15 Sep 2020, 12:59

What's new in Germany's Renewable Energy Act 2021

Germany's landmark Renewable Energy Act - credited with making solar and wind power two of the most important electricity sources in the country - is undergoing another reform. Renewables shall grow faster, become cheaper and more accepted by neighbouring citizens so that climate and clean energy targets can be reached. This factsheet shows the projected renewables growth and lists the changes proposed in a first government draft.

Another overhaul of Germany’s Renewable Energy Act (EEG) is imminent after two big reforms in 2014 and 2016. The EEG 2021, as it has been named by the Ministry for Economic Affairs and Energy (BMWi) that is in charge of the bill, is in the process of stakeholder- and inter-ministerial consultation before being presented to the government cabinet, scheduled for 23 September 2020. The federal parliament (Bundestag) will then have its say and could introduce changes before voting on the final bill. This factsheet gives an overview of the most important changes suggested in the first draft proposal by the energy ministry.

Germany’s renewables legislation, which came into effect 20 years ago, is responsible for the significant growth in onshore wind, solar PV, and biogas by establishing grid priority for these power sources and guaranteeing them generous feed-in tariffs. Together with offshore wind and hydro power, these renewable sources now cover half of the country’s electricity consumption. Subject to various changes in the past, the EEG’s next overhaul - to be effective as of January 2021 - is staying true to the act's basic principles of making renewable power producers more market-ready by sticking to renewable tenders while incorporating new developments such as the 2020 national hydrogen strategy and electricity pricing for e-car charging. By 2027, the government wants to propose how, and by when, renewables funding via the EEG could be stopped entirely – provided a market-driven renewables expansion is to be expected.

2050 greenhouse-gas neutrality in the power sector becomes part of the law

Germany’s goal to become greenhouse gas neutral by the middle of the century is officially made the guiding principle of the EEG 2021. "The aim of this law is also to ensure that before 2050 all electricity generated or consumed in the territory of the Federal Republic of Germany [...] is generated in a greenhouse gas-neutral manner", the latest draft reads. Both the electricity generated in Germany and the power imported to the country will have to meet this requirement, which means the European Union will have to stay on track to its corresponding 2050 neutrality target as well.

Alignment with more ambitious EU climate target

If the EU decides on a new 2030 climate target, the German renewables targets would also have to be adjusted upwards, analysts have warned. In this case, tender volumes could be adjusted according to current electricity consumption forecasts, the draft law reads, suggesting a first review in 2023.

Renewable tenders – new expansion paths to reach the 2030 goal

The ministry suggests increasing the solar PV capacity to 100 GW (~52 GW today), onshore wind to 71 GW (55 GW today), biomass to 8.4 GW, and offshore wind to 20 GW - targets that slightly exceed those from the Climate Action Programme 2030, which was decided late last year. The law sticks to annual deployment targets to make sure that capacity addition is compatible with the 65-percent-renewables target and allows for the adjustment of the power grid to incorporate the growing output from fluctuating renewables .

An additional 500-850 MW per year will be tendered in so called “innovation auctions” that are not technology-specific and where a combination of onshore wind, solar PV, biomass and/or power storage devices work together to stabilise the power system.

Interim solution for pioneer installations

The proposal includes an interim solution for small solar PV installations (up to 100 kW) that will stop receiving payments in the 2020s because their 20-year funding period runs out. Marketing the power from these very small installations would not be economically viable for their owners. But in order to prevent them from being deconstructed or from feeding in their power “wildly”, they will be given an interim remuneration for their electricity until 2027, amounting to the market value minus marketing costs.

Old onshore wind turbines, of which some 16 gigawatt could be decommissioned by 2025, are not going to benefit from this rule since even the oldest and smallest ones rarely have a capacity of under 100 kW. They do, however, retain their feed-in priority over conventional power sources and can therefore remain connected to the grid and market their electricity themselves.

Changes to the renewables levy on the power price

Nearly every power consumer in Germany helps to fund renewable energies by paying the so-called renewables or EEG surcharge (or renewables levy) on every kilowatt-hour used. Very energy intensive companies can be made (partially) exempt from the surcharge if it impairs their competitiveness on international markets. The levy is used to bridge the cap between the wholesale power price and the guaranteed remuneration that renewable installations receive per kilowatt-hour they feed onto the grid. Newer installations, in particular those whose feed-in payments have been determined through auctions, receive little more than the average wholesale power price on the market. But a big bulk of older installations are entitled to payments that exceed the market price. Depending on the wholesale power price and the amount of renewable electricity produced, the EEG surcharge changes every year. In 2020, the surcharge amounted to 6.76 cents which is around 20 percent of the price per kilowatt-hour that an average household pays.

The reformed EEG 2021 makes an important change: The EEG levy will now partially be funded from the federal budget. The government’s climate package, agreed in autumn 2019, stipulated that the surcharge will fall by 0.25 cents per kilowatt hour (kWh) in 2021, by 0.5 ct/kWh in 2022 and by 0.625 ct/kWh in 2023. Initially the government will use 11 billion euros towards this power price reduction and as of 2021, the revenue from the new CO2 pricing of transport and heating fuels will also be used.

The EEG draft bill also promises solutions for those companies that are exempt from paying the levy. The economic downturn due to the COVID19 pandemic was threatening some companies to no longer reach the energy use thresholds for the exemption scheme, putting an additional burden on them if they had to pay the full renewables levy.  

Other elements of the new law also aim at reducing costs for consumers, e.g. by decreasing the maximum values in tenders for onshore wind and photovoltaics, as well as increasing competition between solar PV systems by expanding the possible installation area.

Raise public acceptance of renewables expansion

With the new EEG the government wants to make good on its promise to help acceptance of renewable power installations. It guarantees communities which allow wind parks to be built a share of the park’s income amounting to 0.2 Cent/kWh for 20 years. This amount can be reduced if the wind park operator offers discounted power supply contracts to people living nearby.

The government also wants to help the so-called “tenant electricity scheme” get off the ground. While homeowners have long been able to profit from the energy transition by installing solar panels on their roofs and receiving feed-in payments in return, people living in rented flats have not been able to participate. Landlords of such blocks of flats often don't have enough incentives to install solar PV on these houses and letting their tenants use it. The EEG 2021 increases the level of the tenant electricity surcharge to increase attractiveness.

More wind turbines in the south

In a bid to incentivise wind expansion in (less windy) southern Germany, the proposal introduces a “quota for the south” (15% of successful tenders have to come from the south between 2021-2023 and 20% as of 2024). The idea isto reduce the imbalance in generating capacity tilted towards the north of the country, which would have negative implications if north-south grid connections are not completed in time before nuclear power stations in the power-hungry south are shut down entirely at the end of 2022. 

In return, the proposal seeks to get rid of the so called “grid congestion zones”, areas (mostly in the North of Germany) where onshore wind expansion had to be smaller because a high input of more renewable power would have likely caused grid problems. The ministry states that this instrument did not work “for several reasons”.

Negative power prices

Negative power prices occur when very low electricity demand (e.g. on bank holidays) coincides with high power input, e.g. from coal and nuclear power plants plus renewable input from solar PV and wind during particularly sunny and/or windy days. Negative market prices drive up the renewables surcharge, so the EEG 2021 is forcing new renewable installations to react more flexibly to avoid excess production during such times. They will cease to receive their feed-in remuneration when the spot market price is negative for 15 consecutive minutes, instead of 6 consecutive hours as is the case for existing renewable sources. The government reasons that plant operators will have to “find their own ways of hedging against negative price phases, for example by entering into cooperation agreements with storage operators, by using new plant technology that enables more continuous electricity production or by entering into hedging transactions on the electricity futures market”.

Incorporating hydrogen

In line with its new hydrogen strategy, the government wants to exempt producers of green hydrogen from having to pay the renewables surcharge on the power they use (and at the same time prevent power from getting more expensive for everyone else). But this aspect would have to be added later because the stakeholder dialogue on this point was still ongoing, the ministry writes.

Criticism of the first draft

These are the main points criticised by industry groups:

  • The power consumption estimate of the energy ministry for 2030 and therefore the calculations how much additional renewable power will be needed to achieve a 65 percent share is off because it doesn’t include future power users such as e-mobility, hydrogen, heating (BNE, BDEW, BEE)
  • Annual additions and tender volumes should be larger (BEE, BWE, BSW, Bioenergy industry)
  • Rules for supporting repowering of existing windmill sites are lacking (BWE)
  • Tightening the rules for renewables in times of negative power prices pose a threat to the financing of new wind projects because banks don't like such uncertainties concerning future earnings of the plants (BWE)
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