CDU/CSU and SPD Present Coalition Agreement – 55% to 60% Renewables by 2035 and More

The conservative CDU/CSU, the winners of the Federal Election of 22 September 2013, and the Social Democrats (SPD), who emerged second in the election, have presented a coalition agreement for a grand coalition in Germany that provides inter alia for a binding expansion corridor of 55% to 60% renewable energy by 2035. The partners announce to present a reform of the Renewable Energy Sources Act (EEG) by Easter 2014. As a novelty, the SPD will present the draft to its members for vote between 6 and 12 December before proceeding further with the coalition.

The coalition agreement is subject to approval by a SPD party member vote, the result of which is expected on 14 December 2013. Only afterward the parties want to announce who is going to head the various ministries. If the coalition agreement is passed by the SPD members and ultimately agreed between the coalitions partners, the CDU/CSU and SPD will have a very comfortable majority in the 18th German Bundestag, holding 504 of 631 seats (CDU/CSU 311; SPD 193). An election of Mrs Merkel as chancellor could take place on 17 December 2013.

In the following paragraphs we will point out some key items from the 2013 draft German coalition agreement as regards energy policy matters.

1. Energy Policy Triangle

Climate and environmental compatibility, the security of supply and the affordability of power were equally important the agreement states. Hence a further expansion of renewables had to occur bearing in mind cost efficiency of the overall energy infrastructure, including grid expansion and the necessary back-up capacities.

2. Climate Protection

On a national level greenhouse gas emissions shall be reduced by at least 40% (based on 1990 figures) by 2020. On the EU level the coalition wants to canvass for a reduction of at least 40% by 2030 as part of a set of targets consisting of targets for greenhouse gas emissions, the expansion of renewable energy sources and energy efficiency.

Besides the coalition wants to work towards improving the European Emission Trading System, saying the planned backloading of 900 million emission allowances had to remain a one time event.

3. Renewables and EEG Reform

a) General Aspects

A bill amending the EEG aimed at containing the surging EEG-related costs for consumers shall be presented by Easter 2014 and passed in summer 2014.

The parties agreed on legally binding corridors for the expansion of renewable energy of 40% to 45% by 2025 (currently 35% by 2020 and 50% by 2030 for electricity supply according to the EEG) and of 55% to 60% by 2035 (currently 50% by 2030 and 65% by 2040 according to the EEG). The wording in the coalition agreement in this regard is actually not clear, as it mentions a percentages for renewable energies (Erneuerbare Energien), whereas the EEG targets relate to percentage of electricity supply. My understanding of this section of the coalition agreement is that those percentages also relate to percentage of electricity supply.  This would mean that the new 40/45% range for 2025 and the 55/60% range for 2035 are within the trajectory of the the current EEG figures.

Based on the targets the coalition wants to reach agreement about the implementation with the federal states. The expansion targets shall be implemented involving the general public as much as possible while containing costs.

Important general aspects are:

  • Support for renewables shall be simplified;
  • Excessive support for new plants reduced, whereas existing renewable power plants shall not be affected;
  • All technologies shall be subject to support that is decreasing over time (degression);
  • Bonuses granted on EEG support (e.g. for biomass) shall be reviewed and mostly abolished;
  • The so-called green power privilege (Grünstromprivileg) according to which utilities that sell a certain amount of renewable energy to consumers have to pay a reduced renewable surcharge (EEG surcharge) shall be abolished.

The SPD demand to lower the electricity tax so as to lower electricity costs does not figure in the coalition agreement anymore.

b) Individual Renewable Energy Sources

  • Photovoltaics: The existing scheme of a staggered reduction of funding was considered to be successful, as growth was almost in line with the target, hence support shall not be altered, the text says.
  • Biomass: To be eligible for support, new biomass power plants shall “mostly” use waste and residue in order to avoid competition for land with food crops.
  • Onshore wind power: Financial support shall be lowered, in particular for areas with good wind conditions. At the same time the so-called reference-yield model (Referenzertragsmodell; cf. Section 29 para. 2 EEG) shall be refined so as to ensure that favourable locations with a reference yield of 75% to 80% can still be operated profitably. The reference yield model effectively leads to increased feed-in tariffs for less favourable wind sites. A consequence of the wording in the draft coalition agreement appears to be that support for less favourable wind sites will be reduced, reducing additional wind energy generation in less favourable wind regions.
  • Offshore wind power: The national targets for offshore wind power are reduced from 10 MW to 6.5 GW by 2020 and from 25 GW to 15 GW by 2030. Besides the increased offshore-funding model shall be extended by two years until 13 December 2019 (for more information, please see here).

As of 2018 the appropriate level for financial support shall be determined in an auction process, provided a pilot project proves that auctioning will reduce costs. A special PV auction pilot project in covering 400 MW PV shall take place in 2016 at the latest.

c) Market and System Integration of Renewables – Direct Marketing and Grid Stability

The coalition wants to slowly wean off renewables from financial support and subject them to market conditions. Apart from generally declining financial support, which will provide more incentives for direct marketing, the coalition also wants to make direct marketing mandatory for new renewable plants with a capacity of 5 MW or more as of 2017. The draft coalition agreement does not contain details on what the future direct marketing system shall look like, and how it would lead to decreasing costs.

Though the general priority for renewable electricity in the grids stipulated by the EEG shall remain, new renewable power plants shall contribute to a greater extent to grid stability. On the one hand, power that needs to be curtailed to balance grids shall not be reimbursed up to a share of 5% of the annual output (Jahresarbeit). Besides the hardship clause in Section 13 EEG that provides for a remuneration in cases of curtailments shall be amended and the remuneration lowered.

The coalition also announces to examine whether large operators of renewable power plants shall have to guarantee a certain amount of base load energy calculated as a share of their maximum input.

d) EEG Surcharge Reductions for Large Energy Consumers and Self-Consumed Electricity

The eligibility of large energy consumers to apply for partial reductions of the EEG surcharge pursuant to Sections 40 to 44 EEG shall be reviewed so as to adapt the EEG provisions to EU law (regarding EU criticism, please see here). Besides further contributions of the beneficiaries shall be examined or introduced. Generally, however, the provisions shall be kept up despite the fact that a reduction of the EEG surcharge for one group means a higher burden for the remaining customers.

Self-consumed electricity is currently exempted from the EEG surcharge (cf. Section 37 para. 3 sent. 2 EEG) if certain conditions are met. In the future self-consumed electricity generated in new renewable power plants shall mostly contribute to the EEG costs.

4. Energy Efficiency

Being a fundamental pillar of the energy policy shift towards a renewable energy supply (Energiewende), energy efficiency had to be increased, the coalition agreement says.

To this end the coalition wants to list the targets for various sectors, e.g. housing, industry, households, in national action plans that also describe the tools, funding and the responsibilities of the various stakeholders. The first such plan (Nationaler Aktionsplan Energieeffizienz) shall be drafted and passed by the government in 2014.

To promote energy efficiency the coalition inter alia wants to increase funding for  energy-efficient renovations provided by the financial support program me of the state-owned KfW development bank. On the other hand, an additional tax promotion programme for energy-efficient renovations does not figure in the final version of the coalition programme.

The use of heat shall be promoted, inter alia by the increasing funds for the Renewable Energy Incentive Programme (Marktanreizprogramm für erneuerbare Energien).

5. Electricity Market Design – New Role for Conventional Power Plants

The coalition partners agree that flexible conventional power plants are needed to back-up the fluctuating renewable power input as long as other options like storage facilities and demand side management are not sufficiently available at reasonable prices.

Therefore a number of measures were necessary, they say: Firstly promotion of more flexibility on the supply and the demand side. Secondly, the procurement of grid reserve capacity through auctions held by the transmission system operators shall be further developed. To contain costs, existing fossil-fuel power plants could be used as back-up power plants. Thirdly, based on the Ordinance on Reserve Power Plants (ResKV) the Federal Network Agency shall examine the need for the construction of new power plant capacity (in particular in Southern Germany) to avoid short-term risks for the security of supply. Fourthly, while capacities suffices at the present date according the CDU/CSU and the SPD, a capacity market (providing back-up power) shall be developed in the medium term. It shall be cost-efficient, competitive, technology-open and in compliance with EU law. Lastly, the share of combined heat and power shall increase to 25% by 2020.

6. Storage

So as to gauge the need for conventional reserve power the coalition wants to examine technically available and economical storage options in the coming years. A mix of different storage types will be needed, the coalition believes, saying it wants to establish an underlying legal framework that is open to all technologies.

7. Grids

Grid expansion shall go hand in hand with the legally binding growth targets for renewable power plants. Concerning the transmission grids the Federal Requirement Plan remains the central instrument. As regards the distribution grids, which are referred to as the backbone of the Energiewende, the coalition announces to create investment-friendly conditions. Besides the parties want to create reliable legal conditions for the roll-out of smart meters in 2014. They announce to examine grid fees with regard to a fair burden sharing of infrastructure costs, in particular as regards self-consumed electricity.

8. Nuclear Power and Permanent Nuclear Waste Disposal Site

Nuclear power will be phased-out in Germany by 2022. The agreement does not contain a mention of a fund aimed at making utilities bear more of the costs of a nuclear shutdown as previously suggested by the SPD. “We expect the operators to bear the costs for nuclear waste and the dismantling of the nuclear power plants. The government will enter into talks with the utilities about the implementation of their legal obligations”, the text says instead.

A nuclear waste disposal site shall be selected involving the general public following a proposal for a suitable permanent waste disposal site by the committee set up in accordance with the Nuclear “Location Search Act” (Standortauswahlgesetz – StandAG).

9. Fracking

Given the coalition agreement, the use of the fracking technology is not likely to occur in the near future in Germany. The parties call it “a high-risk technology”, the impact of which has not been sufficiently examined. They dismiss the use of toxic substances for tracking purposes, saying applications could only be processed if there were sufficient data to establish beyond doubt that there will be no negative impact for water quality. They announce to improve the protection of drinking water and to introduce stricter regulation on prior environmental assessments (regarding previous efforts in the area, please see here).

10. Legal Character and SPD Membership Vote

While formally looking like a contract, a coalition agreement is not a legally binding instrument that can be enforced before a court. It is more a political programme or political letter of intent, using the form of a contract, to agree on certain key political issues how the new coalition government intends to deal with certain matters. Changes contemplated in a coalition agreement do no change any laws. For any such changes to become law, it remains necessary to get the respective bill through the parliamentary process, i.e. through the Bundestag and the Bundesrat.

In the present case, the draft coalition agreement is even more of a political document, as is will be put up for vote before the members of only one of the prospective coalition partners, the SPD.  The CDU/CSU party members will not vote directly on the coalition agreement. The SPD membership vote is an experiment. It remains to be seen whether the upcoming “second election campaign” to SPD members for the coalition agreement will be successful, and how it may affect the future work of the coalition as well party practice on coalition agreements.

[Corrected and expanded]

Source: CDU, SPD

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