Renewable energy law and regulation in Germany

1. Brief overview of the renewables sector 

Germany’s energy transition, (the Energiewende), has been a major part of the programme of every German government since 1998. After 21 years of adjustments to build a statutory framework, in 2019 17.5 % of Germany's gross final energy consumption and 42.1% of Germany's gross electricity consumption was generated by renewable energy sources. Germany aims to increase the percentage of gross electricity consumption from renewable energy sources to 65% by 2030 and to 80% by 2050.

Split of installed capacity for renewables-based electricity generation in Germany in 2019:

Source: Federal Ministry for Economic Affairs and Energy (BMWi).

With an installed capacity of roughly 61GW, Germany is one of the world’s largest markets for wind energy. The renewable industry in Germany is no longer a market for pioneers. Since 2000, a total of more than EUR 290bn has been invested in renewable energies in Germany.

The Renewable Energy Sources Act (“EEG”) is the centerpiece of the legislative framework supporting renewable energies. It is subject to regular revision and has been complemented over the years with several supporting laws and regulations.

2. Recent developments in the renewables sector

The EEG originally provided for a pure feed-in tariff-based support system. The EEG 2014 first introduced a tender model for greenfield solar projects.

In January 2017, a further major revision of the German Renewable Energy Sources Act (“EEG 2017”) came into force, alongside a separate law regulating the expansion of offshore wind (“WindSeeG”). Among other changes, it replaced the fixed tariff for wind, solar and biomass with a market-based tender model with predetermined capacity volumes being auctioned in each tender. For offshore wind, the feed-in tariff-based support system still applies for all wind turbines commissioned prior to 1 January 2021. The financial support for other renewables – hydropower or geothermal plants – and for small plants continues be determined by law. 

The legislator expected this systemic change both to decrease the cost of the governmental subsidy and to increase competition and diversity between the players. It also aligned the German support system with the EU Guidelines on State Aid for Environmental Protection and Energy 2014-2020 (2014/C 200/01). In addition, the system grants more control over the increase in installed capacity, as tender volumes are based on growth targets. The results of the first tenders in 2017 demonstrated that the renewables industry seems to be willing and able to accept lower support – or, in the case of some offshore wind projects, no support at all. 

The price for offshore wind energy dropped to an average of 0.44 Cent/kWh in the first offshore tender in 2017. Three of the four successful projects bid zero and are Europe's first offshore projects without any subsidy. The 2018 tender still included a bid with zero subsidy. At the same time, the highest successful bid was awarded with a subsidy of 9.83 Cent/kWh. There were no tenders in 2019 and 2020, as the planned growth of offshore capacity had been reached by the 2017 and 2018 tenders. 
However, the tender rounds also showed flaws in the system, especially for onshore wind. While the support dropped significantly in the first 12-18 months of the tender system, it has since started to increase again. In addition, almost all tender rounds for onshore wind in 2019 and 2020 were significantly undersubscribed and installed capacity for onshore wind dropped from 5,009MW in 2017 to 2,273MW in 2018 and to 1,078MW in 2019.

Winning prices in Cent/kWh of the latest German tenders for onshore wind, offshore wind and solar and the lowest average prices in prior tenders:

 Wind onshoreWind offshoreSolar

Tender result in Ct/kWh
(Weighted average)

11/2017
3.82
07/20
6.14
04/2017
0.44
04/2018
4.66
02/2018
4.33
07/2020
5.18

The tenders are organised by the Federal Network Agency which publishes tender dates, volumes and maximum prices in advance and tender results afterwards. Bidders must provide security and implement the winning projects within a predefined period or pay a penalty. However, to assist projects with delays caused by the Covid-19 pandemic, the Federal Network Agency temporarily does not publish tender results but notifies bidders individually as publication starts the implementation deadlines. Tenders are performed between twice and seven times a year, depending on the technology. For onshore wind and solar, in December 2018 the legislator introduced additional tender rounds and capacities for the years 2019 to 2021 to counteract reduced growth in installed capacity and to ensure political targets can be met. For onshore wind this did not solve the problem caused by undersubscription of tenders.

3. Forthcoming developments / opportunities in the renewables sector

The renewables sector in Germany is still growing. The tender system created new challenges for the industry and it requires further adjustments. At the same time, the system provides a stable regulatory framework while reducing the costs to the public for the promotion of renewable energy. 

The legal framework for the German renewables sector is changing with increasing frequency to keep up with and adapt to developments. The EEG 2017 has been amended 13 times since it was passed and the German Federal Legislator is working on a new revision of the EEG and the WindSeeG, which shall be passed before the end of 2020.

The German Federal Government's 2020 draft legislation to reform the WindSeeG proposes a series of changes to increase the capacity for offshore wind energy from 15 to 20 GW by 2030 and 40 GW by 2040. Since the current version of the WindSeeG stipulates that the maximum bid value possible is equal to the lowest successful bid in 2018, only zero-subsidy bids would be possible in the next auction. The draft is looking to increase the maximum value for bids in order to increase the interest of potential investors and, ultimately, the successful implementation of projects. 

The draft EEG 2021 published by the German Government on 25 August 2020 introduces the new goal to get to greenhouse gas-free (produced and consumed) power in Germany by 2050. The draft EEG 2021 furthermore foresees that for the calculation of the market premium receivable by plant operators, an annual average value is applied instead of the now applicable monthly average value. The aim is to give the plant operator an incentive to produce and market energy in times when the price regime for energy is the most expensive and therefore adapt the production to the economic framework. Moreover, the regulation on negative prices is tightened; instead of the now applicable six-hour rule, the subsidy, in the form of the market premium will be suspended if the spot market price is negative for 15 consecutive minutes. The aim here is to improve the renewables' market and grid integration. Both measures could have a negative impact on renewable projects such as wind and solar with no influence on the times electricity is produced. They may also make it more cumbersome for lenders to make estimates regarding the revenues of the projects. 

In the long term, electricity prices and decreased or zero-subsidy bids will have a significant influence on project development and implementation as well as providing new challenges in contract design for offshore wind (EPCI vs. multi contracting) and project financing. Planned changes to the calculation of the subsidy in the form of the market premium will pose new challenges. As a consequence of these factors, alternative sales strategies, such as corporate power purchase agreements (“corporate PPAs”), are likely to become increasingly relevant.

Dorothée Janzen
Dorothée Janzen, LL.M. (Ann Arbor)
Partner
Hamburg