draft also introduces a number of changes to the current feed‑in tariff system. Some of the most important of these are summarised below: The compensation rules for several renewable energy sources will be amended. In this Briefing, we concentrate on the intended amendments to the remuneration systems applicable to onshore and offshore wind and photovoltaics (see section 1). Direct marketing, in which the operator receives a market premium from the grid operator rather than being eligible for a feed‑in tariff, becomes compulsory (see section 2). The draft states that the determination of support levels for all renewable installations shall be made through tender procedures in the future. This system will first be introduced for open space PV plants as a pilot scheme (see section 3). Owners of plants who produce electricity for their own consumption will be subject to the EEG surcharge. Existing advantages for industries with high consumption will be reduced (see section 5). Transitional provisions are included to ensure that operators’ and investors’ legitimate expectations are protected (see section 6). 1. Amended Remuneration Rules Onshore Wind As with the current rules for PV plants, the degression of the feed‑in value for electricity generated from onshore wind will depend on the amount of new onshore wind capacity added in the relevant review period. The overall aim of this is to achieve an annual net increase of up to 2,500 MW within a corridor of 2,400‑2,600 MW per year. An initial “high” feed‑in value has been set at 8.9 Ct./kWh. This will apply for the first five years after commissioning. The duration of this initial high‑value period may ultimately be longer, depending on the yield of the relevant plant: The actual energy yield of any given turbine is compared to a so‑called “Reference Yield”, which is a reference energy yield calculated for each turbine type and hub height. According to the draft law, the entitlement to the high feed‑in value is prolonged by one month for every 0.36% that a wind turbineʹs actual yield falls short of 130% of the Reference Yield. In addition, the entitlement to the high feed‑in value is prolonged by one more month for each 0.48% the wind turbineʹs actual yield falls short of 100% of the Reference Yield. Some examples are provided in the table below . Relation between yield and reference yield Period of the high initial feed‑in tariff 80% 240 months 90% 192 months 100% 143 months 110% 116 months 120% 88 months 130% 60 months 140% 60 months 150% 60 months
After expiry of the initial high feed‑in value period, a “basic” feed‑in value of 4.95 Ct./kWh will apply. Starting in 2016, feed‑in values will be adapted quarterly. In principle, the feed‑in values will be reduced by 0.4% on 1 January, 1 April, 1 July and 1 October of each year. However, the degression rate will take the total capacity expansion of onshore wind into account. If the annual target corridor of 2,400‑2,600 MW is exceeded within the relevant reference period , the degression rate for the relevant quarter increases, up to a maximum of 1.2%. Should the amount of new onshore capacity be lower than the corridor, the degression rate would decrease and therefore a “positive” degression, (i.e. an increase of the feed‑in value) could potentially be possible. Details of this so‑called “Flexible Cap” are set out in the table below. Only the net increase of capacity, i.e. the installed capacity of new plants minus the capacity of plants irrevocably closed down in the same review period, will count for the calculation. In the case of repowering, this means that only the incremental capacity will be relevant for the calculation of feed‑in tariff degression. In this regard, the rules differ from the Flexible Cap for photovoltaics. The Federal Network Agency (Bundesnetzagentur) will monitor the generation capacity and will publish the relevant figures and the resulting feed‑in value rates. The repowering bonus will be abolished. The system services bonus (which was in any case set to expire at the end of 2014) will also be phased out. Offshore Wind It is intended that offshore wind generation capacity will reach a total of 6.5 GW by 2020 and 15 GW by 2030. Unlike onshore wind, the feed‑in value will not depend on the amount of capacity increase in a given reference period. Rather, the intention is to achieve a steering effect by amending the rules on grid connection. An initial “high” feed‑in value, initially set at 15.4 Ct./kWh, will apply for the first 12 years after commissioning. This may apply for longer, depending on the distance from shore and the water depth at the place of installation, as is the case in the current EEG. After the high‑value period, a basic compensation of 3.9 Ct./kWh will apply for the remainder of the remuneration period.
As is the case in the current EEG, operators may opt for the so‑called “Compression Model”, which provides for a higher feed‑in value of 19.4 Ct./kWh over a period of eight years. The draft legislation provides that the Compression Model will be available for offshore wind farms commissioned before 1 January 2020 (instead of 1 January 2018 as provided in the current EEG). Starting in 2018, the feed‑in value will decrease annually. Degression in the Compression Models differs from degression in the basic model, with a view to keeping the basic model attractive for investors. The ministry draft of the EEG provided for an annual degression by 0.5 Ct./kWh in the basic model and by 1.0 Ct./kWh in the Compression Model. The Government’s draft keeps this difference but provides that no degression will apply to either model in the year 2019. However, the applicable rate for 2019 will be reincorporated into the basic model in 2020 (i.e. after expiry of the Compression Model). From 2021 onwards, an annual degression of 0.5 Ct./kWh will apply. This results in the following values of the higher initial tariffs : The draft law provides for changes to the grid connection rules contained within the Energy Industry Act (Energiewirtschaftsgesetz, “EnWG”) with the aim of limiting the capacity increase in line with set targets. To this end, the Federal Network Agency will, as a rule, only be permitted to allocate a total grid connection capacity of 6.5 GW until the end of the year 2020 (such target capacity has previously been held to be a realistic expectation by market participants). Starting from 2021, an additional annual grid connection capacity of 800 MW will be allocated. Now, the Government’s draft provides for a bit more flexibility: Before 1 January 2018, the Federal Network Agency can allocate a total connection capacity of up to 7.7 GW. Such increased connection capacity shall ensure that the target of 6.5 GW is actually reached by 2020, even if some projects to which capacity was allocated are delayed. If more wind farms request a grid connection than there is available capacity, the capacity may be auctioned or allocated through means of another type of procedure; details are to be determined by the Federal Network Agency. Photovoltaics It is intended that new PV generation capacity of approximately 2,500 MW is constructed every year, within a corridor of 2,400 ‑ 2,600 MW per year, which is lower and less wide than the corridor defined in the current EEG. To reach this goal, the “Flexible Cap” scheme, i.e. the calculation of degression based on the capacity increase, will continue to apply, although with some modified values. The new degression values can be seen from the following comparison (with changes highlighted) :
EEG 2012 EEG 2014 Capacity increase monthly Capacity increase monthly from 7,500 MW 2.8 % from 7,500 MW 2.8 % from 6,500 MW 2.5 % from 6,500 MW 2.5 % from 5,500 MW 2.2 % from 5,500 MW 2.2 % from 4,500 MW 1.8 % from 4,500 MW 1.8 % from 3,500 MW 1.4 % from 3,500 MW 1.4 % Target corridor 2,500‑3,500 MW 1.0 % from 2,600 MW 1.0 % below 2,500 MW 0.75 % Target corridor 2,400‑2,600 MW 0.5 % below 2,000 MW 0.5 % below 2,400 MW 0.25 % below 1,500 MW 0 % below 1,500 MW 0 % below 1,000 MW ‑1.5 % once for the quarter below 1,000 MW ‑1.5 % once for the quarter
This degression is determined by the Federal Network Agency for each quarter, starting on 1 January, 1 April, 1 July and 1 October of each year. If the new EEG enters into force on 1 August 2014, the degression would first be calculated under the new rules for the quarter beginning on 1 October 2014. The Government’s draft mentions the following remuneration values: rooftop installations up to 10 kW: 13.15 Ct./kWh, rooftop installations up to 40 kW: 12.80 Ct./kWh, rooftop installations up to 1 MW: 11.49 Ct./kWh, rooftop installations up to 10 MW: 9.23 Ct./kWh, other installations up to 10 MW: 9.23 Ct./kWh. As can be seen, the remuneration values are set to increase slightly compared to the current values. This is based on the following consideration: Given the current remuneration and cost levels, PV installations will only be economically viable if a certain amount of electricity is consumed by the producer itself (self‑consumption). In such cases, the producer will in the future have to pay the EEG surcharge for electricity produced and consumed from plants with a capacity of more than 10 kW, for which the increase of the remuneration values is intended to compensate. 2. Compulsory Direct Marketing As a general rule, electricity from renewable energy sources shall be sold by way of direct marketing, unless the plants are expressly entitled to receive a feed‑in tariff. Direct marketing will see the operator receiving a market premium from the grid operator. The market premium will be the difference between (i) the (hypothetical) feed‑in tariff (anzulegender Wert, “feed‑in value”) and (ii) the average price (price zone Germany/Austria) at the EPEX Spot SE electricity exchange in Paris for the relevant month and for the relevant type of renewable energy. The draft states that there will no longer be an additional management premium on direct marketing. An exception from the direct marketing obligation, i.e. an entitlement to a feed‑in tariff, applies to small plants. The relevant capacity threshold will gradually be lowered in order to provide for the better market integration of smaller plants.
The following installations will continue to receive a feed‑in tariff: plants with a capacity of up to 500 kW which will be first commissioned before 1 January 2016, plants with a capacity of up to 250 kW which will be first commissioned after 31 December 2015 and before 1 January 2017, plants with a capacity of up to 100 kW which will be first commissioned after 31 December 2016. To lower the risks of mandatory direct selling, plant operators are entitled to a feed‑in tariff as a fall‑back solution in exceptional circumstances. The Government’s draft does not specify the conditions for such exception, but they can be found in the explanatory memorandum: Operators shall receive the fall‑back remuneration in cases in which they are temporarily unable to sell their electricity directly, e.g. if their direct marketing contractor becomes insolvent or immediately after the plant has begun to feed into the grid. Any such feed‑in tariff payable by the grid operator will, however, only amount to 80% of the feed‑in value. It is a prerequisite for both the claim for a market premium and a claim for the fall‑back feed‑in tariff that the plant can be controlled remotely. This means that remote control must be technically possible with a view to reducing the amount of electricity produced, and that the direct marketing contractor or any other purchaser must also be contractually entitled to actually control the plant. 3. Tender Procedures The draft bill provides that, as of 2017, the remuneration entitlement and amounts applicable to all forms of renewable energy plants shall be determined by means of competitive tendering. The new EEG 2014 will introduce competitive tendering as a pilot project for open space photovoltaic plants, in order to gain experience. The procedure will be run by the Federal Network Agency. It is intended that, once a bidding procedure has been established, a feed‑in remuneration will only be available for those plants that are awarded this support as a result of the tender process. This will apply seven months after the Federal Network Agency has initiated the first tender process. The tendered capacity of 400 MW per year shall be taken into account as new capacity for the purpose of determining the degression rates. Details of the tender procedure will be specified in an ordinance (Verordnung) to be published following the reform of the EEG. The far‑reaching power to issue such ordinance provides, inter alia, that the Government may introduce a rule to provide legal certainty to successful bidders: Under such rule, the successful bidder may retain his entitlement to financial support even if the award should be successfully appealed by another bidder. In such cases, a court ruling could be the basis for awarding financial support for additional capacity to a successful claimant. The introduction of competitive tendering for plants other than open space PV plants is intended to occur from 2017 onwards. This will require an additional change of the EEG, although the current draft does contain a transitional provision. The following plants shall not be affected by the future introduction of a competitive tendering model:
Offshore wind turbines that have received an unconditional grid connection confirmation or an allocation of connection capacity before 1 January 2017 and have been first commissioned before 1 January 2021, and All other plants (except open space PV plants) that have received a required permit under Federal law before 1 January 2017 and have been first commissioned before 1 January 2019. The fact that transitional provisions are already contained in the draft of the new EEG demonstrates that the Government seriously intends to change the renewable support system to competitive tendering. The transitional provisions are meant to provide for the necessary protection of legitimate interests in anticipation of future changes. 4. Support for Foreign Plants There is currently a debate regarding whether or not renewable energy plants located outside of Germany might be entitled to receive remuneration as a result of EU law requirements. The Government’s draft contains an interesting provision which was not contained in earlier versions of the draft: In the ordinance regarding the tendering process for open space PV plants, the Government may provide that open space PV plants in other EU member states may receive financial support under certain conditions. However, this will inter alia require that a treaty is concluded with the member state in which the plant is located, in order to ensure that the burdens are shared. Accordingly, financial support for foreign plants should not be expected in the short term. However, the proposed rule indicates that plants in other EU member states might generally become entitled to financial support under German renewables legislation – if the relevant requirements are met – once tender proceedings are introduced for all renewable energy plants. 5. Consumption, Support for Energy Intensive Industries The feed‑in remuneration payments made by grid operators are passed to the end customers. The payments which are ultimately due from the end customers are known as “EEG surcharge” (EEG‑Umlage). Currently, the EEG provides that producers which consume their own electricity are exempt from the EEG surcharge, if the electricity is not conducted through the grid, or is consumed in the immediate vicinity of the generating plant. Under the Government’s draft, such self‑consumers shall, in principle, have to pay the EEG surcharge ‑ either in total or partially. However, this shall not apply to existing plants which are already used for self‑consumption. The exemption also applies to replacements of any existing plants, as long as the replacement does not lead to a capacity increase of more than 30%. The rules for new plants differentiate by the type of plant and the type of producer : Self‑consumption group EEG‑surcharge for new plants Energy intensive industries 15% of the surcharge, up to the applicable cap Other companies in certain industries 15% of the surcharge Manufacturing sector, trade, service providers, private households 50% for renewable energy plants and highly efficient combined heat and power plants; others: 100% Small plants Zero Energy consumed by the power‑plant itself, off‑grid plants, self‑sufficient producers without EEG remuneration Zero
The solar industry and consumer advocates have already announced that they plan to file constitutional complaints against the new rules on self‑consumption. The EEG currently further provides for reductions of the EEG surcharge in favour of energy intensive companies. However, the EU Commission has voiced concerns about these provisions from a state‑aid perspective. Following an agreement with the EU Commission, the revised rule shall be in line with the EU Commission’s new Environmental and Energy State Aid Guidelines. The Government’s draft does not yet contain the wording of such new rule; this shall be drafted in the course of the legislative procedure. 6. Transitional Provisions It is intended that the amended EEG shall apply from 1 August 2014. However, transitional provisions intend to protect the legitimate interests of operators and investors. For plants first commissioned before 1 August 2014, the new law will apply, but with important exceptions, such as the requirements for remuneration and the fact that the applicable feed‑in tariffs, as they were fixed at the date of first commissioning, will be grandfathered (i.e., continue to apply). Also, the right to choose between direct marketing and the feed‑in tariff will remain unchanged for such plants. However, for direct marketing (i.e. receiving the market premium and management premium), even existing plants must be remotely controllable as of 1 January 2015, and the management premium for existing plants will be slightly lowered from this date: to 0.4 Ct./kWh for remotely controllable PV plants and wind turbines, and to 0.2 Ct./kWh for other renewable energy plants. The transitional rules as described also apply for plants that are first commissioned after 31 July 2014, but before 1 January 2015, provided that any permits for such plants required under Federal law were obtained before 23 January 2014. A special transitional provision applies to plants first commissioned before 1 January 2012. The EEG 2009 (as in force on 31 December 2011) continues to apply to these “old” existing plants, but with some modifications. Especially, these plants will have to be remotely controllable from 1 January 2015 in order to receive financial support for direct marketing. The above‑mentioned decrease of the management premium will also apply. 7. Outlook The draft revision of the EEG still implies a political commitment to the energy turnaround, namely the long‑term switch from nuclear and fossil energy to renewable energies. As already seen in the “key points” paper and the various working and ministry drafts, the support mechanisms for renewable energies will become more complex, more market‑oriented and further tailored towards mitigating the cost implications for the end consumer. As the Federal States have already agreed to important points of the reform, no fundamental changes to these points should be expected from the remainder of the legislative process. However, not all matters have yet been agreed – especially the transitional provisions are likely to be the subject of further debate. It is possible that more favourable rules for operators and investors can be achieved by the Federal Council. Even if the Government’s draft already deals with some points which were still open in previous drafts, it should be noted that a number of important details will only become clear after the reform, where details are to be regulated regulated in ordinances or determined by the Federal Network Agency. Furthermore, this intended reform of the EEG does not yet address the issue of the integration of renewable energies into the grid, which is expected to be addressed in a future reform of the EnWG.