German Government agrees on draft revised Renewable Energies Act - EEG 2021

• Germany

• Energy and infrastructure - Clean energy

07-10-2020

The German Federal Government has agreed on a draft amendment act to the Renewable Energies Act (Erneuerbare-Energien-Gesetz – EEG) which is scheduled to enter into force on 1 January 2021. The revised EEG is supposed to set the path for renewable energy investments to support Germany’s decarbonisation targets by 2030 and beyond. Below, we summarise the proposed amendments which are most important from an investor perspective.

Climate-neutrality of electricity consumption prior to 2050

The current version of the EEG contains the following two targets: the share of electricity from renewable energy sources in the overall electricity consumption shall be 65% by 2030 and at least 80% by 2050. Under the EEG 2021, the second target shall be replaced by the goal that the generation of the entire amount of electricity generated or consumed within Germany shall become climate-neutral prior to 2050.

Implementation of European Green Deal

The goal to achieve climate-neutrality of the power sector before 2050 is even more ambitious than the EU objective laid down in the European Green Deal to be climate-neutral by 2050, which is in line with the EU’s commitment to global climate action under the Paris Agreement, as well as the German Climate Protection Programme 2030.

Backdoor for CCS?

Irrespective, it is unclear whether the mere reference to climate-neutrality is simply due to the fact that Germany will continue to import electricity from other countries with lower renewable energy targets and hence hardly be in a position to achieve a 100% renewables target. The new approach might also be interpreted as an indication that Germany intends to achieve climate-neutrality also through other means, namely through the use of carbon capture and storage (CCS). This technology is struggling with social acceptance in Germany and is, thus far, only allowed for use in testing projects. On the other hand, members of the Federal Government, including Chancellor Angela Merkel, have already stated, in 2019, that climate-neutrality by 2050 can only be achieved if one is ready to store carbon dioxide.

Expansion path for more than 93 GW additional capacity by 2030

The 65% electricity from renewables by 2030 target shall be achieved through an increase of the installed capacity of the different technologies set out in the EEG 2021 and the Offshore Wind Energy Act (Windenergie-auf-See-Gesetz – WindSeeG), for which a draft amendment act has already been presented earlier this year (see our summary):

Technology Installed capacity target for 2030 (GW) Minimum installation from 2021 to 2030 (GW)

Award of financial support through auctions

Financial support for these capacities will be awarded through the auction scheme introduced under the EEG 2017. Successful bidders in an auction receive, for a 20-year period from commissioning of the plant, market premium payments from the grid operator which top up the energy-specific average monthly power exchange price and reflect the respective bidder’s bid value.

Use of additional areas

To allow for an implementation of the increased capacities foreseen for the future auctions, additional areas for onshore wind farms and solar plants shall be made available. This includes the use of areas with a lower wind yield, namely in the south of Germany. Accordingly, a certain percentage of the awards in onshore wind auctions shall be granted to projects in relevant regions.

Easement of environmental and permitting requirements

In the same vein, permitting procedures for renewable energy projects shall be eased and accelerated. The German Federal States (Länder) shall annually report on the status of the ongoing procedures and, as the case may be, make available additional suitable areas owned by the respective Federal State to allow implementation of the expansion path.

Increased acceptance of the EEG

The draft amendment act also foresees several measures to increase the acceptance of further renewable energies expansion in Germany.

Financial participation of municipalities

Operators of onshore wind farms may offer municipalities, affected by their wind farm, payments of up to 0.2 ct/kWh for the electricity generated by the wind farm. The municipalities are free to decide for which purposes they use such payments. From the plant operators’ perspective, the payments would be economically neutral as they may request refunding of the paid amounts plus a 5% handling fee from the grid operator. Therefore, payments to the municipalities would ultimately be financed through the EEG levy which is ultimately borne by the consumers.

Limitation of EEG levy

The amount of the EEG levy, which increased from 2.05 ct/kWh in 2010 to 6.756 ct/kWh in 2020, is considered as a crucial factor for the acceptance of the further renewable energies expansion. In the future, the levy shall be partially funded through the Federal Government’s budget. Proceeds from the national CO2-pricing for the heating and transport sector applicable from 1 January 2021 onwards, as well as an amount of EUR 11 billion from Germany’s fiscal package for strengthening economic recovery after the Coronavirus induced economic downturn, shall be used to cap the EEG levy at 6.5 ct/kWh in 2021 and at 6.0 ct/kWh in 2022.

Improved market and grid integration

In addition, the draft EEG 2021 contains several measures for an improved market and grid integration of renewable energies. This includes in particular the following:

No financial support for periods of at least one hour of negative exchange prices

Under the current version of the EEG, plant operators are not entitled to market premium payments for periods where the spot price at the power exchange is negative for at least six hours (the so-called 6-hour rule). Pursuant to the draft EEG 2021, financial support for plants which will be commissioned from 1 January 2021 onwards shall already fall away if the spot price is negative for at least one hour. The new 1-hour rule shall result in a stronger incentive for renewable energy plant operators to mitigate periods of negative prices, e.g. through cooperation with storage operators.

Digitalisation

To implement Germany’s digitalisation strategy for the energy sector, the draft EEG 2021 provides that renewable energy plants with an installed capacity of at least 1 kW commissioned from 1 January 2021 onwards must be equipped with smart meter gateways allowing the grid operator to access the feed-in status and to remotely control the plant’s feed-in capacity. Plants with an installed capacity of at least 15 kW commissioned before 2021 shall be equipped with such devices during a five-year transitional period.

Exemption from EEG levy for production of green hydrogen

Germany’s National Hydrogen Strategy (see our summary) sets out that electricity used to produce green hydrogen is planned to be fully exempt from the renewable energy levy. However, this exemption is not yet included in the current draft EEG 2021. A proposal that complies with the German law principle of equal treatment and EU State aid law is still under preparation and expected to be introduced into the legislative process at a later stage.

Promotion scheme after expiry of 20-year period?

The 20-year promotion period will, over the coming years, expire for a continuously increasing number of renewable energy plants. According to studies conducted by industry players, in 2025 almost 25% of the onshore wind farms in Germany will need a new marketing concept to avoid their decommissioning after the end of that period. Re-powering, i.e. replacing the generators of a wind farm by new generators on the basis of a new permit and subject to a new EEG promotion, is not always possible. Another approach for wind farm operators might be to sell the electricity generated after the end of the 20-year period under long-term power purchase agreements (PPAs) with specialised off-takers. However, stakeholders have different views on whether this approach would ensure economic viability of a sufficient number of wind farms. Therefore, roundtable discussions between ministries and industry players on the introduction of a more favourable promotion scheme are ongoing and might still be reflected in the further legislative process. As a transitional measure, the current draft EEG 2021 provides that operators of plants with a capacity of up to 100 kW may, until the end of the year 2027, sell the electricity to the grid operator against payment of the energy-specific average annual power exchange price deducted by a marketing fee. For plants with a capacity of more than 100 kW, this right is limited to the period until the end of 2021.

Outlook

The draft amendment acts to the EEG and WindSeeG have been extensively discussed among the coalition of Christian Democrats and Social Democrats. Despite the agreement within the Federal Government and the ability of the coalition parties to approve the draft amendment acts in both chambers of the German Parliament, discussions on these acts will continue during the legislative process. Therefore, one can expect a number of changes to the draft amendment acts before their entry into force on 1 January 2021.