German Renewable Energy Act 2017 (EEG 2017) - what you should know

The Renewable Energy Act 2017 (EEG 2017) introduces a tendering system for most renewable energy (RE) sources. Where, under the previous EEG 2014, participation in tariff auctions was only compulsory for ground mounted photovoltaic systems, now onshore wind and, under a newly introduced Offshore Wind Act (WindSeeG), offshore wind projects have to take part in such auctions. To receive the market premium (Marktprämie) from the grid operator, project developers must now bid in technology-specific auctions for certain tender volumes.

Whilst the introduction of auctions is a fundamental change to the support scheme, several other elements of the EEG remain unchanged. In particular, the priority of RE sources regarding connection and access to the public grid remains unchanged.

The market premium is still paid for 20 years, but the amount of the market premium depends on the awarded amount following a successful bid. The direct marketing of energy (Direktvermarktung) which has been a feature of the RE regime since the introduction of the Renewable Energy Act in 2009 remains mandatory. RE sources must be sold on the spot market in order for the successful bidder to be able to claim remuneration. The remuneration of a RE plant operator is therefore twofold: it receives the market premium from the grid operator and also it receives the agreed purchase price from the direct marketing counterparty.

The tendering procedures are carried out by the Federal Grid Agency (Bundesnetzagentur - BNetzA). The BNetzA publishes the submission dates for the individual auction on the internet and the bidders must use standard forms published by the BNetzA. The bid must contain the market premium for the energy production of the RE source and the volume which the bidder is seeking to be installed. Bids can be excluded if they do not fulfill the requirements stipulated by the EEG 2017 or, in case of offshore wind projects, the WindSeeG (Offshore Wind Act). To file a bid, the bidders deposit a bid bond which serves as security for the grid operator’s claims for penalties in the event of non- or delayed realisation of the project. The amount of the bid bond depends on the RE technology. To participate in the tender process for onshore wind the bidder has to provide a bid bond of 30 EUR/kWh to the BNetzA.

The BNetzA will choose the lowest bids in the auction in an award procedure which is set out in detail in the EEG 2017 and, for offshore wind projects, the WindSeeG. The successful bidders will be notified and their names and their projects will be published on the homepage of the BNetzA.

Successful bidders will be entitled to claim a market premium from the grid operator to whose grid the plant is connected to. The market premium will be paid in the amount as awarded (“pay-as-bid” procedure) for a term of twenty years starting with the commissioning of the project.

The EEG 2017 tender system generally applies to all onshore wind power plants, offshore wind power plants, solar power plants and biomass power plants which are commissioned after the effective date, subject to certain transitional provisions. There are exceptions for small plants and prototypes. Geothermal energy will continue to benefit from the feed-in tariff system. For more information on geothermal energy projects in Germany access our publication.

The dates of the auctions and the respective volumes of the auctions are stipulated by the EEG 2017 and, in the case of offshore wind projects, the WindSeeG. In some cases, the volumes of the auctions may decrease or increase depending on the outcome of preceding auctions. The dates,volumes and maximum market premium set by law. The auctions for 2017 and 2018 have been set as follows:

Solar power plants

Onshore wind power plants

Offshore wind power plants* 

* only specific projects are eligible for the first two auctions.

Biomass power plants

The maximum market premium for solar power plants was set for the first auction in February 2017 to 8,91 ct/kWh. For the first auction of onshore wind the maximum market premium is set to 7 ct/kWh, for offshore wind 12 ct/kWh and for biomass power plants it is set to 14,88 ct/kWh. This value will be decreased in the following auctions.

As a result of the limited market premiums for every auctioned RE source, the level of the market premium is expected to decrease. At the first solar power auction in February 2017, the average market premium was 6,58 ct/kWh, the lowest awarded bid was 6,00 ct/kWh and the maximum awarded bid 6,75 ct/kWh. In comparison the first auction process for ground-mounted PV ended with an average premium of 9,17 ct/kWh.

This trend of decreasing prices for RE challenges project developers, turbine suppliers and investors who will have to adapt quickly to the changing market environment.

After the award, successful bidders must implement the project within technology-specific realisation periods set out in the law, otherwise penalties apply, the market premium may be reduced or the award may be revoked.

If a bid is not successful in an auction, a bidder has the right to bring a claim that its offer be accepted where that bidder believes that the tender process was unlawful in some respect. The law allows bidders to file for such a grant, even if the tendering volume has been exhausted at the relevant tendering date. To be successful with such a claim, the bidder must provide evidence to show that it would have received the award had the awarding procedure been followed correctly.

The new WindSeeG (Offshore Wind Act) provides for special transitional rules for offshore wind parks, taking into account long development and construction periods for such projects. Three different scenarios have to be distinguished:

Offshore wind farms which will be commissioned by 31 December 2020 will remain entitled to the feed-in tariff system under the EEG 2014.

The so-called “existing projects” (bestehende Projekte) can participate in a tendering system specifically designed for such projects which are already permitted or in an advanced stage of the permitting process but will not be commissioned by end of 2020. Existing projects are offshore wind projects which have been permitted prior to 1 August 2016 or which at least have been subject to a public hearing in the permitting process. They are either near-shore projects or are located in specific clusters of within the German Exclusive Economic Zone (EEZ) as defined in the German federal offshore plan of the Federal Maritime and Hydrographic Agency (Bundesamt für Seeschifffahrt und Hydrographie - BSH). For these existing projects two auction rounds in 2017 and 2018 will take place. The projects have to be commissioned till 31 December 2025 and there is reserved tender volume of 500 MW for Baltic Sea projects. To participate in the tender process the bidder has to provide a bid bond of 100 EUR/kW to the BNetzA. A typical 400 MW offshore project therefore requires a guarantee of 40,000,000 EUR.

As from 2021, auctions for all other offshore wind projects will follow the newly introduced centralized auction model. The BNetzA will establish an “area development plan” (Flächenentwicklungsplan – FEP) which replaces former offshore plans (Bundesoffshorepläne). The FEP comprises areas which will be investigated by the BSH, in respect of their sustainability for wind forms. Bidders will submit bids on the basis of the results of the investigations.

The introduction of auctions for most of the RE technologies will cause a material change in project financing strategies for RE projects. It is expected that binding funding commitments will be required in order to  take part in the auctions and therefore financing arrangements will need to be settled prior to participation in the auctions. Furthermore a bidder will need to provide a bid bond in order to participate in the tender process.

In addition, there are further effects of the new legislation which changes the risk positions of both, the plant operators and the investors.

Ask the Norton Rose Fulbright energy team in Germany. For detailed contact information see below. We are looking forward to advising you on the German Renewable Energy Act 2017.