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The amendment of the German Renewable Energy Act (EEG 2021)

Shortly before the turn of the year, on 17 December 2020, the German Bundestag adopted the Renewable Energy Act (Gesetz für den Ausbau erneuerbarer Energien; EEG 2021). It also passed a motion for a resolution tabled by the coalition parliamentary groups calling on the Federal Government to devise a strategy for the gradual reduction of the EEG surcharge by means of an alternative, budget-neutral financing model.

Germany’s Bundesrat then approved the bill in its last session of the year on 18 December 2020, thus paving the way for the fifth comprehensive amendment to the EEG to come into force on 1 January 2021. Any provisions of the Act that create an entitlement to remuneration from 2021 onwards or that deviate from the previous provisions of the Special Equalisation Scheme (Besondere Ausgleichsregelung) may only be applied after clearance from the European Commission under state aid law. The same applies to the addition of the amnesty arrangement (Amnestieregelung) for cases of self-generation, which gives electricity supply companies a right to enter into a settlement agreement with the transmission system operator in case there is a dispute about the right to refuse performance under section 104(4) of the EEG.

I. Key aspects of the EEG 2021

The key element of the EEG 2021 is the increase in tender volumes for wind energy, and primarily for solar power. Solar power is seen as having considerable potential in the context of Germany’s energy transition. Unlike wind turbines, solar power systems have not yet experienced any acceptance issues. In addition, they can be built in the high-demand areas in southern and western Germany and thus do not rely on the expansion of the German North-South transmission lines.

Another significant development is the privileged treatment of green hydrogen producers when procuring electricity. The EEG surcharge for their electricity purchases is to be limited to 15% of the regular surcharge or even to be waived completely. This is intended to promote (green) water electrolysis technology.

II. Reaching climate change targets by further expanding renewable energies

  • Electricity generation in Germany is intended to become greenhouse gas neutral before the year 2050. In 2030, 65% of German electricity consumption is to be covered by renewable energy sources. In order to achieve these targets, the capacity addition route and the production addition route will be adjusted upwards for the generation of electricity from renewable energies:
    • In particular, the tender volumes for onshore wind energy and for solar energy are set to be substantially increased. By way of comparison: While the EEG 2017 provided for a tender volume of 2,650 MW for onshore wind energy, in 2021, this figure will now be 4,500 MW under the EEG 2021, i.e. almost double. The tender volume for solar energy will be increased even more. Under the 2017 EEG, a tender volume for 350 MW was laid down for 2021; the 2021 EEG increases this volume by a factor of more than five, to 1,850 MW. Both the capacity expansion and electricity quantity routes, which are used to derive tender volumes, and the tender volumes themselves may be increased by the Federal Government by decree without the consent of the Bundesrat. The prerequisite for such an increase is that regular monitoring of the situation shows that the targets set by the Act are not being achieved quickly enough.
    • Two segments are introduced to promote electricity generation from solar radiation energy. Segment 1 relates to ground-mounted systems and solar power systems that are installed on, at or in structures that are neither buildings nor noise barriers. Segment 2 includes solar power systems that are installed on, at or in a building or noise barrier. Up to now, the installations for both segments participated in a standard tender. Due to the typically higher investment costs for installations in the second segment (higher expenditure for scaffolding, assembly and cabling), they were virtually unable to compete. At 9 cents/kWh, the maximum value for solar installation tenders in the second segment is now significantly higher than the maximum values for solar installations in the first segment, which have been reduced to 5.9 cents/kWh.
    • The EEG 2021 also introduces a tendering regime for biomethane plants.
    • The production of green hydrogen, which under the National Hydrogen Strategy is to become a cornerstone of the energy and transport transition, will now receive a privilege: The EEG surcharge may be limited to 15% for the production of hydrogen. According to its wording, the provision applies regardless of the source of electricity and thus applies to both green and anthracite hydrogen. However, the Federal Government can restrict the privilege to green hydrogen by decree. Section 69b of the EEG 2021 also allows for a full exemption from the EEG surcharge, provided that the provision is declared applicable by decree of the Federal Government pursuant to section 93 of the EEG 2021.

III. Limiting the cost increase

  • The maximum values in tenders for onshore wind turbines (future maximum value of 6 cents/kWh) and for solar installations from the first segment (future maximum value of 5.9 cents/kWh) are being reduced by roughly 15% and 20% respectively. However, these maximum values may be increased by decree of the Federal Government without approval from the Bundesrat if this should become necessary to achieve the climate targets.

  • The “flexible cap”, which results in a cost reduction for solar power systems, is being relaxed. The values to be applied for solar power systems that are laid down by statute will no longer be generally reduced by 0.5%, but by only 0.4%/month (base reduction). The various tiers of reduction, which depend on expansion volume, remain in place, but only take hold when a higher expansion volume is reached. However, if the forecast additional volume of 2,500 MW is not met and the shortfall is up to 200 MW, the reduction is brought down to zero. If there is a shortfall of more than 200 MW, the value to be applied undergoes a one-time increase of 1%, if the shortfall is 600 MW, the one-time increase is 2% and if the shortfall is 1,000 MW, the one-time increase is 3%.

  • Competition in tenders for solar installations is to be increased by widening the strip along transport routes where land can be developed. In future, ground-mounted systems along motorways and railways will be eligible for auctioning up to a distance of 200 metres, measured from the outer edge of the carriageway, instead of the previous 110 metres.

  • The EEG surcharge is to be partly financed using the federal budget, specifically by introducing carbon pricing in the heat and energy sectors under the German Fuel Emissions Trading Act (Brennstoffemissionshandelsgesetz: BEHG). Details on the BEHG are available in a separate briefing on that Act.

IV. Raising acceptance for the further expansion of renewable energies

  • Operators of onshore wind turbines can pass on costs associated with municipal governments getting a share of the revenues from new turbines to the grid operators.
    • Operators of onshore wind turbines that have been awarded a contract for their turbine can pay a subsidy of up to 0.2 cents/kWh to municipalities affected by the construction of the wind turbine in order to increase acceptance. Only municipalities whose territory is a maximum of 2,500 metres away from the onshore wind turbine are capable of being affected. These payments, including an expense allowance of 5%, can be passed on to the relevant (connection) network operator, who in turn can pass on the costs to electricity supply companies and end consumers.

  • The framework conditions for “landlord-to-tenant electricity” (Mieterstrom) are being improved in the context of photovoltaic systems.
    • The value to be applied for the landlord-to-tenant electricity surcharge will be significantly increased.
    • In addition, it is now sufficient for eligibility that the electricity is consumed in the same neighbourhood in which the installation is located; a direct spatial link is no longer required (neighbourhood approach).
    • Solar installations that are not operated at the same connection point are no longer aggregated for the purpose of determining the payment entitlement and the maximum capacity of eligible installations (100 kW).
    • The EEG 2021 explicitly clarifies that the supply of electricity to end consumers from solar installations can be carried out not only by the installation operator, but also by third parties, in particular energy service providers. The legislator is thus giving express recognition to the supply chain model.

V. Strengthening grid and market integration

  • A “southern quota” will be introduced to promote onshore wind energy and biomass in southern Germany. Provision is made in this context for prioritising tender awards for projects that are implemented in a southern German rural district in accordance with Schedule 5 to the EEG 2021. Only when 15% and, from 2024 onwards, 20% of the tender volume for the relevant tendering round has been awarded to projects in southern Germany will contracts then be awarded to sites across Germany.

  • The sliding market premium is also being developed further.
    • Up to now, the market premium was calculated on a calendar monthly basis. This remains the case for old plants. However, the market premium for new plants will now be calculated on a (calendar) yearly basis from 2023. This is intended to provide an incentive to use electricity from renewable energy plants during hours when electricity prices are high.

  • In addition, the tariff for electricity generated from renewable energy plants will be significantly restricted in the event of negative stock market prices for new plants.
    • Previously, the value to be applied and thus also the market premium and the feed-in tariff were only reduced to zero if the electricity prices in the exchange-based day-ahead auction had been negative for at least six consecutive hours. This arrangement is now being amended for new plants. The value to be applied will now be reduced to zero if the spot market price is negative for a period of four consecutive hours.
    • To compensate for that, the legislator provides that the maximum subsidy period for the EEG plant is extended by any and all periods in which the plant operator does not receive any remuneration. This makes it easier for the EEG plant operator to calculate the investment risk.

  • While previously only EEG plants and combined heat and power (CHP) plants with an output of more than 100 kW had to be remotely controllable, under the new legislation EEG plants and CHP plants with an output of 25 kW or more, and under certain conditions with 7 kW or more, must have a smart meter gateway that enables remote access by the grid operator. The new provision not only applies to new plants but also to old ones. However, it requires a finding being made by the German Federal Office for Security and Information Technology (Bundesamt für Sicherheit und Informationstechnik) that at least three smart metering systems are available on the market.

  • Until now, EEG plant operators were entitled to compensation amounting to 95% of lost revenue if the grid operator has reduced the plant’s feed-in capacity as a result of grid congestion. Under the EEG 2021, this entitlement will be increased to cover 100% of lost revenue.

VI. Entering the “post-subsidy” era

  • The EEG 2021 introduces the category of “post-subsidy plant” for plants whose entitlement to a tariff payment under the relevant version of the Renewable Energy Act applicable to the plant has already expired. Post-subsidy plants are still entitled to priority feed-in.

  • The operators of such plants can continue to make the electricity available to the grid operator for marketing purposes until the end of 2027. They then receive a feed-in tariff calculated based on the annual market value according to Schedule 1 of the EEG 2021 minus the general marketing costs of the grid operators marketing the electricity for the plant operators.
    • Operators of certain post-subsidy plants are entitled to the payment of a feed-in tariff. The entitlement is subject to a time limit, depending on the type and output of the plant, that expires on 31 December 2021 (post-subsidy wind onshore installations not eligible for a valid award from a tender pursuant to section 23b(2) sentence 1 of the EEG 2021), 31 December 2022 (post-subsidywind onshore installations not eligible for a valid award pursuant to section 23b(2) sentence 1 EEG 2021) or 31 December 2027 (post-subsidy plants that are not wind onshore installations that have an installed output of up to 100 kW).
    • The level of the feed-in tariff payable to operators of post-subsidy plants is not, as in the case for subsidised plants, calculated on the basis of the relevant values to be applied minus the general marketing costs of the grid operators, but is calculated using a nuanced regime: For post-subsidy plants that are not onshore wind installations and have a capacity of no more than 100 kW, the value to be applied is the annual market value, again minus the general marketing costs of the grid operators. The annual market value is redefined as the energy source-specific market value of electricity from renewable energy sources or from mine gas, which, in accordance with point 4 of Schedule 1, is derived from the actual average annual spot market price based on a calendar year. On the other hand, in the case of post-subsidy onshore wind installations, the value to be applied is generally to be derived from tenders issued by the German Federal Network Agency (BNetzA).

VII. Addition to the amnesty arrangement for auto-generation

  • In addition to the right of an electricity supply company to refuse performance to the transmission system operator for disputed auto-generation cases (amnesty arrangement), which was introduced by section 104(4) of the EEG 2017 and then retained in the EEG 2021, there will now also be a right to enter into a settlement agreement - subject to state aid clearance.

  • The prerequisites for such an entitlement are, first, a dispute or uncertainty as to the existence of the prerequisites for the right to refuse performance pursuant to section 104(4) of the EEG 2021, second, the absence of a final court decision on information or payment entitlements relating to the specific self-generation model and, third, the assertion of the right by 30 June 2022. On the basis of such a settlement, the companies concerned may, on the one hand, refuse to pay the EEG surcharge for the quantities of electricity in dispute until 31 December 2020 and, on the other hand, they must acknowledge their obligation to pay the surcharge for quantities of electricity generated at the plants concerned from 1 January 2021 onwards.