Renew On Line (UK) 27

Extracts from the July-Aug 2000 edition of Renew
These extracts only represent about 25% of it

10. The new German Renewable Energy Law

In February, the German Parliament adopted the Renewable Energy Law - the ‘Law for the priority access of electricity from renewable energy sources’.

The REL combines elements of the 1990 Electricity Feed Law and a flexible quota on the electricity supplier level. According to Michaele Hustedt, a Green Party member of the German Parliament, and their speaker on energy policy, ‘the overall objective of the law is to contribute towards doubling the share of renewable energy in the electricity market from 5 to 10% by 2010. This is in line with the targets set in the European Commission’s 1997 Renewable Energy White Paper’.

Hustedt explains that, ‘by setting specific tariffs for each renewable energy technology based on its real cost, the new law recognises the contribution of renewable energy to reducing greenhouse gas emissions and saving depletable fossil fuel reserves. Its aim is to initiate a self-sustaining market for renewables by compensating for the distortions in the conventional electricity market, and simultaneously creating the critical mass by a massive market introduction programme that does not lead to any additional burden for the taxpayer. Under this framework, renewables are to be made competitive with conventional energies, in the medium and long-term’.

So it’s not a permanent subsidy- the REL includes a regular bi-annual revision process which allows for adjustments according to technological and market development.

The new law has been developed as an interim response to the spread of liberalisation and increasing competition in the German electricity market since 1998. The drop in the tariffs paid by consumers has led to a similar decrease in the renewable energy feed-in tariffs (REFITs) which were linked to average electricity prices.

Hustedt say that ‘ although we are strongly supporting a gradual decrease in tariffs for renewable energies to take into account technological innovations, we feared that the sudden fall in electricity prices started to threaten further investments in renewables. The new situation worried financial institutions in particular, but also wind turbine manufacturers, owners and potential developers. Actually, the situation had started to endanger the viability of both existing and proposed projects which are moving increasingly inland due to site restrictions in the more windy coastal areas. The government has therefore followed a new approach, moving away from a system where the REFITs are linked to the average electricity tariff, towards a more clearly fixed price based on actual generation cost of the various renewable energy technologies’.

Differential Wind Price Framework

The REL operates a differential pricing system for each technology, with local adjustments for energy resource availability and reducing payments over the projects duration. For example, the overall price for windpower is set at DM 0.178/kWh during the first five years of operation. Thereafter, the rate is reduced to a lower rate, depending on the quality of the site. At the best coastal sites, for example, the price falls to DM 0.121/kWh after the first five years of operation. This would result in an average payment of DM 0.135/kWh over the expected plant life-time of 20 years.

However, wind turbines in mainland Germany would receive a higher payment because of the lower wind speeds there - an average tariff of DM 0.167/kWh over 20 years, almost the same level paid in 1999 under the old Electricity Feed Law. Very low-wind sites of less than 5.5 m/sec would receive the higher REFIT up to 20 years (e.g. 0.174 DEM/kWh).

Higher tariffs for low-wind site are seen as necessary to ensure a further growth in wind energy, as most high-wind sites are already occupied or not suitable due to planning restrictions.

Due to their novelty and higher investment costs involved, the first off-shore wind projects realised in German coastal waters can expect the higher rate of 0.178 DEM for the first nine years of operation, provided the wind farms are installed by the end of 2006. However, as technological progress and cost reduction can be expected in the future, off-shore projects finalised after 2006 will receive lower feed in tariffs (around DM 0.135/kWh for 20 years).

The other Renewables

The new law also applies to power generated from solar or geothermal sources; from hydro, landfill, sewage or mine gas plant of up to 5 MW; and from biomass (up to 20 MW). As with wind, the, tariffs are differentiated, with a built-in annual degression for new installations.

Solar PV systems will now receive DM 0.99/kWh, with a degression of 5 % for new installations, starting in 2002 - to reflect the expected costs reduction potential of a technology which is still expensive.

The proposed REFIT for small hydro, landfill gas, mine gas or sewage gas varies from DM 0.13/kWh for existing plant, up to DM 0.15/kWh for small installations below 500 kW. For biomass, the tariff ranges from DM 0.17/kWh for the larger units (5- 20 MW), to 0.18/kWh for smaller units, and to DM 0.20/kWh for the smallest installations up to 500 kW. Electricity from geothermal energy would receive from DM 0.14/kWh up to DM 0.175/kWh. Hustedt noted that ‘with a new tariff structure for these renewable sources, the government aims at replicating the boom of wind power during the 1990s for other renewable energy technologies as well, and to stabilise the past growth rates for wind’.

Flexible distribution quota

Another major concern was the so-called "five per cent" cap, introduced as part of an amendment to the EFL in 1997. Companies were only required to accept new renewable projects, and pay the associated REFIT tariff, when their renewable contribution made up less than 5% of their total output. Given that large areas of northern Germany we approaching this level, due to the location of many wind projects there, there was a risk that the expansion of renewables would be slowed. To avoid this, the REL has a flexible distribution arrangement among all the transmission network operators, with power from renewable sources being equally distributed to all electricity suppliers, depending on their total amount of electricity sold to consumers. The aim is to create a competitively neutral arrangement which does not create any distortion of the market. The REL has also tightened up arrangements for paying for grid connections - grid access being a frequent bone of contention in Germany. Overall it seems like a good piece of legislation, and with the EC’s push for support system ‘harmonisation’ now postponed for 5 years, it shouldn’t fall foul of the EC.

For details contact: michaele.hustedt@bundestag.de

Utility Reactions

Predictably, though, the German power utilities were unhappy with the new law, and complained that it will force them to pay 80% more for renewable energy this year than in 1999. See the comments from the national association of electricity suppliers (VDEW) at: http://www.strom.de/ak_wo_24.htm