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German Energy Reforms Could Spell Trouble for Small Renewable Energy Producers

There’s bad news in the pipeline for Germany’s small-scale producers of renewable energy, the backbone of the country’s heralded Energiewende, or clean-energy transition.

Germany’s Bundestag is currently in the midst of passing long-anticipated reforms of its landmark renewable energy laws. The center-right government of Angela Merkel claims that the measures are intended to “better control” the Energiewende.

The proposed legislation will revamp the 2000-enacted Renewable Energy Source Act, which paved the way for Germany’s boom in renewably generated electricity. According to experts and advocacy groups, one of the reform’s losers will be small and medium-sized producers who will now have to compete with much larger producers. “The needs of the citizen-run enterprises aren’t reflected in this bill,” says Rene Mono of Bündnis BürgerEnergie, an umbrella group representing small-scale renewable energy producers. Currently, small-scale producers, including 900 energy cooperatives, account for well over half of Germany’s renewable power, a development that upended Germany’s energy sector making it one of the most decentralized and largely community-driven in the world.

The problem, says the Merkel government, is that Germany is producing too much renewable energy too fast. In the first quarter of 2014, for example, renewables generated 27 percent of all electricity in Germany (almost all of this capacity added in the last decade). At noon on May 11 — a cloudless, windy day across Germany — 75 percent of Germany’s electricity stemmed from renewables.  

Yet exactly this kind of unpredictable, open-ended surge, says Germany’s economics minister Sigmar Gabriel, who is responsible for energy policy, is the problem. Germany’s regulatory legislation must be reformed, he claims, because generation is racing ahead of grid expansion, consumer prices are rising too quickly, the power market is dysfunctional, and Germany’s EU neighbors are complaining about unwanted transit flows. Gabriel’s reforms are being strongly backed by Germany’s powerful industrial lobby.

Although there’s no consensus on the gravity of these problems (the Green Party, for example, says Merkel and Gabriel paint far too dark a picture), there’s general agreement that the laws must be updated to reflect a dramatically different energy market than that in 2000. The act’s reform was thus put at the top of the administration’s agenda and should be law by August of this year.

The central plank of the reform is the winding down of the feed-in-tariff, which will be phased out entirely by 2018 and replaced with a competitive-tendering, or bidding, system. In the name of cutting costs, the average incentive per kilowatt-hour will drop significantly for new installations built after 2014. Installations with more than 500 kW of capacity will not be eligible for any remuneration. This goes for projets larger than 250 kW in 2016 and then 100 kW in 2017.

The feed-in tariff will be replaced by competitive tendering (call for tenders, bidding). As of 2017 the government will auction off contracts for producers to generate set quantities of capacity.

The feed-in tariff, explains Dörte Ohlhorst, professor of environmental policy at the Free University Berlin, guaranteed producers fixed prices over 20 years. “This was -- and still is -- essential for giving small and medium-sized enterprises and citizens cooperatives investment security to invest and innovate,” she told REW. “The bidding system might be an instrument to control the renewable energy expansion rate but it will change the profile of producers in Germany. Small enterprises and citizens can't take the risk of such a large investment without the kind of long-term security that the FIT provided."

Even sources close to the government, who asked to be quoted anonymously, told REW that the tendering model has been a flop in other countries, like Sweden, Great Britain, and Netherlands, as a recent German TV documentary revealed. They say that this aspect of the reforms could well be revised at another point in the future.

Moreover, caps will be put on the different renewable energy sectors, prescribing quantities over which the feed-in tariff will no longer apply. This is meant to limit the over-stimulation of clean-energy production and make it more predictable for planning purposes, above all for grid expansion.  For example, solar PV and onshore wind will receive incentives for up to 2,500 MW of power a year. The cap is 100 MW for bio-energy and 6.5 GW for offshore wind until 2020 and 15 GW until 2030.

Another major change will be the gradual introduction of direct selling, aimed at facilitating the market integration of renewables. No longer will the grid operators be compelled by law to buy and then sell renewable energy on the exchanges in Leipzig and Paris. Rather, the producers themselves—first the larger producers and then over time smaller ones, too – will have to organize the marketing of their product themselves, usually done through commercial marketing companies.

Tobias Kurth of Energy Brainpool, a Berlin-based consulting firm, claims the direct selling measures will have only minimal impact on dysfunctions in the energy market, which is their intention, while they will hurt small and medium-sized producers. “It means higher risk and thus higher financing costs. The players in the market are going to have to have more capital to start with, which will change their profile.” The measures imply gradually moving from the flexible market premium model to a model based on a fixed market premium, he says.

Lastly, generation for self-consumption (producers who use their power rather than marketing it) must also pay at least part of the renewable energy surcharge, too. In the past, own-use generation was exempt from the surcharges generated by the feed-in tariff.

“Owners are forced into a marketing system with immense bureaucracy and increased risk for them,” argues Anna Leidreiter of the World Future Council. “It excludes energy cooperatives and private investors from the market.” While small producers and businesses will have to pay 50 percent of the surcharge, industrial companies will only pay 15 percent, even if they’re gas and coal-fired plants.

The presence of both of Germany’s biggest parties, the Christian Democrats and the Social Democrats, in the government imply that critique in the Bundestag is muted and that the reforms should go through without major changes.

The Greens, in opposition in the Bundestag, are clearly against the reforms, which they claim is an “attack on the Energiewende” that will neither lower prices nor ease the burden on consumers, but will benefit industry and fossil fuel suppliers including the coal industry. “The government pretends that the new laws won’t obstruct the Energiewende. But the opposite is the case,” says the Greens’ parliamentary group on its website. It claims that the caps mean that Germany will only increase renewable energy production enough to replace the nuclear capacity that will go off line in 2022.

Lead image: German village with Solar PV via Shutterstock

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