Recommendations for 2012 Amendment of Renewable Energies Act

The Federal Ministry of the Environment (BMU) yesterday published a summary of the recommendations for further action contained in the Renewable Energy Sources Act (EEG) progress report.  The German Bundestag (Parliament) still has to receive the report formally from the federal government.

The EEG requires the government to submit an EEG progress report to the German Bundestag by 31 December 2011, and subsequently every four years thereafter.

The BMU press release stresses that the German government wants to hold on to its ambitious targets for the expansion of renewable energies set out in its Energy Concept of last autumn. In view of the nuclear accident in Japan and the subsequent 3-month moratorium on nuclear power extension, efforts to meet the targets would have to be dynamically adapted.

According to the ministry this shall in particular mean that

  • the expansion of renewables has to be promoted dynamically while
  • increasing cost-efficiency as well as
  • market, network and system integration of renewables, and
  • holding on to proven basic principles of the EEG, such as priority transmission and fixed feed-in tariffs

The recommendations contained in the report can be summarised as follows:

1. Aim of the EEG

The expansion targets for renewables of 35% by 2020, 50% by 2030, 65% by 2040 and 80% by 2050, agreed upon in last year’s Energy Concept, shall be incorported into the EEG to give market participants a clear guideline and long-term perspective, creating the necessary planning and investment certainty.

2. Market, Network and System Integration

With the growing share of renewable energies, optimising the interplay of renewable and conventional energy becomes increasingly important. System and network integration require the expansion of the grid infrastructure with respect to the capacity, but also regarding a smart grid and additional storage capacities. The necessary legal provisions predominantly have to be enacted in other laws, in particular the German Energy Act (EnWG). However, the following amendments to the EEG are deemed necessary:

a) Optional Market Premium

An “optional market premium” shall set an incentive for operators of all renewable energy sources plants to operate their installations in a market-oriented way. The market premium, which operators shall be able to opt for instead of receiving the fixed feed-in tariff, shall be calculated as the difference between the EEG feed-in tariff and the monthly ex-post average price at the energy exchange. Certain adjustments shall be made with regard to wind and PV power using a technology specific value factor (technologiespezifischer Wertigkeitsfaktor). A management premium shall cover costs associated with forecast errors.

b) Capacity Premium

A “capacity premium” shall promote investments in the market-oriented generation of biomass power plants. Investments in more storage and bigger generators shall allow postponing generation for about 12 hours.

c) Storage Offensive

Storage technology shall be strongly promoted (exemption of grid fees, research programme) and a “Storage Roadmap” with a strategies regarding the need, technology developments, funding programmes etc. created.

d)  Green Power Privilege

The green power privilege shall be maintained in its recently amended form. Additionally, a minium share of 25% of intermittent renewable energy sources shall be introduced.

e) Negative Reserve Energy

The conditions under which “negative reserve energy” can be provided by temporarily shutting down power plants shall be clarified.

f) Integration of PV Installations

The integration of PV installations shall be improved by

  • Retrofitting existing PV plants so that plants can operate in case frequency increases to 50.2 Hertz
  • PV installations shall be included in the feed-in management pursuant to Section 11 EEG. Hence, network operators shall be entitled to temporarily stop operators from feeding into the grid in cases of grid congestion. A compensation shall be paid.
  • Alternatively the electrical input of smaller PV installations can be capped at 70% of the feed-in capacity.

3) Feed-in Tariffs

The press release stresses that feed-in tariffs have to cover the operational costs and provide a reasonable rate of return. On the other hand excessive feed-in tariffs as perceived in the past (BMU explicitly mentions solar and biomass tariffs) shall be avoided.

The following changes are suggested:

a) Onshore Wind Power

Onshore wind power contributes most of the renewable energy and will do so for some time to come, the authors of the Progress Report are convinced. In view of the comparatively low investment costs and the existing cost savings potential, they propose to

  • Leave feed-in tariffs basically unchanged
  • Increase the annual degression rate from 1% to 2%
  • The system services bonus for grid integration shall be abolished for new wind power plants, but extended until 31 December 2015 for existing plants
  • The repowering bonus for replacing older turbines with new and more efficient ones shall be limited to plants with problems with grid integration that started operating before 2001

b) Offshore Wind Power

Offshore wind power shall became the second most important contributor of renewable energy. Due to the high risks and subsequent financing problems, construction is behind forecasts. Therefore a number of proposals are made to render offshore wind parks financially more attractive.

  • The 2 ct/kWh bonus for the first offshore wind farms (so-called Sprinterprämie) shall be included in the regular feed-in tariff, resulting in  a rise to15 ct/kWh;
  • The start of the degression of the feed-in tariff shall be moved from 2015 to 2018 in view of the delay of offshore expansion. Conversely, the degression shall rise from 5 to 7 %;
  • Operators shall be able to chose a so-called “initial compression model” (optionales Stauchungsmodell, whereby they can chose to receive initial feed-in tariffs of 19 ct/kWh, but only for 8 instead of 12 years. Thereafter the regular initial tariff of 15 ct/kWh applies for a duration that depend on water depth and the distance to the coast. Subsequently the (unchanged) basic tariff of 3,5 ct/kWh shall apply;
  • EUR 5 billion funding scheme by stated-own KfW bank to ensure financing for the first 10 wind parks;
  • The deadline for the obligation of transmission system operators to connect offshore wind farms to the grid contained in the EnWG shall be abolished;
  • Drafting of a Masterplan Offshore Grid Connection by the Federal Agency for Maritime Shipping and Hydrography (Bundesamt für Schifffahrt und Hydrographie – BSH).

c) Biomass

Biomass also provides a sizeable share of the renewable energy consumed in Germany. The proposals aims at simplifing feed-in tariffs, reducing excessive tariffs and avoiding ecologically inappropriate incentives by

  • Creating a simplified feed-in system with 4 power plant categories. Depending on the installed capacity, basic feed-in tariffs between 6 and 14,3 ct/ kWh shall be paid. In the future only 2 raw material categories shall exist. Plants falling under category I shall receive a remuneration of 6 ct/kWh, whereas plants falling in category II shall receive 8 ct/kWh;
  • A special tariff shall apply for fermentation plants using biological waste. This shall set an incentive to use more waste;
  • Staggered additional remuneration for bio methan input;
  • For existing plants the liquid manure bonus shall be halved under certain conditions;
  • On average payments shall decrease by 10 to 15%, in particular for small plants (Example: Remuneration of 150 kW plant would decrease from roughly 26 ct/kWh to 20 to 22 ct/kWh;
  • Increase of degression of 1 to 2% with respect to payments which are not related to raw materials;
  • Limitation with regard to use of corn and grain to 60% (in terms of energetic input);
  • Feed-in tariffs shall not be paid any more with regard to the use of waste wood;
  • In order to facilitate the use of ecologically beneficial raw materials, a proportional remuneration considering both raw material categories shall be introduced;
  • Introduction of minimum requirements, e.g. 60% heat use;
  • New plants shall no longer receive payments for the use of liquid biomass;
  • Introduction of “capacity premium” (please see above);
  • The possibility to issue ordinances regarding additional requirements with respect to sustainability, in particular for solid and gaseous biomass shall be introduced.

d) Photovoltaics

While photovoltaics shall play an important role in the energy mix of the future, they will not be able to contribute as much as wind power. This shall be reflected in the feed-in tariffs. Excessive tariffs have been reduced with this year’s and last year’s tariff reduction. Therefore only slight corrections are considered necessary with regard to the feed-in tariffs bythe authors of the Progress Report. They advocate for:

  • Maintaining the existing degression scheme (“breathing cap”), saying it should be adapted on a semi-annual basis as in 2011;
  • Reducing the different remuneration categories from 4 to 3 (up to 30, 30 to 500 and over 500 kW;
  • Extending the provision on self-consumed solar energy (Section 33 para 2 EEG);
  • Enhanced grid integration measures for PV systems (please see above);
  • Freestanding PV installations on conversion areas that are part of nature reserves of the highest categories (e.g. national parks) shall receive no payments under the EEG.

e) Geothermal Energy

Due to the high financial risks involved, geothermal energy only plays a minor role in Germany. To reduce the risks for investors and explore the possibilities of geothermal energy, the Progress Report suggests to

  • Include the combinded heat and power and the sprinter bonus in the basic tariff, resulting in an increase from 16 to 23 ct/kWh plus and additional increase of 2 ct/kWh to 25 ct/kWh, as there are only very few geothermal plants to date;
  • Increase the technology bonus for petro-thermale projects from 4 tp 5 ct/kWh;
  • Move start of degression to 2018, while conversely raising degression rate from 1 % to 5 %;
  • Additional drilling grant of up to 30%;

f) Hdyro Power

The authors see only very little expansion potential for hydro power in Germany, therefore their recommendations focus on simplifying the EEG remuneration scheme as follows:

  • Simplifying remuneration scheme; so far 3 categories exist;
  • Abolishing degression rate, as no cost savings potential exists;
  • Standardising the feed-in tariff time to 20 years for all plants;
  • Inclusion of existing storages respectively storage power plants that have exclusively a natural tributary.

g) Gas from Landfill, Purification Plants and Mine Gas

As the expansion potential is also deemed exhausted, the Progress Report recommends to abolished the technology bonus for innovative plant technology for reasons of simplifying the EEG.

4) Special Equalisation Scheme and Industrial Self Use

The special equalisation scheme (Section 40 EEG) shall avoid that energy-intensive enterprises that are subject to international competition are negatively affected in their competitiveness. In principle this provision has shown the desired effects. However, the increase in the EEG remuneration charge has lead to certain negative effects, which shall be remedied by the following measures:

  • The lower level shall be decreased from 10 to 5 GWh;
  • A “sliding start” shall apply: The deductible, i.e. the share of renewable energy for which the full EEG remuneration charge has to be paid, decreases from 100 % at 5 GWh to 10 % to 10 GWh;
  • Circumvention of paying the EEG remuneration charge (e.g. by concluding contracting agreements) shall be stopped;
  • Requirements for energy management systems that are a prerequisite in order to benefit from the equalisation scheme shall be increased;
  • The industrial self use exemption for EEG charges shall not apply if the electricity is transmitted via the public networks.

5) Miscelleanous

In the future BMU shall be the supervisory authority of the Federal Network Agency, the German grid regulator. The EEG Clearing Agency shall continue its work. The binding effects of its decisions shall be strengthened. Financial funding of the agency shall be ensured.

Sources: Federal Ministry for the Environment, Nature Protection and Nuclear Safety, EEG Clearing Agency