Germany’s prospective new government coalition sets
out energy policy goals, including fundamental reform
of the Renewable Energy Sources Act
After five weeks of negotiations, the Christian Democrats (CDU/CSU) led by
Chancellor Angela Merkel and the Social Democratic Party (SPD) have
agreed on a program for a new coalition government. A key part of the
program addresses energy policy, focusing in particular on the future reform
of the Renewable Energy Sources Act (Erneuerbare-Energien-Gesetz, EEG).
Following the previous government’s decision in 2011 to embark on an ambitious
sustainable energy turnaround policy, energy production from renewable energy
sources has expanded substantially over the past years. At the same time,
consumer energy prices have risen significantly, in part due to the increased EEG
surcharge which is used to finance the support scheme for renewable electricity
generation. A heated public debate ensued on whether the current funding is costefficient
(e.g. photovoltaics versus lower-cost wind power), whether the costs of
Germany’s renewable energy policy are being shared fairly (exemptions for a wide
range of industrial electricity customers) and whether grid reinforcement can keep
pace with the proposed expansion of renewable energy generation (grid
bottlenecks and system stability issues).
The prospective new government faces the challenge of developing a long-term
concept that reconciles the expansion of renewable energies with the requirements
of system stability and affordability. The coalition agreement of November 27,
2013, which still must be approved by the SPD members before becoming
effective, includes the following key policy decisions in this respect:
Reform of the Renewable Energy Sources Act by summer 2014
The new government plans to enact a fundamental reform of the Renewable
Energy Sources Act by summer 2014. The aim is to provide a reliable legal
framework for future investments as swiftly as possible. Acquired rights under
the current EEG, in particular feed-in tariffs for operational assets, will remain
untouched. Investments that are already in an advanced realization stage will
be duly protected.
The government plans to limit the future expansion of renewable energy
generation by way of a statutory “expansion corridor": 40 to 45 % in 2025, 55 to
60 % in 2035. While the coalition program does not mention any specific
implementation mechanisms, this implies that new capacity exceeding the
corridor will receive less or no funding. The expansion of renewable energy
generation will be reviewed annually in terms of target achievement, pace of
corresponding grid reinforcement and affordability (i.e. stabilization of the EEG
surcharge at an acceptable level).
Germany – Renewable Energy Policy
Germany – Renewable Energy Policy
On the basis of the statutory corridors, the government plans to establish specific expansion targets for individual renewable technologies jointly with the German Federal States (Länder).
With a view to preventing excessive subsidies, the government plans to review and largely abolish the existing bonus schemes.
With respect to the individual technologies,
o the existing rules for PV and hydro power will initially remain unaffected;
o the tariffs for new onshore wind farms will be reduced, particularly for sites
with strong winds. The aim is to refine the reference yield model so as to ensure that sites with a reference value of 75 to 80 percent will remain commercially viable. The Federal States will be allowed to set minimum distance requirements with respect to neighboring residential areas;
o the expansion targets for offshore wind power are reduced to 6.5 GW in 2020 and 15 GW in 2030. The optional acceleration model (granting higher initial feed-in tariffs over the first eight years) will be extended to December 31, 2019, so as to avoid jeopardizing upcoming investments with long lead times.
The government plans to make direct marketing mandatory immediately for all new RES installations with an electrical capacity of at least 5 MW and from 2017 onwards for all other RES installations. This means that affected operators will be entitled to so-called market premiums (covering the difference between the statutory feed-in tariffs and the average monthly market sales price) in place of the current feed-in tariffs.
From 2018 onwards, the government plans to determine all funding rates by way of competitive bidding processes, provided however, that a pilot project must first demonstrate that such mechanisms are actually capable of achieving the government’s energy policy goals more cost-efficiently than the existing mechanisms. For this purpose, it plans to launch a pilot project for a total capacity of 400 MW in open-field PV power by 2016.
In order to ensure system stability, the government plans to require all new RES installations to allow full remote control by the grid operator and direct marketers. RES operators’ entitlement to compensation in the event of congestion-related feed-in management by the grid operator will be reduced. The aim here is to provide incentives for investors to take into account the existing grid load when selecting a site for a new RES plant. In the future, the grid operator will be allowed to reduce up to 5 percent of the annual total electricity output of new installations without any compensation, if this helps to lower costs of grid reinforcement and to prevent negative stock exchange prices for electricity.
The coalition will review whether operators of large RES installations should be required to guarantee a base load of their maximum feed-in in order to contribute to the security of supply. The government plans to launch a pilot project for this purpose.
Germany – Renewable Energy Policy
Power generation for own consumption (Eigenstromerzeugung) shall no longer be exempt from the EEG surcharge. However, acquired rights in respect of plants established under the existing rules will be duly protected.
The coalition plans to maintain and refine the so-called special equalization scheme. Under this controversial scheme, certain electricity-intensive industries benefit from a full or partial exemption from the EEG surcharge. In light of the fact that the European Commission is expected to open a formal State aid investigation procedure against the existing scheme, the coalition plans to review the current privileges using objective criteria in line with European Union law. Companies benefiting from the equalization scheme shall be required to take specific energy efficiency actions.
The government plans to closely align future grid reinforcement and expansion with the proposed statutory corridor for the expansion of renewables capacities.
With respect to distribution networks, the coalition plans to improve the existing rules for the handling of investments under the Incentive Regulation Ordinance (Anreizregulierungsverordnung), so as to provide sufficient incentives for investments needed in these networks.
The prospective new government’ renewable energy policy will effectively limit the expansion of renewable energy generation over the next years. However, the effect of the new goals and planned reforms on the various technologies may be quite different. While onshore wind projects may face difficult times, as returns may become even more under pressure in view of the proposed review of tariffs, combined with a reduced compensation in the event of feed-in management and an obligation for larger renewable power plants to provide a base load guarantee, offshore wind projects may finally have sufficient regulatory stability for their realization, even if the overall offshore wind capacities have been reduced to reflect the already existing realities. The technical experience gained meanwhile in the realization of these projects coupled with the extension of the acceleration model, which facilitates financing, make it likely that more projects will be successfully developed and built, even if at a slower pace. Further investment opportunities may develop in relation to the extension of the distribution grid or the management of the energy consumption (smart metering). Of course, it remains to be seen whether all proposals contained in the current policy document will
actually find their way into the EEG reform bill scheduled for next year.
This client newsletter is prepared for information purposes only. The information contained therein should not be relied on as legal advice and should, therefore, not be regarded as a substitute for detailed legal advice in the individual case. The advice of a qualified lawyer should always be sought in such cases. In the publishing of this Newsletter, we do not accept any liability in individual cases.
Baker & McKenzie - Partnerschaft von Rechtsanwälten, Wirtschaftsprüfern, Steuerberatern und Solicitors is a professional partnership under German law with its registered offices in Frankfurt/Main, registered with the Local Court of Frankfurt/Main at PR No. 1602. It is associated with Baker & McKenzie International, a Verein organized under the laws of Switzerland. Members of Baker & McKenzie International are Baker & McKenzie law firms around the world. In common with terminology used in professional service organizations, reference to a "partner" means a professional who is a partner, or equivalent, in such a law firm. Similarly, reference to an "office" means an office of any such law firm.
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Germany’s prospective new government coalition sets out energy policy goals, including fundamental reform of the Renewable Energy Sources Act
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