Very recently, on 1 August 2014, a fundamental reform of the German Renewable Energy Sources Act (Erneuerbare-Energien-Gesetz, "EEG 2014") became effective. With some exceptions, all renewable energy plants commissioned on or after 1 August 2014 will be subject to the EEG 2014. In contrast, any facilities which have been commissioned before this cut-off date will be grandfathered from changes under the EEG 2014.

1. Essential amendments

Under the former legal framework renewable energy plants could choose between a fixed feed-in tariff and direct marketing for electricity generated by renewable sources for a period of 20 years (plus the year of commissioning). In contrast, direct selling has become generally mandatory under the EEG 2014 to gradually expose renewable energy sources to market prices.

As mentioned above, this obligation will only apply to those facilities which are commissioned after the relevant cut-off date, which is generally 1 August 2014. Any facilities which were commissioned before this date are grandfathered from this obligation which means that the operators of these facilities can still choose between a fixed feed-in tariff and direct marketing based on tariffs which have been valid at the time when the facility were commissioned.

1.1 Mandatory direct marketing 

In a direct marketing system, an operator of a renewable energy facility sells the energy generated to an off-taker for a price to be agreed between these two parties. In addition, the operator is, during a period of 20 years (plus year of commissioning), eligible for a so called market premium which is paid by the grid operator which operates the grid in which the electricity is fed-in.

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The EEG 2014 provides for a fixed funding value for each source of renewable energy, that is for example solar power, onshore and offshore wind, biomass, etc. The market premium is determined each month as the difference between the respective fixed funding value and the monthly average of the market value for electricity generated by the renewable energy source, eg offshore wind farms, on the spot market of the EPEX Spot SE energy exchange in Paris in Ct/kWh.

By way of example, if the fixed funding value for offshore wind is determined at 19.4 Ct/kWh and if the monthly average spot market price is 5.4 Ct/kWh, the operator of the wind farm would be eligible for a market premium of 14.0 Ct/kWh. The higher the monthly average value for electricity from offshore wind farms at the EPEX Spot, the lower the market premium, and vice versa.

This means that if the actual revenue from the direct sale of the electricity is higher than the monthly average market value, the revenue of the operator will be higher than the fixed funding value, and vice versa.

1.2 Option to sell the produced green energy to the grid operator

Under the EEG 2014, a producer of renewable energy is also entitled to sell the produced energy to the grid operator. In this case, however, the applicable feed-in tariff is only equal to 80% of the respective fixed funding value.

This option is introduced in order to mitigate the risk of insolvency or non-payment of the off-taker. The right to exercise the option does however not depend on an actual insolvency of the off-taker.

1.3 Tendering

The EEG 2014 sets out the prospect of tendering as a tool to determine the price of renewable energy in the future. In accordance with a general grandfathering principle, this mechanism will not affect those facilities which are already commissioned now or by the future cut-off date for the tendering regime. With certain exemptions, this funding system will be relevant for newly commissioned facilities from 2017 onwards. This, however, will require another reform of the EEG in the foreseeable future.

2. Conclusion

The EEG 2014 provides for a favourable framework for investments in the German renewable energy market. Although the EEG 2014 is to be regarded as a fundamental reform the legislator protected legitimate expectations of those renewable energy facilities which have been commissioned under the former EEG by way of grandfathering these operators from major changes caused by the EEG 2014.