Cost-effective, plannable and market-focused: the 2014 EEG reform
The Renewable Energy Sources Act (EEG) has put wind power, biomass and photovoltaics in Germany on the path to success. The reform of the Act aims to substantially slow any further rise in costs, to systematically steer the expansion of renewable energy, and to bring renewable energy more and more to the market – while at the same time distributing the financial burdens more equitably.
The expansion of the renewable energy sources is a cardinal element of the energy transition. To achieve this, a successful instrument to promote green electricity was conceived: the Renewable Energy Sources Act (EEG). Its introduction in the year 2000 marked the start of the resounding success story of sustainable power generation. The aim was to enable the young technologies for generating electricity from renewable sources to gain a foothold in the market – by promising fixed prices, guaranteed sales, and giving priority feed-in to renewable sources.
The principle: anybody generating electricity from solar, wind, hydropower or biomass is paid a fixed price per kilowatt-hour – guaranteed for a period of 20 years. The grid operators buy this electricity and sell it on the power exchange. The difference between the fixed price and the actual selling price on the market (which is usually lower) is spread over all electricity consumers. This levy is known as the EEG surcharge.
The Renewable Energy Sources Act provided the decisive incentives for and has actually been instrumental in the successful expansion of the renewables. It achieved what sceptics had considered impossible: After fourteen years of successful promotion, more than a quarter of the electricity consumed in Germany today stems from renewable sources. But the high fixed prices for the then still comparatively expensive technologies have also led to the EEG surcharge rising steadily. Moreover, the rapid expansion achieved was increasingly posing a challenge to the stability of the electricity grids and the security of supply.
To break the upward cost trend, place the energy transition on a sound foundation and to make it more cost-effective, easier to manage and more market-focused, the German Government radically reformed the Renewable Energy Sources Act in 2014. The previous slogan "the quicker, the better" has now been replaced by the motto: "the easier to plan and predict, the better."
Priority for low-cost energy
The 2014 EEG Amendment steers the expansion of the renewables reliably and according to plan by establishing clear defined expansion corridors for electricity generation from wind power, photovoltaic and biomass. At the same time it focuses on promoting competitive, low-cost technologies: solar and wind will in future be given priority. A further advantage of the expansion corridors: steering allows the growing inputs from renewable sources to be better coordinated with the expansion of the grid, the necessary reform of the power market, and the other building blocks of the power supply system.
Funding for new installations on the decline
The 2014 EEG eliminates over-subsidization, reduces assistance and dismantles bonuses. Nevertheless, the renewables are still a good deal for the operators – private individuals, cooperatives and electricity companies alike. Because technical progress has drastically cut the cost of the hardware. Apart from up-and-running installations, for which the original terms remain unchanged, only small-scale new generating units now get government-guaranteed feed-in tariffs; operators of larger installations instead get a sliding market premium for selling their output directly, which ensures that operation of renewable-energy installations continues to be economically viable.
Amount of aid determined by competitive tendering
From 2017 at the latest, the amount of funding dedicated to the renewables is to be determined by means of competitive tendering to identify the most cost-effective form of energy generation among the various technologies. In a first step as of February 2015, experience with the new instrument of competitive tendering is being gathered in the context of ground-mounted photovoltaic installations. Later the tendering procedure is to be extended to other renewable energy sources.
Direct marketing instead of "produce and forget"
The 2014 EEG Amendment also drives the market integration of the renewables forward. Whereas previously the grid operators were obliged to buy the green electricity and sold it on the power exchange, this has now changed: the producers of renewable energy will in future have to take care of the marketing themselves, if they want to claim a subsidy. This mandatory direct marketing is to be introduced step by step (first the larger, later the smaller producers) to give everybody time to adjust to the new situation.
Exceptions for electricity-intensive businesses
In order not to jeopardize Germany's competitiveness as an industrial location and many thousands of jobs, enterprises with a particularly high electricity consumption in sectors up against international competition have to pay only a reduced EEG surcharge – this is known as the special compensation arrangement. This exception, which is in line with EU rules on state aid, continues to apply to around 2,000 businesses in all.
New rules on in-house consumption
Before the EEG Amendment, electricity producers who supply their own needs (self-suppliers) did not have to pay the EEG surcharge. Now operators that use electricity generated on site are also required to make a contribution to paying for the cost of developing the renewable energy resources. To protect those who have invested in good faith, nothing has changed for installations that are already up and running. But in future large installations producing power for in-house consumption will in principle have to pay the full EEG surcharge. Those who opt for renewable energy or new, high-efficiency heat-and-power cogeneration plants qualify for a reduced EEG surcharge. For most small-scale producers, however, everything stays the same: they are exempt from the surcharge on electricity they generate and use themselves.