Germany is one of the key economies for renewable energy and, in Ernst & Young’s latest issue of renewable energy country attractiveness indices, Germany ranked third globally after China and the USA. As a mature market, Germany has a fully developed renewable energy industry covering all stages of the industrial value chain. From research into manufacturing to construction, operation and servicing, major players of the renewable energy industry are either based in Germany (e.g. Enercon, REpower, Nordex, Siemens, Hanwha Q.Cells and SolarWorld) or have substantial operations in Germany (e.g. Vestas and GE).
In recent years, wind, solar photovoltaics (PV) and biomass have grown to become major sources of energy in Germany with hydropower and geothermal playing a less important role. In 2011, for the first time, the generation of electricity from renewable energy sources (RES) accounted for a larger share than nuclear energy. Figures for 2011 indicate that 20 per cent of the electricity produced in Germany came from renewable sources (compared to 17 per cent in 2010). Likewise, the overall share of energy (electricity, heat and fuel) from RES rose from 11.3 per cent in 2010 to 12.5 per cent in 2011.
More importantly, the markets in Germany remain geared towards further growth - by 2020 the German government plans to increase the share of electricity generated by RES to 35 per cent to 40 per cent.
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In Germany, the nuclear meltdown in Fukushima, Japan, in March 2011 has led to a widespread and very critical public debate about the future of the German nuclear power stations. Historically, Germany has produced around 20 per cent of its electricity from nuclear power stations. In reaction to the public debate post-Fukushima, the German government has accelerated the speed of the German nuclear exit strategy. This represents a turnaround in policy from pre-Fukushima when the German government advocated a slow nuclear decommissioning policy.
As an immediate reaction to the events in Japan, the German government temporarily shut down seven older nuclear power plants. On 6 June 2011, the government presented its new long term energy strategy (the Energy Strategy 2011). The seven nuclear power plants in temporary shutdown, plus one further plant which had already been temporarily turned off, will not become operational again. The remaining nine nuclear power plants in operation will cease operations between the end of 2015 and 2022.
Beyond the shutdown of its nuclear power plants, the government has amended the German Renewable Energies Act (Erneuerbare-Energien-Gesetz or EEG) twice in 2011 and once in 2012. This move was triggered by the accident in Fukushima, by the regular four year EEG review and also by the dramatic decrease of prices for solar PV modules on the world market. Under the revised EEG, Germany has changed some of the details of the fixed feed-in tariff (FiT) system without changing its basic structure. As part of the Energy Strategy 2011 the law-makers also revised the German Energy Industry Act (Energiewirtschaftsgesetz or EnWG) twice, in 2011 and in 2012. Most of the 2011 changes were motivated by the need to transpose the third EU energy package (and especially its unbundling provisions) into German law. The 2012 changes, in particular the introduction of a binding offshore grid development plan and specific compensation claims in case of late or interrupted grid connection, was motivated by the need to overcome the current deadlock in offshore wind development. The government is also eager to improve the regulatory framework for energy from RES beyond the issue of incentives for example, by reducing planning law restrictions for renewable energy projects and establishing a €5 billion loan programme for offshore wind farms through the state-owned development bank KfW.
Under the terms of the EU Renewable Energy Directive (Directive 2009/28/EC), Germany has committed to a legally binding target of sourcing 18 per cent of its gross final energy consumption from RES. Under the EU Renewable Energy Directive, each member state is obliged to adopt a National Action Plan (NAP) which sets out the steps required to reach its target and its progress in reaching such target to date. The NAP for Germany was adopted in August 2010. The overall share of energy (electricity, heat and transport) from RES was 12.5 per cent in 2011 and the last German progress report under the EU Renewable Energy Directive (covering 2009 and 2010) confirms that it is on target to meet its EU obligations by 2020.
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Policy and regulatory framework and incentives
The central pillar of the German renewable energy regime is the fixed FiT system combined with a guaranteed right of access to the grid for renewable energy projects. Grid operators must connect renewable energy plants to their grid and remunerate generators for all the energy they feed into the grid according to the fixed FiT system. The FiT system applies for 20 years and for the year of commissioning.
Different levels of FiT apply for different renewable energy types. The highest tariffs are available for solar PV energy, geothermal energy, some types of energy from biomass and offshore wind energy. The costs of grid operators remunerating renewable energy generators on the basis of the FiT system are transferred at various stages of the energy supply chain via a levy system and ultimately the end consumer bears the costs.
In 2011, the government reduced the FiT for onshore wind to €89.3/MWh. In addition, the yearly degression rate (of the FiT applicable to newly commissioned projects) increased from 1 per cent to 1.5 per cent. These moderate changes underline the fact that the onshore wind energy sector is a mature part of the energy industry and requires less start-up support than other renewable energy types such as, for example, geothermal energy, which so far only occupies a niche market in Germany.
The development of offshore wind energy is a cornerstone in the German energy strategy: the wind yield of offshore wind farms is larger than that of onshore wind farms and there is potential to add large amounts of new generation capacity. For offshore wind farms, the EEG offers two tariff systems. The operator can opt either for an initial remuneration of €150/MWh in the first 12 years or for a tariff of €190/MWh for the first eight years of operation (provided that the wind farm comes into operation before 1 January 2018). A continuance of the initial remuneration period (with a remuneration of €150 /MWh for either tariff system) is available depending on the water depth and the distance to shore. After the initial remuneration period the standard feed-in tariff under both tariff systems will be reduced to €35/MWh.
Although Germany is not as well suited geographically for solar PV energy in comparison to some other European countries, the commissioning rate of PV plants has soared to unprecedented levels in recent years. This investment was driven by the combined effect of a relatively high level of EEG FiT and a massive fall in the cost of PV modules. To dampen this surge in PV plant development, the German legislator has introduced a system by which the FiT for new PV projects decreases every month depending on the previously installed capacity. The system is flexible and in years with very little new capacity, the tariff’s degression is lower that in years with high new capacity. This means a yearly reduction of at least 11.4 per cent (basis degression), if the newly introduced extension corridor for additional installation (Zubaukorridor) of between 2,500 to 3,500 MW is complied with. Furthermore, a maximum installation target (Gesamtausbauziel) for PV in Germany amounting to 52 GW has been introduced into the EEG. Once the maximum installation target is reached, new PV plants will not qualify for the feed-in tariff any more. In addition only electricity generated from PV plants with a nominal capacity of 10 MW or less is remunerated under the EEG tariff system, and PV plants with an output of 10 kW to 1,000 kW per year only get paid 90 per cent of the total electricity generated. Currently (January 2013), the maximum remuneration for newly installed PV is €170.2/MWh for rooftop installations and €117.8/MWh for ground mounted plants.
A new development under the German renewable energy support system is the possibility to sell energy directly and outside the FiT structure. If administered well, the revenues from selling directly into the wholesale market may be higher than under the FiT system. The attractiveness of this alternative is evidenced by the fact that currently around 45 per cent of all onshore wind capacity is marketed directly.
The EEG FiT system is available to all renewable energy generation capacity. While the level of EEG FiT can vary, a major limiting factor for the construction of new renewable energy plants is the availability of adequate sites and the different public licensing procedures.
Nearly all plants require some form of public licence, with the type of licence differing depending on the plant type. Depending on peculiarities of state building law in the different federal states, PV plants typically require a building permit from the competent state authorities. For onshore wind farms, the operator typically needs a permit pursuant to the Federal Emission Control Act (Bundesimmissionsschutzgesetz or BImSchG). While the permit procedure under the BImSchG is more complicated than the procedure for obtaining a building permit, the German authorities are well practised in such applications and procedures for issuance. Offshore wind farms, which are usually situated beyond Germany’s coastal waters in the exclusive economic zone, require a permit pursuant to the Maritime Facilities Ordinance from the German Maritime and Federal Hydrographic Agency (Bundesamt für Seeschifffahrt und Hydrographie or BSH). While this procedure is lengthier than the procedure under BImSchG, the BSH is the single authority responsible for granting such permits and as a result it has managed to streamline the procedure considerably in the last few years. Depending on the type and size of a plant, it may be necessary to carry out an ecological impact assessment as part of the applicable licensing procedure.
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Opportunities and challenges
Germany continues to provide a stable regulatory framework for renewable energy projects. After the scheduled nuclear exit, renewables are the only choice for clean and more environmentally friendly power and a substantial and steady increase of renewable generation capacities in Germany is likely. In addition, renewable energy projects have the full political support of the German government. The established FiT system grants reliable revenues, allowing for long-term financial planning.
However, there is political discussion whether yet another comprehensive review of the EEG should be carried out. Arguably this discussion is fuelled by the fact that the costs for solar power and their share in the renewable energy surcharge (EEG-Umlage) have grown immensely in the recent past. In a statement in October 2012 the federal Minister for the Environment, Mr. Altmaier, stated that the EEG is not flexible enough, focuses to much on increasing the quantity of generation capacity, that the renewable energy surcharge is increasing to rapidly and that the EEG does not allow for a co-ordination between grid expansion/strengthening and construction of new generation capacity. There is a consultation process underway till May 2013 to establish what changes should be made.
We cannot yet assess with certainty, whether the German government seeks to amend the tariffs for electricity generated from RES as part of the envisaged review of the EEG. We are however carefully optimistic that these tariffs will, in principle, not be subjected to substantial/abrupt changes. A first result of the consultation process is that the tariffs for photovoltaic energy do not require further changes. If this is true for photovoltaic energy, it may be that there is not so much political pressure to amend the tariffs for other energy types. Irrespective of these positive indications future discussion may touch upon the tariffs for specific energy types as the subject in general is highly political and there will be general elections in the autumn of 2013.
Compared to the fluctuations and reservations of the world-wide financial markets, the German private banking sector has retained liquidity and there continues to be an appetite for the financing of medium scale renewable energy projects. The guaranteed FiT increases security of investments in German renewable projects, making them especially attractive for investors looking for a long-term investment with a comparatively low-risk.
Banks granting loans to German offshore wind farms often form a club with ticket sizes currently around €50 million. As a measure of active support for the financing of larger offshore wind projects, which can require financing in the region of €1.5 billion, the government, acting through KfW, has established a €5 billion loan programme for 10 German offshore wind farms, adding to the already existing support of other institutions like the European Investment Bank. Under the loan programme, KfW can co-finance German offshore wind farms up to 50%, which creates interesting investment opportunities for equity investors as well as other banks.
While there are still some challenges for renewable energy projects in Germany, the government actively seeks to address these issues and is in a constant dialogue with the different players within the renewable energy industry. One issue currently under intense discussion is the planning and construction of new north-south high voltage lines to transmit energy generated by the onshore and offshore wind farms in the north of Germany to central and southern Germany, where much of the energy demand is located. The planning phase for new high voltage lines is extremely protracted; it could take up to 10 years. To speed up their construction the German government has enacted a streamlined licensing procedure for high voltage lines it considers to be of European or supra-regional importance.
Germany is a relatively densely populated country and one of the key challenges for onshore wind farms is balancing public planning law restrictions, the location of residential areas and protected habitats with the desire to build new onshore wind farms at sites with high energy yields.
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Germany is one of the key markets for renewable energy in Europe, already producing more than 20 per cent of its electricity from RES. It continues to be a large, mature and stable market for investments in renewable energy projects. The German government’s move to make Germany’s energy generation greener than ever before has the support of all major political parties at the federal and state level, and its post-Fukushima decision to exit nuclear energy by 2022 ensures the continued growth and support for generating energy from RES in Germany.
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