Reform of the Renewable Energy Sources Act

For further information, please contact:
Frankfurt/Main
Prof. Dr. Joachim Scherer, LL.M.
Tel.: +49 (0) 69 29 908 189
Joachim.Scherer@ bakermckenzie.com
Berlin
Dr. Janet Kerstin Butler
Tel.: +49 (0) 30 2 20 02 81 726
Janet.Butler@ bakermckenzie.com
First information on key points of the planned reform of the Renewable Energy Sources Act available
On January 22, 2014, the German Federal government approved a paper developed by the new Minister of Economic Affairs and Energy, Sigmar Gabriel, which outlines the key points of the proposed reform of the German Renewable Energy Sources Act (Erneuerbare-Energien-Gesetz; EEG).1 Meanwhile, an internal working draft of the legislative reform bill (dated February 10, 2014) prepared by the Ministry of Economic Affairs and Energy has also been leaked.
The recent internal working draft implements the proposals set out in the key points paper without substantial changes. The EEG reform, as outlined in the paper and detailed in the working draft, will include the following key points:
General
(1) Statutory expansion targets / caps. In order to prevent an uncontrolled expansion of renewable power generation in Germany, the government plans to introduce expansion targets or “corridors” for the various renewable energy technologies, which in effect are intended as caps. The instruments used to ensure that the targets are not exceeded will also vary for the different technologies. The proposed statutory targets place a clear focus on onshore and offshore wind as well as photovoltaic electricity (PV).
(2) Mandatory direct marketing. The government plans to promote the integration of electricity produced from renewable sources in the power market by requiring all operators of new plants with an installed capacity of at least 100 kilowatts (kW) to market their electricity directly. As already under the existing system of voluntary direct marketing, the income from the sale of the electricity on the market will be supplemented by market premiums paid under the EEG. These market premiums cover the difference between the average monthly reference market value and the respective feed-in tariff guaranteed by the EEG. However, due to the fundamental system change from feed-in tariffs to mandatory direct marketing, the recent working draft avoids the term “feed-in tariffs” and instead refers to “reference amounts”.
The direct marketing requirements will be introduced in stages: Upon entry into force of the new EEG 2014, direct marketing will be mandatory for all new plants with an installed capacity of at least 500 kW, from 2016 onwards for new plants with an installed capacity of at least 250 kW and finally from 2017
1 The document is available in German with annexes at: http://www.bmwi.de/DE/Themen/Energie/Erneuerbare-Energien/eeg-reform.html.
Reform of the Renewable Energy Sources Act
Energy, Germany
Client Alert
February 2014
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Reform of the Renewable Energy Sources Act
onwards for all new plants with an installed capacity of at least 100 kW. This allows smaller plant operators to adjust to the new system gradually. The so-called management premium, which is currently paid in addition to the market premium and is intended to cover marketing costs, will be abolished. Instead, the marketing costs will be taken into account in determining the statutory reference amounts. In order to protect plant operators in situations where they are temporarily unable to effectively market the electricity generated in their plant, e.g. due to their direct marketing services provider becoming insolvent, plant operators will be able to opt for an alternative reduced feed-in tariff as a fallback solution. The reduced feed-in tariff is limited to 80 percent of the respective reference amount.
(3) Transition to competitive bidding processes. In light of the European Commission’s plans to make competitive bidding processes mandatory for all national funding of deployed renewable energy technologies2, the German government aims to replace the established system of statutory feed-in tariffs and market premiums by bidding processes at the latest by 2017. Therefore, the reference amounts set out in the working draft will have only very limited significance. All funding for new freestanding PV plants will be determined by bidding processes immediately upon entry into force of the new EEG 2014. However, the government appears to be more reserved in its goals for offshore wind. In that area, it plans to introduce bidding processes or “other appropriate, cost efficient instruments” starting in 2020.
(4) Grandfather rights / transitional provisions. The new EEG 2014 shall, in principle, apply to all installations commissioned after the entry into force of the reform. However, the rules of the current EEG 2012 will continue to apply to installations commissioned by 31 December 2014, provided that the respective installation is subject to licensing requirements and was issued an operating license before 23 January 2014, i.e. the day after the Ministry’s key points paper was published. Existing installations are grandfathered, meaning that they will continue to receive funding in accordance with the provisions of the EEG in force at the time of their commissioning over the entire funding period.
Onshore and offshore wind
The working draft sets out a target corridor for the expansion of onshore wind power between 2.4 and 2.6 gigawatts (GW) per year. If the newly installed capacity remains within this corridor, a general degression rate of 0.4 percent per quarter-yearly period applies (i.e. 1.59 percent per year). This means that for plants commissioned at a later point in time, the market premium is calculated on the basis of the statutory reference amount minus the degression rate. If the newly installed capacity exceeds or falls below the expansion corridor for a respective reference period, the degression rate is adjusted upwards or downwards, respectively, thereby providing an incentive for project developers to install more or less new capacities. This instrument was first introduced in 2012 for steering the further expansion of PV capacities and is meanwhile well established.
2 See the draft Guidelines on Environmental and Energy State Aid 2014-2020 published by the European Commission, DG Competition, for consultation purposes; available at: http://ec.europa.eu/competition/consultations/2013_state_aid_environment/index_en.html.
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Reform of the Renewable Energy Sources Act
In the working draft, the reference amounts for onshore wind are 4.95 Eurocents per kilowatt hour (basic amount) and 8.9 Eurocents per kilowatt hour (initial amount), reflecting an increase of the tariffs currently in place by 0.4 Eurocents, in order to take into account the additional direct marketing costs. The bonuses currently granted for the repowering of existing installations and for system services will be discontinued. Aiming to avoid over-funding, the rules governing the extended application of the higher initial amount will be modified so as to reduce the total funding for wind power plants in locations with a high wind yield by roughly 10 to 20 percent in comparison to the funding level available in 2013. The funding available for less windy locations shall remain substantially unchanged.
The government’s expansion targets for offshore wind have also been reduced. The working draft states a target of 6.5 gigawatts total installed offshore wind capacity for 2020 and 15 gigawatts for 2030. The key points paper mentions that new instruments to control the quantity of expansion will be introduced for the time period until 2020. These have not yet been specified in the working draft. However, both documents state that projects that have already received the grid operator’s unqualified grid connection consent will be given priority. In the following time period until 2030, the government projects the construction of two new offshore wind farms per year. This expansion is to be steered by bidding processes or other
“other appropriate, cost efficient instruments.”
As for onshore wind, the current funding rates will be increased by 0.4 cents per kilowatt hour, respectively, in order to take into account direct marketing costs. The so-called acceleration model, which allows operators to produce higher revenues in the first years, followed by lower revenues in subsequent years, until the end of the initial tariff/reference amount, will be extended until end of 2019. However, the working draft replaces the current uniform degression rate of 7 percent annually (beginning in 2018) by separate degression rates applicable to the basic model and the acceleration model. The degression rate for the acceleration model will be 1.0 Eurocents per year and thus double the rate applicable to the basic model (0.5 Eurocents per year). The reasoning for this distinction is to renew the basic model’s attractiveness for investors in comparison to the widely preferred acceleration model.
Revised privileges for energy-intensive companies
Under the current EEG, energy-intensive companies from certain industry sectors are eligible for a reduction of the so-called EEG-surcharge, i.e. the surcharge charged to electricity consumers for the financing of the EEG support scheme. On December 18, 2013, the European Commission opened an in-depth investigation to examine whether this reduction is compatible with EU state aid rules.3 Accordingly, the revision of these rules is a particularly sensitive issue. The key points paper and working draft do not set out any details, but instead point out that the revised rules will depend on the outcome of the pending negotiations with the European Commission. Which companies will be privileged to what extent in the future will therefore largely be determined by the results of the current state aid investigation and the new European Commission guidelines on environmental and energy state aid, which the Commission plans to publish in Spring 2014.
3 See our December Client Alert: http://www.bakermckenzie.com/ALGermanyRenewableEnergySurcharge_Dec2013/
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Reform of the Renewable Energy Sources Act
However, the working draft does contain several procedural amendments. The application deadline for EEG-surcharge reductions for the year 2015 will be extended to September 30, 2014. In the future, it will be sufficient to submit the application, auditor certificate and confirmation of certification within the statutory deadline; all other documents may be submitted later. Furthermore, BAFA, the government agency that grants the reductions, will be obliged to revoke a reduction where it becomes apparent that the statutory requirements were not met. The companies concerned will not be able to evoke the principle of legitimate expectations to avoid a revocation. Finally, BAFA shall be entitled to review whether the statutory requirements were met even after having granted the reduction. For this purpose, BAFA officials shall be allowed to enter the business premises of the companies under review.
Self-owned power plants
Currently, consumers are not required to pay EEG-surcharges for electricity produced in self-owned power plants. Accordingly, self-owned power plants have become an attractive alternative particularly for energy-intensive industries, thereby causing the EEG-surcharges to rise for the remaining consumers. Aiming to ensure that the EEG financing burden is shared fairly between all power consumers, the government has decided to include self-owned power consumption at least partially in the financing mechanism. With the exception of self-owned power used in power plants, all electricity consumed that is produced in new self-owned power plants (i.e. commissioned after the entry into force of the EEG 2014) will be subject to reduced surcharges in the amount of 90 percent of the full EEG-surcharge; for new renewable energy, combined heat and power and blast furnace gas-fired power plants, the surcharge is reduced to 70 percent. The government plans to require even existing self-owned power plants to participate in the EEG financing, albeit to a very limited extent. According to the key points paper, existing plants will be required to pay EEG-surcharges only to the extent that the surcharge exceeds the value of the year 2013, i.e. 5.38 Eurocents per kilowatt hour – a controversial compromise between the protection of the existing plant owners’ legitimate expectations and the need for a sufficient EEG financing basis.
Timeline and outlook
The Federal government plans to enact the legislative reform by August 1, 2014. However, it remains to be seen whether this ambitious timeline is realistic, given that the government faces significant criticism not only from a number of State governments, the affected industries and political opponents, but also from within the government coalition parties. Delays and amendments to the current draft, in particular with respect to grandfathering and transitional provisions, are likely.
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