Federal Cabinet Clears EEG 2016 Bill – Starting the Parliamentary Race to Meet EU State Aid Law Deadlines

The German Federal Cabinet on Wednesday cleared the EEG 2016 bill. Federal Minister Gabriel speaks of a paradigm shift for the renewable’s support. It looks like the government may have a very ambitious timetable in mind to get the bill through the legislative process. 

1. Background

The expansion of renewable energies shall remain a supporting pillar (tragende Säule) of the German energy turnaround. The current share of renewable energies (last year around 33%) shall continue to increase to 40-45% in 2025, 55-60% in 2035 and 80% in 2050. In the long term, renewable energies shall take over the key role in electricity generation. To achieve this, renewable energies have been gradually introduced to the direct marketing and thereby to the market  by the prior EEG amendments. The EEG 2014 provided the next step to shift the EEG promotion scheme towards tenders. However, the European Commission in its state aid clearance for the EEG 2014 requested a revised legal framework before 2017 so that tenders determining financial support under the EEG shall be the general rule for all renewables. The new EEG 2016 will use auctioning as the standard system to establish support levels for renewable energy.

2. Key Points of the Draft

The draft pursues three guiding principles:

  • The expansion corridor for renewable energy shall be met.
  • Further renewable energy expansion shall be cost-effective.
  • All actors shall have fair chances during the tenders, with plurality of actors.

a) Competitive Tenders Controlling Expansion and Limiting Costs

The amount of EEG-remuneration shall no longer be set by the state but determined (mainly) by the market. Tenders will be distinctive for each technology.

aa) Onshore Wind Energy

For onshore wind energy, 2,800 MW gross per year shall be put out to tender in the following three years 2017, 2018 and 2019 (Sec. 28 para. 1 no. 1, 2 EEG 2016). The amount shall increase up to 2,900 MW gross per year (Sec. 28 para. 1 no. 3 EEG 2016) afterwards. Plants which have been approved until the end of 2016 and start operation in 2017 or 2018 may still receive the current statutory remuneration (interim regulation of the EEG 2014).

To avoid anticipatory effects (Vorzieheffekte), a 5% one-off degression shall take place on 1 June 2017. Should the 2,500 MW aim still be exceeded, further degression steps shall take effect.

To ensure cost-efficiency, an one-level reference yield model (Referenzetragungsmodell) shall be implemented:

  • A competitively determined and coherent remuneration rate shall be granted over 20 years. This shall simplify the system and reduce costs.
  • Comparable competitive conditions shall be created throughout Germany
  • New plants shall be built nationwide
  • Incentives to build efficient plants on wind-intensive sites shall be ensured

bb) Photovoltaics

600 MW of photovoltaics capacity shall be put out to tender annually. Plants with an installed capacity up to and including 750 kW do not have to participate in the tender. The following plants with a capacity higher than 750 MW may participate in the tender:

  • freestandig power plants
  • plants on buildings
  • plants on other facilites (e.g. landfill)

To achieve more competition and therefore more cost-efficiency, a Länder flexibility clause (Länderöffnungsklausel) shall be implemented. The Länder shall be authorised to permit the use of farmland and green areas.

cc) Offshore Wind Energy

The plan of having 15,000 MW installed capacity in 2030 – as set out in the Sec. 3 no. 2 EEG 2014 – shall continue to apply (Sec. 28 para. 4 EEG in conjunction with Sec. 17 WindSeeG). To achieve continuous expansion, the tender amount shall be 730 MW annually between 2021 and 2030.

To ensure cost-efficiency, the central (“Danish”) target model shall be implemented:

  • The state preexamines areas on which wind parks shall be put out to tender. This enables an ideal interlinking with grid connections.
  • Any other alternative would require building grid connections without a clear need at the given time, which would lead to huge cost increases.
  • Before and up to the introduction of the new model in 2025, tenders shall be performed amongst already planned plants. This shall ensure continuity also after 2020.

dd) Biomass

Expansion of biomass shall be capped at 150 MW over the next three years, 2017, 2018, 2019. Afterwards the cap shall amount to 200 MW (Sec. 28 para. 3 EEG 2016). The federal government shall provide a proposal for the annual tender amounts as of 2023 in due time. Existing plants may participate to the tender to receive a 10 year follow-up funding.

For cost-efficiency purposes, new and existing plants shall be subject to flexibility requirements (Flexibilitätsanforderungen) to generate electricity as needed (bedarfsgerecht). This shall reduce system costs. The plants shall only receive support for the half of their annual hours (Jahresstunden). This shall set an incentive to generate electricity in times where the wholesale price is high due to low availability of sun and wind and high demand.

b) Plurality of Actors

Plurality of actors shall remain also under the EEG 2016. Smaller plants up to 750 KW are excluded from the tender. Somewhat easier conditions shall apply to citizen energy companies (Bürgerenergiegesellschaften) for onshore wind to ensure that the also have a fair chance of winning a tender.

c) Better Interlinking of Renewable Energies and Network Expansion

So far, grid operators have to build whatever is necessary because of renewables expansion. In light of renewables exceeding growth targets and grid expansion being politically and legally difficult, grid bottlenecks have developed in certain areas, requiring expensive redispatch measures.

To limit redispatch cost growth going forward, two measures shall be introduced:

  1. Introduction of a new instrument to use power for heat, as additional load
  2. Limit onshore wind expansion in regions with grid bottlenecks. The Federal Network Agency shall define the area in which grid bottlenecks exist (in northern states) as Grid Expansion Area (Netzausbaugebiet, Sec. 36c EEG 2016). Additional wind capacity in this areas shall be restricted to 58% of average additions in 2013 – 2015 (Sec. 36c para. 4 EEG 2016). Compensation payments for feed-in management shall remain unchanged.

2. Next Steps

It looks like the government is planning to get the EEG 2016 bill through the parliamentary process as quickly as possible.

Based on press reports, the current draft may be revised again before the first reading of the bill, reportedly scheduled for 23 June. An expert hearing of the Committee for Economic Affairs and Energy to discuss the bill shall reportedly take place on the same day.  On the energy ministry’s energy projects agenda the EEG 2016 is still supposed to be finished by July 2016.  Looking at the Bundestag’s session schedule, parliament will be in session between 20 and 24 June and between 4 and 8 July before the summer recess starts. It is not yet clear when the second and third parliamentary reading of the bill shall take place. Both are required before adoption of the bill.

The last regular meeting of the Federal Council (Bundesrat) before the summer recess is scheduled for 8 July, the first one after the break on 23 September 2016. As also the EEG 2016 is designed as a so-called objection law, it does not require the Bundesrat’s consent. However, the Bundesrat still has to decide about it, and an objection from the Bundesrat could still slow down the legislative process. Therefore, the federal government was keen so ensure support from state premiers for the bill before releasing it into the parliamentary process.

Source: BMWi, EEG 2016 Draft

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