EEG 2.0: Cabinet Adopts Renewables Law Amendment Bill – Agreement with Brussels on EEG Surcharge Reductions for Industry

In line with the schedule set by Energy Minister Sigmar Gabriel (SPD), the government today adopted today the bill amending the Renewable Energy Sources Act (EEG). It is officially intended to cut costs for the support renewables as of 1 August 2014 by subjecting renewable energy sources to market forces to a greater extent, while ensuring continued renewable growth. The bill does not yet contain provisions on EEG reductions for energy-intensive industries, which had been discussed with the Commission in Brussels. Agreement had been reached late last night, Minister Gabriel informed.

The EEG reform shall generally apply to all new plants starting operations on 1 August 2014 or later.  Certain grandfathering rules apply. Below, we will refer to the draft bill as “EEG 2014”. Please note that this is still just a bill, that the final version after the parliamentary process may be different, and that the below summary is preliminary and not complete.

1. Renewable Targets, Expansion “Corridors” and “Breathing Caps”

Renewable growth shall be encouraged so that renewables have a share in the energy mix of 40% to 45% by 2025 of 55% to 60% by 2035.

The bill introduces new expansion “corridors” for the support of renewable power plants under the EEG so as to reach a steadier growth and avoid sharp cost increases.

The individual corridors are as follows:

  • Onshore wind power: Annual growth of up to 2,500 MW (net amount); capacities that have been permanently decommissioned will be deducted from new capacity added (cf. new Section 3 no. 1 and the commentary provided for the bill, page 161);
  • Offshore wind power: Reduction of the national targets for offshore wind power  from 10 MW to 6.5 GW by 2020 and from 25 GW to 15 GW by 2030;
  • Solar power: Annual growth of up to 2,500 MW (gross amount); only new capacity counts, no deductions of capacity that has been decommissioned (cf. new Section 3 no. 3 and the commentary provided for the bill, page 161);
  • Biomass: Annual growth of 100 MW (gross amount); only new capacity counts, no deductions of capacity that has been decommissioned (cf. new Section 3 no. 3 and the commentary provided for the bill, page 161), however, new capacity due to expansions of existing biomass power plants shall not count towards the annual growth target (new Section 25 para. 2 no 1 EEG 2014).

To ensure compliance with the corridors, so-called “breathing caps” are introduced for onshore wind power and biomass, modeled on the existing “breathing cap” for solar power. This means that financial support for onshore wind power and biomass under the new EEG is reduced quarterly (not annually) as of 2016 and can increase or decrease if growth exceeds or falls below the targets (please see new Sections 27 and 28 EEG). The existing breathing cap for solar power is tightened with regard to the thresholds and the applicable additional support reductions or increases (cf. Section 29 EEG 2014).

2. Market Integration of Renewables: Direct Marketing and Auctioning

To render renewables support more market-oriented, a system shift shall occur.

a) Mandatory Direct Marketing

Presently, most renewable power plant operators can receive feed-in tariffs. Operators can also voluntarily decide to sell green electricity directly and claim a market or marketing premium in addition to the revenue obtained.

Under the EEG 2014 direct marketing shall be the rule, only in exceptional cases the operators of renewable plans shall receive feed-in tariffs, Sec. 19 para. 1 no. 1 EEG 2014:

  • For small renewable energy plants (Section 35 EEG 2014)
    • energy plants that were commissioned before 1 January 2016 with an installed capacity of less than 500 kW;
    • energy plants that were commissioned after 31 December 2015 and before 1 January 2017 with an installed capacity of less than 250 kW;
    • energy plants that were commissioned after 31 December 2016 with an installed capacity of less than 100 kW;
    • the applicable feed in tariffs for such small energy plants shall be reduced by 0.4 Cent/kWh for wind (on- and offshore) and solar energy, for all other renewable energy a reduction of 0.2 ct/kWh applies.
  • Other exceptional cases (Section 36 EEG 2014): For example if operators are unable to market the energy directly. In this case, however feed-in tariffs are by 20% to promote speedy direct marketing

The management premium currently part of the marketing premium has been deleted and integrated into the feed-in tariffs.

b) Auctioning

According to Sections 2 para 5 and 53 EEG 2014 financial support for renewable energy sources and mine gas  and its specific amount shall be determined through auctions by 2017 at the latest. For this purpose experience shall be gained in pilot projects with freestanding power plants, the auctions for which shall be organized by the Federal Network Agency in accordance with an ordinance regulating the matter.

3. EEG Surcharge Reduction for Rail-Operators

While the provisions on the EEG surcharge reductions for energy-intensive companies are not yet included in the EEG 2014 reform bill, the following provision for granting EEG reductions for rail operators form part of the bill (cf. Section 62 EEG 2014):

  • Rail operators can apply for an EEG surcharge reduction if they can demonstrate that the electricity consumed for railroad operations at a delivery point (excluding energy retransmitted) amounted to at least 2 GW in the previous fiscal year;
  • The EEG surcharge will then be reduced to 20% of the applicable surcharge.

4. Self-Generated and Self-Consumed Power

Under the EEG 2012 self-generated and self-consumed power is exempted from the EEG surcharge if the electricity is not transmitted via a grid or consumed in the vicinity of the electricity-generating installation (Section 37 para. 3, sent. 2 EEG). The Economics and Energy Ministry initially wanted to make not only new plants for self-use contribute 90% of the EEG surcharge, but also freeze the EEG exemption for existing plants on the 2013 EEG-surcharge level, so that plants would have had to pay for a rising surcharge (for more information, please see here). In talks with the federal states, the government made concessions.

a) EEG-surcharge exemptions under EEG 2014

Under the EEG 2014 the following power plants are exempted from the EEG surcharge if the electricity is not transmitted through a grid or consumed in the vicinity of the installation (cf. Section 58 EEG 2014):

  • Existing plants that generate electricity for use by the operator that are in operation since before 1 September 2011 (before the EEG 2012 entered into force);
  • The following three types of existing plants:
    • plants in the sense of the provision that started operations before 1 August 2014 (the envisaged date for the entry into force of the EEG 2014);
    • plants licensed by 23 January 2014 pursuant to the relevant laws named in the provision, which started operations before 1 January 2014;
    • plants that replace one of the two afore-mentioned plants, unless the installed capacity increases by more than 30%.
  • Plants that are neither directly nor indirectly connected to a grid;
  • Consumers that source their electricity 100% from renewable sources and do not claim support pursuant to the EEG for electricity that they do not need themselves
  • Small plants with an installed capacity of up to 10 kW. The EEG surcharge does not have to be paid for the first 10 MW of self-consumed power; the provision applies from the commissioning of the plants for a duration of 20 calendar years as well as for the year in which the installations was commissioned.

b) EEG Surcharge Reductions for New Plants for Self-Consumed Energy

New plants intended to provide power for self-consumed energy can still benefit from the following EEG surcharge reductions:

  • 50% reduction for renewable power plants in the sense of the EEG and highly efficient CHP plants defined in the provision;
  • 85 % reduction for all other power plants  if the consumer, who uses self-generated energy is a manufacturing company as defined in the provision (irrespective of the form of electricity generated).

5. Cost Cuts and Effects of EEG 2014

The EEG 2014 also cuts support costs, e.g. by deleting bonuses for wind power and biomass power plants. Initially the government wanted to reduce costs from an average financial support across all technologies of 17 ct/kWh under the currently applicable EEG to 12 ct/kWh for new installations by 2015 (please see key points of the EEG reform). Concessions made by the government to the federal states last week shall amount to 0.2 ct/kWh by 2020, Mr Gabriel said.

Whether the EEG reform will be enough to stabilize the EEG surcharge on the current level (6.24 ct/kWh) for the long-term is doubtful. According to Rheinische Post, the Centre for European Economic Research (ZEW) expects the EEG surcharge to rise to 8.3 ct/kWh within five years. Minister Gabriel believed that with the current reform, the EEG surcharge could at least remain stable until 2017, various media sources say.

6. Further Steps

The draft bill now has to go through the parliamentary process. This will include the following steps:

  • Bundesrat (Federal Council). First round, possibly end of April/beginning of May
  • Response Cabinet: Usually within 3 to 4 weeks
  • Bundestag (Parliament): First reading/committee phase, possibly starting in the week 19 to 23 May 2014, second and third reading possibly in the week 23 to 27 June 2014 or in last week before summer recess 30 June to 4 July 2014
  • Bundesrat: Possibly in last sitting before summer recess on 11 July 2014
  • Entry into force: Presently scheduled for 1 August 2014

Source: Federal Ministry of Economic Affairs and Energy

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