First Ministerial Draft for Ordinance Regulating Competitive Bidding in 2015/2016 for Financial Support for German PV Power Plants

Based on its key points presented in July 2014 the Federal Ministry for Economic Affairs and Energy (BMWi) has drafted a proposal for an ordinance that regulates auctions in which financial support for freestanding PV power plants under the Renewable Energy Sources Act (EEG) shall be determined as of 2015.

1. European State Aid Law Background

The European Commission has been quite critical of European state aid law compliance of the previous German EEG 2012. In its Guidelines on State Aid for Environmental Protection and Energy 2014-2020 (EEAG), the European Commission reiterated its opinion that market instruments, such as auctioning or competitive bidding process open to all generators producing electricity from renewable energy sources competing on equal footing at EEA level, should normally ensure that subsidies are reduced to a minimum in view of their complete phasing out (point 109 EEAG). The EEAG also contains further details on the competitive bidding process for the transitional phase 2015/2016

“(126) In a transitional phase covering the years 2015 and 2016, aid for at least 5 % of the planned new electricity capacity from renewable energy sources should be granted in a competitive bidding process on the basis of clear, transparent and non-discriminatory criteria.
From 1 January 2017, the following requirements apply:
Aid is granted in a competitive bidding process on the basis of clear, transparent and non-discriminatory criteria, unless:
(a) Member States demonstrate that only one or a very limited number of projects or sites could be eligible; or
(b)Member States demonstrate that a competitive bidding process would lead to higher support levels (for example to avoid strategic bidding); or
(c) Member States demonstrate that a competitive bidding process would result in low project realisation rates (avoid underbidding).
If such competitive bidding processes are open to all generators producing electricity from renewable energy sources on a non-discriminatory basis, the Commission will presume that the aid is proportionate and does not distort competition to an extent contrary to the internal market.
The bidding process can be limited to specific technologies where a process open to all generators would lead to a suboptimal result which cannot be addressed in the process design in view of, in particular:
(a) the longer-term potential of a given new and innovative technology; or
(b) the need to achieve diversification; or
(c) network constraints and grid stability; or
(d) system (integration) costs; or
(e) the need to avoid distortions on the raw material markets from biomass support.”

In its state aid approval decision of 23 July 2014 on the revised EEG 2014, the Commission pointed out that the German support regime, among other things, needed to comply with the following conditions:

“(239) In addition, during a transitional phase covering the years 2015 and 2016, aid for at least 5% of the planned new electricity capacity from renewable energy sources needs to be granted in a competitive bidding process on the basis of clear, transparent and non-discriminatory criteria (point 127 of the EEAG).

(240) From 1 January 2017, aid must be granted in a (technology neutral) competitive bidding process on the basis of clear, transparent and non-discriminatory criteria (127 of the EEAG). The bidding process should in principle be opened to all technologies. It can be limited to certain technologies in certain circumstances (paragraph 127, 5th alinea, EEAG).

(241) The requirement to conduct a competitive bidding process is not mandatory for installations with less than 1 MW of capacity (all technologies except wind energy) of not more than 6 MW of 6 generation units for wind energy, or demonstration projects. For those installations, in addition to the requirements set out in point 124 of the EEAG (direct selling into the market, balancing responsibilities, no incentive to produce in case of negative prices), they will have to meet the requirements of point 131 of the EEAG (aid does not exceed LCOE, investment aid is deducted, no aid beyond the depreciation of the investment and review of production costs every year).”

However, the EEG 2014 so far only provides for competitive bidding for PV on the ground. For the time from 2017 onwards, the EEG 2014 contains only a general intention of granting the aid through competitive bidding processes, with a need to regulate this in a revision to the EEG. Therefore, the Commission informed Germany during the approval process that the post 2016 regime would have to be reviewed again once Germany notifies the new post 2016 law.

For the auctioning regime of the EEG 2014 the Commission concluded:

“(243) Germany projects to support additional capacity of RES electricity of around 6 GW (2.5 GW for onshore wind, 2.5 GW for solar, 0.1 GW for biomass/biogas and 1 GWh for off-shore wind, see also recital X(7)X of this decision). It also intends to tender out as of 2015 the support for solar installations on the ground. Germany intends to tender out 400 MW of capacity, which corresponds to 6.6% of 6 GW. Germany therefore complies with the condition set out in point 126 EEAG.”

The proposed Ordinance for Competitive Bidding for Financial Support of Freestanding Installations (Verordnung zur Ausschreibung der finanziellen Förderung für Freiflächenanlagen – Freiflächenausschreibungsverordnung – FFAV) shall provide further details on how Germany intends to implement its competitive bidding system for bigger PV system in the 2015/2016 transition period to comply with the Commission’s EEAG state aid law regime. Please note that the draft FFAV described below is still in the ministerial discussion phase, and in particular has not yet been decided on by the government. The FFAV that the Cabinet will ultimately agree on later in the year may therefore deviate from the draft as described below.

2. General Information

The auctions shall be held by the Federal Network Agency (BNetzA). They are pilot projects for a general shift to auctioning financial support for all renewable energy sources as of 2017 (cf. Section 2 para. 5 EEG 2014).

The draft ordinance is divided into five chapters:

  • Chapter 1: General provisions on the scope of the ordinance and definitions
  • Chapter 2: The main chapter on the auctioning procedure
  • Chapter 3: Requirements for support of PV power plants following an auction
  • Chapter 4: Competences and duties of BNetzA
  • Chapter 5: Data protection and legal remedies against decisions by BNetzA

3. Auctioning Procedure

  • Auctions are held by BNetzA on 1 April, 1 August and 1 December of each calendar year
  • In each auction financial support for power generated in freestanding PV power plants with a total capacity of 200 MW will auctioned. This makes 600 MW per year, which is more than agreed between the partners of the ruling coalition (the coalition agreement contained a 400 MW target). The higher 600 MW limit was chosen as experience with auctions in other countries showed that a certain amount of projects would not be implemented, BMWi said.
  • Natural persons, legal partnerships (rechtsfähige Personengesellschaften) and legal persons alike are eligible to bid. Bidders have to submit various documents including the decision to enact or alter a zoning plan that allows freestanding PV power plants. They also have to provide securities.
  • Bids must amount to at least 100 kW and be no higher than 10 MW
  • Each tender has to contain a maximum value that bids must not exceed. The maximum value equals the applicable value for solar support for PV power plants attached to buildings pursuant to Sections 51 para. 2 no. 3 and 31 paras. 1 to 5 EEG 2014. According to the official justification, one did not choose the lower applicable value for freestanding solar power plants contained in Section 51 para. 1 EEG to allow for risk premiums and in consideration of the fact that the applicable value for freestanding power plants was too low as the strong market decline in this segment showed.
  • Bids are awarded as pay-as-you bid prices until 1 December 2015. As of that date a uniform pricing will apply so that all bidders receive the same financial support that corresponds to the highest offer that was awarded the right to support. Using both methods shall help gain more experience.

4. Requirements for Support of PV Power Plants Following an Auction and Penalties

Chapter 3 stipulates in particular the conditions under which certificates for support (Förderberechtigungen) are issued. Successful bidders who do not apply for a certificate of support (which they can only successfully do if the plant has been commissioned) within a period of 24 months have to pay a penalty. The amount depends on the state of planning the PV power plant was in when the bid was made. It can amount to up to EUR 50/kW.

5. Legal Remedies

Pursuant to the draft ordinance, unsuccessful bidders do not have the right to an appeal of decisions by BNetzA with the agency itself (Ausschluss des Widerspruchsverfahrens). The decision awarding the right to support according to the ordinance (Zuschlag) and the issuance of a certificate of support by BNetzA cannot be challenged by third parties. Third parties can only take legal action against BNetzA asking the court to order BNetzA to award support to them as well (so-called Verpflichtungsklage).

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