Reform of the German Renewable Energies Act (EEG 2017)
Aims of the reform
On 8 July 2016, the German legislator passed the next reform of the German Renewable Energies Act (EEG 2017). The reform introduces public tender procedures (auctions) for the tariffs for onshore wind, offshore wind, solar and biomass facilities. Tender procedures will already start from 2017 for most projects.
The EEG 2017 aims to increase competition and to avoid over-expansion of renewable energy sources. To these aims, project developers will no longer receive statutory feed-in tariffs, but will have to bid for tariffs in public tender procedures run by the German energy regulator (Bundesnetzagentur). In addition, maximum expansion targets are introduced as well as price ceilings for each energy source which will decrease over time. In order to ensure that bids are only handed in for realistic projects, developers have to provide financial security to the regulator before each bid.
Under the new system, successful bidders will receive a remuneration at the amount of their bid ("pay-as-bid"). As before, this remuneration will be fixed for a 20-year period.
Specific Rules for Renewable Energy Sources
To take account of the varying costs and the different technologies and legal requirements, specific rules apply to the tender procedures for each renewable energy source:
Onshore Wind
Start of tenders: |
First tender date 1 May 2017; 3-4 tenders/year |
Tender volume: |
2,800 MW/year (gross) until 2019; 2,900 MW/year (gross) from 2020 |
Price ceiling: |
7 ct/kWh; adaptation beginning in 2018 depending on previous tenders |
Reference value: | Bids calculated on basis of "100% sites"; applicable tariff calculated for actual sites based on "correction factors" and reviewed in 5-year intervals |
Permit: | Permit must be in place three weeks before the bid is submitted |
Existing wind farms: | Wind farms permitted in 2016 and commissioned by the end of 2018 may opt for funding under EEG 2014 (increased degression of tariffs) |
Further specifics: |
Limited tender volume in "grid-expansion areas" Several advantages for local "civil energy companies" |
Offshore Wind
Start of tenders: |
Projects commissioned by the end of 2020 not included in tender procedures |
Tender volume: |
Total volume of 15,000 MW until 2030
Volume for period 2021-2025: 3,100 MW (500 MW Baltic Sea reserved) |
Price ceiling: | Price ceiling for tenders in 2017/2018 at 12 ct/kWh; price ceiling for later tenders determined on basis of lowest bid in 2018 tender; for projects commissioned by the end of 2020 existing tariffs under EEG 2014 apply |
"Central model": | Areas for wind farms pre-developed by state; tenders conducted on pre-developed sites only; developers must obtain permit and will receive grid connection |
Solar
Start of tenders: 1 February 2017; 3 tenders/year
Start of tenders: |
1 February 2017; 3 tenders/year |
Tender volume: |
600 MW/year |
Price ceiling: |
8.91 ct/kWh; monthly adaptations beginning on 1 February 2017 |
Technology: |
Open space units up to 10 MW, units on buildings, units on other existing infrastructure; no tenders for small units up to 750 kW |
Biomass
Start of tenders: |
1 September 2017; 1 tender/year |
Tender volume: |
150 MW in 2017-2019; 200 MW in 2020-2022 (no tenders for small units up to 150 kW) |
Price ceiling: |
14.88 ct/kWh; degression of 1%/year from 2018 onwards |
Permit: |
Permit must be in place three weeks before the bid is submitted |
Existing facilities: |
Participation in tenders possible for existing facilities (subsequent funding for 10 years); facilities with permit and commissioning by the end of 2018 may opt for funding under EEG 2014 |
Market Outlook
Whilst it is yet difficult to precisely predict all market implications of the EEG reform, which will vary between the different renewable energy sources, some aspects crystallise already today:
- the general aim of the reform to replace the existing statutory tariffs with auctioned tariffs will put the renewable energy facilities into competition and will lead to a tariff reduction;
- increased development and tariff risks will need to be considered in the price calculations and will play a role in the financing;
- with regard to the tender volumes for onshore wind, the expansion targets have been effectively reduced due to the current 2.800 MW/year expansion target now including repowering of existing facilities; nevertheless, the industry expects this amount to be roughly sufficient;
- with regard to offshore wind, the total expansion target of 15.000 MW until 2030 has been maintained. However, for the time after 2020, tender volumes have been reduced in 2021-2025 to respond to a certain over-expansion until 2022, and in 2021 tenders at an amount of 500 MW are reserved for projects in the Baltic Sea only. In addition, certain insecurities exists with regard to developers losing permits under the "central model" and entry rights of those developers into later bids;
- the expansion target for solar has not been changed, the expansion target for biomass has been increased.
As a positive aspect for investors, the tariffs received in the tender procedures on the basis of a successful will bid continue to apply for 20 years with a very stable legal framework compared to other European countries where tariffs have been partly reduced in the past retroactively. In addition, the expansion targets of the EEG 2017 are still high compared to other European countries and a further expansion is secured, with the German government aiming for 55-60% share in electricity production by 2035. Against this background, even though tariffs will be lower in the future, investments into renewables will continue to be attractive in the current low interest-rate environment providing investors with secure, long-term cash flows.
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