On November 25, 2015, the German Federal Ministry for Economic Affairs and Energy presented a paper outlining the key points for the reform of the Renewable Energy Sources Act (Erneuerbare-Energien-Gesetz, “EEG”), which is scheduled for 2016. The government plans to introduce competitive tender mechanisms for most renewable energy technologies starting 2017.
Background
Under the EEG 2014, the current system of financial support to installations generating electricity from renewable energy sources (“RES installations“) by way of statutory feed-in tariffs and market premiums must be replaced by competitive bidding processes starting 2017. After evaluating the results of the first two pilot tender procedures for large freestanding photovoltaic (PV) installations, which were carried out this year, the Federal Ministry for Economic Affairs and Energy has now published a paper outlining the key points for the upcoming reform. The reform proposals are guided by three central principles: The future expansion of renewable power must remain within the statutory development corridors. The EEG costs should be kept as low as possible. At the same time, the tenders should be designed so as to create fair opportunities for all market actors (and all regions).
Which technologies are affected?
The paper proposes a switch to competitive tender procedures for
- onshore wind turbines,
- offshore wind turbines, and
- large photovoltaic systems,
excluding only installations with an installed capacity of no more than 1 megawatt (MW). It is estimated that these three technologies will account for approximately 80 percent of the newly installed capacity per year from 2017 onwards. Transitional provisions will apply to both onshore and offshore wind turbines. Onshore wind turbines will remain eligible for funding under the existing system if an operating permit is issued prior to January 1, 2017 and the installation is commissioned by December 31, 2018 at the latest. For offshore wind turbines, the existing funding system applies if the operator receives an unconditional allocation of grid connection capacity before January 1, 2017 and the turbine is commissioned by December 31, 2020. The current funding system will also continue to apply to all other renewable energy technologies (e.g. biomass, hydropower and geothermal energy). However, in light of the high operating costs of biomass installations, the paper proposes to develop tender mechanisms allowing the (continued) funding of both new and existing biomass installations for which funding under the current system has run out. This will be set out in a separate ordinance. How will the tenders be integrated into the EEG funding system? Under the current EEG funding system, all operators of RES installations with an installed capacity of at least 500 kilowatts (kW) (from 2016: 100 kW) must directly market the electricity generated by the installation. However, they are entitled to supplementary market premiums. The market premiums cover the difference between the average monthly reference market value for the respective RES technology and the respective statutory reference amount guaranteed by the EEG. The Ministry proposes to leave the existing EEG rules largely in place. However, for all technologies and installations covered by the tender requirements, only RES installations that have been successful in a tender procedure will be eligible for funding. For these installations, the statutory reference amount will be replaced by the reference amounts determined in the respective tender procedure.
Basic tender design
The tender design for all three technologies (onshore/offshore wind, PV) will share the following common basic principles: (1) Bid dates. The Federal Network Agency will hold three to four tenders per year for pre-defined capacity volumes of each technology. (2) Bidding principles. Bidders will submit one sealed bid and will be required to provide a security payment. In general, the bids will be project-related, meaning that the award cannot be transferred to another project. Limited exceptions are planned for PV, subject, however, to financial penalties. (3) Pay-as-bid and uniform pricing. Valid bids will be awarded from lowest to highest bid until the tender volume is reached. Funding is granted based on the respective bid (pay-as-bid). (4) Maximum bid value. In all tenders a maximum bid value will apply, which bidders may not exceed. The value will be based on current funding levels. (5) Deadlines for project realization. The projects must be implemented within certain deadlines. Penalties for non-implementation will apply.
Special rules for onshore wind
The tender process is open only to installations which have already been issued an operating permit pursuant to the Federal Pollution Control Act. There will be three tenders in 2017, four in 2018 and three from 2019 onwards. The tender volumes will be determined and later adjusted yearly so as to ensure that the overall development corridors for renewables are met, taking into account the tender volumes of the other technologies and other installed capacities that are not covered by the tender mechanisms. The government estimates that the initial tender volume for 2017 will be 2,900 MW. In any case, a minimum volume of 2,000 MW capacity will be tendered per year. The maximum bid value will initially be fixed at 8.9 cent/kWh and reduced yearly by 1 percent. However, the Federal Network Agency may adjust this maximum bid value by up to 5 percent as needed. The required security payments will be set at 30 Euro per kW. Projects shall be realized within 2 years after the award; the award is forfeited after expiry of 30 months, unless the deadline is extended. An extension is only available if the project has been contested by lawsuit. The Ministry furthermore proposes to create fair competition for all regions in Germany by developing an improved one-step reference yield model. In principle, the reference yield model adjusts the funding depending on whether the specific yield of an installation exceeds or falls below the statutory reference yield. It remains to be seen how the model will be integrated into the tender mechanisms and whether it is indeed sufficient to achieve a level playing field.
Special rules for offshore wind
Tenders will be introduced for all turbines commissioned after 2020, with the exception of prototypes. The tender rules will be set out in a new, separate law on offshore wind power, which will also provide a coherent framework for offshore development planning. The long term goal is to provide tenders for projects which have already undergone a preliminary examination by the government, comparable to the Danish model (“centralized model”). The bidders would thus bid on projects for which at least preliminary feasibility studies have already been carried out. This system would link the government’s marine spatial planning and offshore grid expansion planning more closely to the development of specific wind farm projects, thereby raising cost efficiency. However, due to the long time needed for the planning and development of offshore projects, this centralized system will not be introduced before 2024. During a transitional period from 2021 to as currently proposed 2023, the tenders will be open to wind farms for which all required permits have already been issued. The tender volumes will be determined in line with the statutory development goals (yearly 800 MW new capacity and 15 gigawatts total installed capacity in 2030).
Special rules for PV
The tender design will largely follow the principles developed in the pilot tenders There will be three tenders per year, with a total volume of 500 MW per year. The security payments will be slightly higher than in the pilot tenders (currently: 4 Euro per kW to participate in the tender and 50 Euro per kW following the award).
Outlook
The government is currently drafting the legislative proposal and plans to publish the draft bill for consultation with the Federal States and industry associations in January 2016. It plans to pass the legislative bill by summer 2016.
