Reform of German Renewable Energies Act (EEG 2017) - Tender Procedures for Renewable Energy Facilities

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

Offshore Wind

Solar

Biomass

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.