Wind Energy Market
Germany’s market incentives system has been a success story for renewable energy
Germany has the world’s most advanced project for transitioning its energy dependence from dangerous and dirty sources to clean renewables as quickly and efficiently as possible. The Renewable Energy Sources Act (EEG) is a series of laws since 2000 which have provided the legal basis for this ambitious project. The success of the German EEG has made it a model for the 149 countries which have made it official policy to adopt renewable energy as a key economic driver for the future.
Goals and Principles
In the interest of climate and environmental protection:
- – ensure a sustainable development of energy supply
- – reduce the economic costs of energy supply by including long-term external effects (internalisation of external costs)
- – reduce consumption of fossil energy resources
- – promote the development of technologies for the generation of electricity from renewable sources.
Two basic principles are legally anchored to achieve the objectives:
- The connection and obligation of network operators to take up electricity from renewable energy producers.
- Remuneration rates for the imported electricity in the form of floating market premiums, the respective amount of which depends on the current electricity price on the stock market.
Electricity Feed-In Act (1991)
The world’s first Feed-In Tariff (FIT) scheme to promote the use of clean energy. It successfully helped promote wind and photovoltaic power generation, as well as to a lesser extent biomass, cogeneration, hydropower, and geothermal.
The experience gained from the 1991 law, permitted law-makers to develop a sophisticated set of rules, which proved to be even more successful in promoting renewable energy usage than even the most optimistic proponents expected. A lot of the credit is due to the late Hermann Scheer and Hans-Josef Fell (both from the Bündnis 90/Die Grünen political party).
The three principles of EEG 2000 are:
- Investment protection through guaranteed feed-in tariffs and connection requirement
- No charge to German public finances. The scheme is funded by surcharges on consumers.
- Innovation by decreasing feed-in-tariffs (degression) for new installations. This mechanism assumes efficiency will increase over time.
The 2000 law guaranteed a network connection, preferential delivery, and a government-set feed-in tariff, which is absolute (not tied to the prevailing electricity price), for 20 years. The size of the tariff varied with the technology and project scale. The scheme was funded by a surcharge on all consumers except large industry consumers (electricity-intensive manufacturers and the railways later were required to contribute as little as 0.05 ¢/kWh). For 2017, the unabated EEG surcharge is 6.88 ¢/kWh.
The 100,000 roofs program (100.00-Dächer-Programm) ran till 2003, and offered low-interest loans for PV installations <300 MWp (megawatt-peak, or nominal power). In combination with the FIT scheme, this was very successful and raised PV capacity greatly. The limit on free-standing photovoltaic systems exceeding 100 kWp and the 1000 MWp cap on photovoltaic installations in total were both removed in 2004 (PV Interim Act (2003)).
The ‘Special Equalisation Scheme’ (Besondere Ausgleichsregelung) was introduced in July 2003 to reduce the pressure on power-intensive industries (> 100 GWh/a) from the rising EEG surcharge. These exempted firms pay 0.05 ¢/kWh.
This act retained the basic framework, but introduced some modifications and a differentiated tariff structure. Tariffs were increased for biomass, PV, and geothermal. Extensions to the EEG surcharge under the special equalization scheme. Railways exempt. First renewable targets: 12.5% for the share of renewable energy in gross final electricity consumption by 2010 and at least 20% by 2020.
By 2009, renewable energy capacity in Germany reached a record 16,3% (2004: 9,3%), and the EEG surcharge had risen from 0.54 ¢/kWh to 1.32 ¢/kWh. Adjustments were made to increase renewables percentages, and to extend industry privileges, although PV tariffs were reduced. A Repowering Bonus was introduced to support onshore wind, and the offshore wind tariff was raised. Early starter bonus for offshore wind farms in service before 2015. Target set of 25 GW installed capacity for wind by 2030 (in 2015 it reached 44.9 GW!).
The degression rate for PV was tightened from 5% to 8-10% (i.e. the surcharge on consumers to subsidise producers of PV power was reduced). This did not discourage investment in PV, and was supported by a new ‘self-consumption incentive’, fixing a price of 25.01 ¢/kWh for power consumed by PV installation owners consuming their own generated electricity.
A guiding principle here is the ‘corridor’. This is a flexible degression cap, designed to ensure the PV adoption remained within a certain range. However, PV growth had reached 10.6 GW newly installed capacity in 2009, and the incentive costs were becoming onerous. The PV Acts (2010) and (2011) consequently adjusted the growth-dependent degression rates in two stages to better control PV growth.
The renewable targets in the 2009 law were increased to at least 35% (previously 20%) of total electricity production by 2020, 50% by 2030, 65% by 2040, and 80% by 2050. The national Energy Concept was released in September 2010, and it was decided to phase out nuclear power in June 6, 2011, following Fukushima.
This revision, Renewable Energy Sources Act (2012), was introduced to expand the use of renewable electricity generation while containing the costs, and enhance market and grid integration by means of a market premium (the difference between the EEG tariff and the average spot market price) scheme.
Grid integration of PV could lead to grid overloading, and grid operators were now entitled to limit the feed-in of PV power where necessary. Compensation was paid to producers for any lost income. Frequency incompatibility was also regulated by an ordinance governing the retrofitting of PV systems to handle frequencies above 50.2 Hz.
Degression of onshore wind was increased slightly, but was postponed for offshore till 2018. Starter tariffs were increased but restricted to 8 years duration (down from 12 years).
The number of firms exempt from the tariffs rose from 734 in 2012 to 2057 in 2013, accounting for 97 TWh of exempted power (15% of national total).
This is the current version of the law, and specifies the transition to an auction system for most technologies by 2017. The share of renewable energies in the power supply is to be increased to 40 to 45% by 2025 and to 55 to 60% by 2035, and 80% by 2050.
The Feed-In Tariff was largely phased out by the 2014 edition of the EEG, whereby the government no longer sets the funding rates, but these are set by auction. Any shortfall is made up by the EEG surcharge. Criticisms of the plan fear that the deployment corridors are set too low to meet the 2050 target of 80% of all electricity to be produced by renewables. In 2015, the aggregate EEG surcharge totalled €21.8 billion and the EEG surcharge itself was 6.17 ¢/kWh.
Amendments to the original EEG added the concept of a market premium in 2012. And the use of deployment corridors and auctions to set the levels of uptake and remuneration, respectively, in 2014.
Paragraph 1 EEG: The power grid operator nearest to an EEG generating plant is obliged to connect and give priority to the electricity generated (§8). The payment of the fixed floating-rate market premium is, in principle, anchored as a legal obligation and may not be made dependent on the conclusion of a separate contract between the system operator and the network operator. (Coupling ban §4):
Originally referred to as EEG 2016, this act comes into force on Jan 1, 2017. The act has three guiding principles:
- to keep within agreed deployment corridors for the
development of renewable energy
- to keep to a minimum the overall cost arising from
the Renewable Energy Sources Act
- to use auctions to create a level playing field for all
of the players involved
The EEG 2016 edition makes a significant change to the structure of how renewable energy is integrated and subsidised in the general electricity supply grid. Along with holding development to within pre-established ‘corridors’, and the need to keep costs down (Germany now has the second most expensive electricity in Europe) for consumers, an auction system has been proposed. This is supposed to create a ‘level playing field’ for all players. Green groups fear this will slow or even reverse successes so far.
Kurt Bock, CEO of BASF and President of the VCI (Verband der Chemischen Industrie), stated in an interview with the Süddeutsche Zeitung (5.12.16) that since the chemistry industry was extremely energy intensive, the EEG-tariff risked making German industry uncompetitive. “The energy costs in Germany are extremely high, and have risen significantly with the EEG-tariff, which currently is just on 7 cents per kWh. … almost 90% of companies in the chemicals industry pay the tariff, uncapped, because they qualify for exemption under the rules ‘Befreiungsregeln’.
“There are some energy-intensive companies which are indeed exempt. The political world has recognised that if very energy-intensive sectors were not exempt, the competitive disadvantage would be so significant, that investment would be lost.”