Overview Renewable Energy Sources Act

The Renewable Energy Sources Act (Erneuerbare Energien Gesetz – EEG) promotes the generation of electricity using renewable energy sources. In its latest iteration, the EEG has become very sophisticated and challenging to understand. If you are looking for a rather comprehensive overview in English, our recent article “The 2014 German Renewable Act revision – from feed-in tariffs to direct marketing to competitive bidding” in the Journal of Energy & Natural Resources Law ” may be right for you. Otherwise, you may also find the more limited overview below helpful.

Some of the EEG’s key elements are

  • Differentiated, above market, long-term and regularly adjusted remuneration/feed-in tariffs (Einspeisevergütung) depending on renewable source and capacity, payment obligation for grid operators for power fed into their grid,
  • Priority feed-in and grid connection rights,
  • Reallocation of system costs managed by the transmission system operators using a sophisticated so-called EEG surcharge (EEG-Umlage) for electricity consumers,
  • Supplemented by a special equalisation scheme for certain consumer groups.

The system has been supplemented with targets, growth corridors, breathing caps, a wider market premium support system and special rules for auto-generators.

The latest EEG version (EEG 2014) applies as of 1 August 2014. However, the EEG is frequently amended, and the summary below may not fully reflect the very latest revision status. Please check our blog for further updates and revisions of the EEG 2014. In light of the European Commission’s limited acceptance of the support system of the EEG 2014, a major reform of the EEG will be necessary again before 2017. Therefore, a bill for a new EEG 2016 is currently in the parliamentary process (cf. the blog post here).

1. History

Precursor of the Renewable Energy Sources Act was the Grid Feed-In Law (Stromeinspeisungsgesetz – StromEinspG). It only had 5 sections and did not even cover 2 pages in the Federal Law Gazette. It entered into force 1 January 1991, and was used as a model for many later feed-in tariff laws around the world. Its merits were not undisputed, and most notably lead to the famous PreussenElektra decision of the European Court of Justice. In that decision, the ECJ held

“A statutory provision of a Member State which, first, requires private electricity supply undertakings to purchase electricity produced in their area of supply from renewable energy sources at minimum prices higher than the real economic value of that type of electricity, and, second, distributes the financial burden resulting from that obligation between those electricity supply undertakings and upstream private electricity network operators, does not constitute State aid within the meaning of Article 92(1) of the Treaty”

Furthermore, the Court said the Stromeinspeisungsgesetz is not incompatible with the European free movement of goods principle in Article 30 of the Treaty.

By 2000, the Stromeinspeisegesetz was replaced by the Renewable Energy Sources Act (EEG 2000), now containing 12 sections and an annex, covering 3.5 pages in the Federal Law Gazette. The remuneration in the EEG 2000 then was already quite differentiated. Its feed-in tariffs for PV systems were rapidly increased to further promote solar power.

In 2004 the EEG was amended. A substantial modification was the improved legal status of operators of renewable power plants vis-à-vis network operators. Additionally, the feed-in tariffs were modified.

The next major EEG revision lead to the EEG 2009, which in turn was revised 7 times. Only three years later the again revised EEG 2012 entered into force. The amended EEG 2012 intended to encourage direct marketing. The EEG 2012 provided that producers of renewable electricity also had the option to market the electricity themselves, without receiving the fixed feed-in tariffs paid under the EEG. Instead they could claim a market premium (Marktprämie) in addition to the revenue obtained by the sale of the electricity.

The most recent substantial reform of the EEG is the EEG 2014 revision, which also lead to the new EEG being called EEG 2.0. We now have 104 sections and 4 annexes, covering 55 pages in the Federal Law Gazette. Its transitory provisions are longer than the original EEG (and of course the StromEinspG). After the Fukushima nuclear reactor accident in March 2011 and further political debate, the amended EEG further develops the “Energiewende” (energy turnaround) concept. The latest reform is very much influenced by EU law, especially regarding compliance with EU state aid rules. The EEG 2014 was debated within a very tight time frame. Some errors contained in the version decided on by the Bundestag on 27 June 2014 were corrected by another amending law (dated 22 July 2014), even before the EEG 2014 entered into force on 1 August 2014.

As the protection of legitimite interests in the stability of the renewables support regime has been a key element of supporting investments in German renewable energy generation, German renewable energy installations in many ways keep their EEG regime as it was in force when the installation started operating. Therefore, for the analysis of the legal regime applicable to a specific installation, it is typically necessary to also assess previous versions of the EEG.

2. Purposes of the EEG

According to Section 1 para. 1 EEG 2014, the purpose of the law is to facilitate the sustainable development of energy supply, particularly for the sake of protecting the climate and the environment, to reduce the costs of energy supply to the national economy (also by incorporating external long-term effects), to conserve fossil fuels and to promote the further development of technologies for the generation of electricity from renewable energy sources.

The EEG only regulates the renewable electricity sector. The Renewable Energies Heat Act (Gesetz zur Förderung Erneuerbarer Energien im Wärmebereich – EEWärmeG) promotes the increase of heat generated from renewable energy to 14% by 2020.

3. EEG Surcharge

Costs of the EEG system are distributed to electricity consumers via the so-called EEG Surcharge (EEG-Umlage). Details of this reallocation can be found in the 2010 Equalisation Scheme Ordinance (Verordnung zur Weiterentwicklung des bundesweiten Ausgleichsmechanismus – AusglMechV) and the Equalisation Scheme Execution Ordinance (Verordnung zur Ausführung der Verordnung zur Weiterentwicklung des bundesweiten Ausgleichsmechanismus (Ausgleichsmechanismus-Ausführungsverordnung – AusglMechAV).

The equalisation scheme goes through five steps:

  1. Renewable energy generator (wind farm, solar park, etc.)
  2. Distribution system operator
  3. Transmission system operator
  4. Electricity supply undertaking
  5. Consumer

The AusglMechV was an important step to create more transparency for the sale of renewable energy. Under the AusglMechV, transmission system operators have to take the power from the distribution system operators and have to sell it at the spot market (financial equalisation).

Revenues from the spot market sale of renewable energy do not cover the feed-in tariffs and market premiums payable pursuant to the EEG, profile service costs (Profilservicekosten) and other costs of running the EEG surcharge system. In fact, prices at the spot market have been negative at times. To ultimately pass on the costs of the transmission network operator to the consumer, deficits  are first allocated to the electricity supply companies as the so-called “EEG surcharge” (EEG-Umlage), who then pass the surcharge on to their customers. In 2013, the total EEG surcharge amounted to EUR 20.4 billion. In 2014, the EEG surcharge was set at 6.24 ct/kWh.

4. Renewables Targets

The EEG 2014 aims to constantly and cost effectively increase the share of renewable energy sources in the German electricity supply. According to Section 1 para. 2 EEG 2014, renewable energy shall account for

  • 40% to 45% of the share in the gross electricity consumption by 2025
  • 55% to 60% by 2035 and
  • for 80% by 2050.

5. Expansion Corridors and Breathing Caps

A transformation of the energy supply system towards renewables shall be achieved with the help of expansion corridors (Ausbaupfade). The EEG 2014 provides detailed figures on the planned increase of installed power for the different energy sources. The introduction of specific growth targets for different technologies is a new development for the German renewables support scheme.

According to Section 3 EEG 2014 the individual expansion corridor targets are as follows:

  • Onshore wind power: net annual growth corridor target of 2500 MW
  • Offshore wind power: reduction of the national targets for offshore wind power from 10 GW to 6.5 GW by 2020 and from 25 GW to 15 GW by 2030
  • Solar power: gross annual growth corridor target of 2500 MW
  • Biomass: gross annual growth corridor target of 100 MW

To ensure compliance with the corridors, so-called “breathing caps” (“atmende Deckel”) have been introduced for onshore wind and biomass, modelled on the previously introduced “breathing cap” for solar power.

The breathing cap concept adjusts the feed-in tariffs depending on the extent to which newly installed capacity is in line with the corridors. 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 corridor targets. The existing breathing cap for solar power is modified with regard to the thresholds and the applicable additional support reductions or increases. Monthly solar support level adjustments start 1 September 2014.

6. Priority Grid Connection

Under the new EEG 2014 grid connection of renewables and mine gas continues to have priority (vorrangiger Netzanschluss), Section 8 EEG 2014. The network operator has to take all necessary steps to ensure that the grid is optimised and electricity from renewables or mine gas can be fed into the grid. The only exception is when a network expansion is economically unreasonable, Section 12 para. 3 EEG 2014. Curtailment (Einspeisemanagement) is possible in certain grid congestion situations (Section 14 EEG 2014), and leads to compensation obligations for the grid operator (Section 15 EEG 2014). The operator of the renewable power plant has to bear the costs for actual grid connection (Section 16 para. 1 EEG 2014).

Further grid connection rules can be found in the ManyElectronics Industry Act (Energiewirtschaftsgesetz –).

The growth of German renewables generation has made it necessary to upgrade both the distribution and the transmission systems. As a further consequence, Germany now has a sophisticated system of national grid planning.

7. Direct Marketing and Auctioning

Contrary to the EEG 2012, the majority of new renewable power plants will not receive fixed feed-in tariffs for renewable energy under the EEG 2014. Instead, producers of renewable electricity will in principle be obliged to sell directly. They will obtain support in the form of market premiums paid on top of the market price for electricity, substantially covering the gap to the feed-in tariff amount (Section 19 EEG 2014). Until 31 December 2016 the market premiums will be determined by reference to the feed-in tariff amounts.

To test the viability of auctioning to determine support levels in the future, the EEG 2014 provides for the introduction of a tendering process for freestanding PV installations as a pilot project.

a) Introduction of Mandatory Direct Marketing

Under EEG 2014 direct marketing will be the rule, and only in exceptional cases will the operators of new renewable plants receive feed-in tariffs.

One exception are small renewable power plants, in particular:

  • plants commissioned before 1 January 2016 with an installed capacity of less than 500 kW (Section 37 para. 2 no. 1 EEG 2014)
  • plants commissioned after 31 December 2015 with an installed capacity of less than 100 kW (Section 37 para. 2 no. 2 EEG 2014)

Another exception is fallback remuneration (Ausfallvergütung), in particular if the direct marketing counterparty is not available (e.g. because of insolvency). Fallback remuneration only covers 80% of the otherwise applicable remuneration (Section 38 para. 2 EEG 2014).

The introduction of mandatory direct marketing has also lead to the introduction of new terminology for the basis on which the financial support is calculated. The new term is “applicable value” (anzulegender Wert), and is used to classify the basis on which financial support is calculated in the new EEG 2014.

b) Introduction of Auctioning by 2017

According to Section 2 para. 5 EEG 2014, financial support for renewable energy sources shall be determined through auctions by 2017 at the latest. In moving towards this the new auction (or tender) based system requires that experience be gained in pilot projects with freestanding PV power plants, the auctions for which will be organised by the Federal Network Agency.

8. Duration of Support

The financial support is provided for a period of 20 years plus the year the power plant went into operation (Section 22 EEG 2014).

9. Degression

In principle the remuneration remains constant for 20 years. However, the tariffs for new installation are subject to annual, quarterly or monthly degression (Absenkung der Förderung) which shall reflect technical progress and cost reductions. In other words, the applicable feed-in tariff/support depends on when an installation is put into service.  It remains the same for 20 years plus the year of installation. The later an installation starts operating, the lower the applicable support is.

The EEG 2014 contains detailed provisions on the annual, quarterly or monthly degression of the different tariffs. Find a list of the current tariffs here.

10. Self-Consumption

Under previous versions of the EEG, power generated by the consumer himself was not subject to the EEG surcharge. Repeated EEG surcharge increases (up to 6.24 ct/kWh in 2014) made it commercially more and more attractive to consume self generated power (also referred to as auto-generation), without having to pay the EEG surcharge for it.

The European Commission had expressed concerns about the auto generation, as well as the original proposal of the German government on how to include or restrict auto-generators into the EEG surcharge system. In particular, the Commission had raised concerns over the provisions regulating a partial exemption of own consumption of power by operators of power plants from the EEG surcharge.

The EEG 2014 key rules for auto-generators are:

  • Uniform 40% surcharge for all new power plants, but 100% surcharge for all new power plants that are not renewable power plants or highly efficient CHP plants;
  • Staggered introduction of the above surcharge: 30% surcharge in 2015 and 35% surcharge in 2016, as of 2017 40% surcharge;
  • Small installations with an installed capacity of up to 10 kW remain exempted from paying the EEG surcharge for the first 10 MW of self-consumed power;
  • Despite concern by the Commission: No EEG surcharge for existing plants that are completely exempted under the currently applicable EEG. However, the government wants to review the matter in 2017. The accompanying justification for the proposal says that a revision has to be in compliance with EU state aid law.
  • For the purpose of equal treatment, the self-consumption privilege applies for all modernisations of existing plants made in a spatial context (räumlicher Zusammenhang) of generation and consumption, provided the installed capacity does not increase by more than 30%. Besides, a special provision for existing blast furnace gas-fired power plants operated for self-consumption was introduced;
  • The right to enact a statutory ordinance was introduced to the Combined Heat and Power Act, which allows to adapt support under the law if necessary following the changes regarding the payment of the EEG surcharge for own consumption.

11. Special Equalisation Scheme

In principle, the legal provisions covering the costs of the EEG 2014 apply to everyone. However, to mitigate competitive disadvantages for energy intensive industries and railroad operators, the EEG 2014 continues to provide for certain reductions. The so-called special equalisation scheme (Besondere Ausgleichsregelung) contains certain reductions of the EEG surcharge.

To benefit from the reductions of the EEG surcharge, energy intensive companies and railroad operators have to file an application with the relevant authority, the Federal Office of Economics and Export Control (BAFA).

a) Energy-intensive Companies

The special equalisation scheme including its transitory and hardship provisions is the result of intensive discussions with the European Commission in a commercially most relevant area, and therefore quite sophisticated:

  • In line with the EU Guidelines on State Aid for Environmental Protection and Energy 2014-2020 eligible undertakings are those exposed to a risk to their competitive position due to the costs resulting from the EEG in support of renewable energy. They are listed in Annex 4 of the EEG 2014 as so-called list 1 and list 2 companies.
  • In the last calendar year the amount of electricity consumed at a delivery point by a company listed in Annex 4 on which the EEG surcharge has to be paid pursuant to Section 60 para. 1 or 61 EEG 2014 has to exceed 1 GWh.
  • Undertakings can apply for an EEG surcharge reduction if the ratio of electricity costs to gross value added at factor costs amounts to
    • 16% for list 1 undertakings (as of 2016: 17%)
    • 20% for list 2 undertakings
  • Applicants have to operate a certified energy or environment management system (companies with a consumption of less than 5 GW can operate alternative systems that improve energy efficiency)
  • If the above requirements are fulfilled the EEG surcharge costs are reduced as follows:
    • Deductible (Selbstbehalt): The EEG surcharge has to be paid in full for the first 1 GWh
    • For consumption exceeding 1 GWh, the EEG surcharge amounts to 15%, with
      • A cap at 4% of gross value added (GVA) if the electro-intensity (electricity costs divided by undertaking’s gross value added) of an undertaking amounts to less than 20%
      • A cap at 0.5% of GVA applies if the respective electro-intensity is higher than 20%
      • These reductions for consumption exceeding 1 GWh only apply to the extent that the individual EEG surcharge payable is no less than 0.1 ct/kWh respectively 0.05 ct/kWh for companies from the non-ferrous sector (cf. Section 64 para. 2 no. EEG 2014 in connection with Annex 4). This minimum EEG surcharge shall ensure a minimum contribution to the EEG surcharges by privileged undertakings
  • The new system generally applies as of 2014 for applications for EEG surcharge reductions in 2015 and later years. However, the new scheme is being introduced gradually. For undertakings currently benefitting from the reductions under the EEG 2012, the EEG surcharge may not increase to more than twice as much as the surcharge in the previous year in the period from 2015 to 2018. This also applies to undertakings that do not fulfill the requirements pursuant to Section 64 EEG 2014, because they are Annex 4 list 1 companies whose electro-intensity amounts to less than 16% in 2015 and 17% in 2016 (cf. Section 103 para. 3 EEG 2014).
  • To facilitate the system change, transitional provisions apply, one of which is a prolonged application period until 30 September 2014 for 2015
  • A hardship clause applies to undertakings that were granted EEG surcharge reductions in 2014, but which will no longer be eligible under the EEG 2014. They have to pay the EEG surcharge in full for the first 1 GWh. Beyond 1 GWh they have to pay 20% of the EEG surcharge with no further reduction. The clause applies in the following cases:
    • Undertakings not listed in Annex 4 of the EEG 2014
    • Undertakings covered by Annex 4 of the EEG, list 2 whose electro-intensity does not amount to 20% of GVA.

b) EEG Surcharge Reduction for Rail Operators

Under the revised EEG 2014 rail operators can apply for an EEG surcharge reduction if they can demonstrate that the electricity consumed for railway operations at a delivery point (excluding energy retransmitted) amounted to at least 2 GWh in the previous fiscal year. The EEG surcharge will then be reduced to 20% of the applicable surcharge.

12. Transitional Rules for Existing Investments

Technically, the EEG 2014 applies to all systems as of 1 August 2014. However, numerous transitional provisions safeguard existing investments effectively make key provisions of earlier EEG versions applicable to installations operating as of 31 July 2014.

Especially the new provisions for the remuneration of power plants (Section 23 para. 1 EEG 2014) will not apply to existing plants. Instead the respective rules of the EEG 2012 or earlier version of the EEG will continue to be applicable if the power plant started operating before 1 August 2014. Furthermore, certain grandfathering provisions allow the application of previous EEG provisions also for certain installations starting to operate for a limited period after 1 August 2014.

13. European Law

The new EEG 2014 has been considerably influenced by European Law. Lately the European Commission approved the EEG 2014, clearing the way for entry into force as of 1 August 2014. However, the Commission’s state aid approval contains limitations:

  • So far the European Commission has approved German support of renewable electricity mainly until 31 December 2016. Until then the market premiums shall be determined by reference to the feed-in tariffs.
  • In regard to tenders determining financial support under the EEG 2014 as of 2017, the Commission points out a new law is required to introduce the tenders.
  • Small installations (below 100 kW) will continue to benefit from feed-in tariffs and are not obliged to sell on the market. This part of the EEG 2014 has been approved by the Commission for 10 years.
  • The Commission has considered the new reductions for energy-intensive users under the EEG 2014 compatible with the EU Guidelines on State Aid for Environmental Protection and Energy 2014-2020 on competitiveness grounds, “since the sectors are both electro-intensive and exposed to international trade”.

14. Future Steps

Even though the EEG 2014 has just entered into force on 1 August 2014, future steps are already planned to amend the EEG 2014 and the legal framework again:

  • In the second half of 2014 the Economics and Energy Ministry plans to enact an ordinance on pilot tenders. For solar installations on the ground, a pilot tender shall be organised starting in 2015, which shall determine the level of the premiums and allocation of the aid between participants to the tender (read more). They will be opened for up to 5% of the tendered capacity to installations located in Member States which have concluded a cooperation agreement with Germany.
  • Towards November 2015 a report based on the experience with the pilot tenders shall be published.
  • In 2016 the EEG shall be amended and become the EEG 3.0. From autumn 2016 on there shall be a new legal framework so that tenders determining financial support under the EEG shall be the general rule for all renewables. Please heck for additional information on the blog (for example here).

 15. English Translations

The Federal Ministry for the Environment, Nature Conservation, Building and Nuclear Safety  provided non-binding English translations of the EEG 2009 in a version containing the August 2010 amendments, as well as the version applicable on 1 January 2012. English and French unofficial translations of the EEG 2014 are available from the Federal Ministry of Economic Affairs and Energy.