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Wind Blowing up an Investment Storm

Renewable energy has proven itself a viable alternative. But can it survive the latest EEG reform?

Wind and solar farms
Across Germany solar and wind capacities have been rising exponentially

The German Renewable Energy Sources Act 2016 comes into force on 1st January 2017. Environmentalists fear it goes too far in exempting big consumers, large industry and other big consumers, like the railways, and does not provide small-scale producers sufficient financial incentives or guarantees that the power they generate will be accepted by the grid.

As early as 1991, the German government decided to take the lead in promoting clean energy. From 2000 to 2014 it released a series of Renewable Energy Sources Acts (known by the German acronym EEG). As renewables became more reliable and widespread, the level of tariff was scaled back to alleviate the burden.

Large power consumers, industry and utilities like the railways, were able to obtain exemptions or significant reductions to the tariffs. As the years went by, the list of exempt companies increased, shifting more of the burden onto private households and SMEs. Now, Germany has the second highest electricity prices in Europe, and the political strain is showing.

Some recent bad news is that the FIT (feed-in-tariff) for renewable energy in Germany is to rise half a cent to 6.88 cents per kWh in 2017. The good news is that this rise is less than anticipated.

On the other hand, the general cost of production has fallen. Consumers now have the choice of supplier, which enables them to reduce their costs as well. Energy State Secretary since January 2014, Rainer Baake, says "With the EEG reforms the power generation costs are under control".

The state Economic Affairs and Energy Ministers Ilse Aigner (Bavaria) and Garrelt Duin (North Rhine-Westphalia), on the other hand, foresee further rises in the tariff rate. To stabilise the tariff at a fixed rate of 6.50 €-¢ per kWh, they propose creating a new fund they call a "Streckungsfond" (literally 'Stretch-Out' fund). The fund would use the capital market to borrow money to subsidise the feed-in-tariff scheme when required. When the tariff subsidy is no longer required, the rate for the consumer will not fall, instead the excess income will be used to repay the borrowed capital (with accruing interest).

This fixed tariff would provide more stability for the market, by removing the link between tariff level and the current market energy price. This is particularly important now that under the new rules grid operators have the right to regulate who they purchase power from, threatening, for example, to leave homeowners with no purchaser for their excess solar power.

Offshore windfarm
Offshore windfarm Riffgrund II. Turbine can generate as much as 8MW.

The average household in Germany consumes 3500 kWh per year. The higher EEG tariff for 2017 is expected to raise the annual power bill from 266 to 286 Euro (+7.7%).

Other tariffs will also rise. These include grid connection infrastructure for offshore windfarms, conversions to CHP (combined heat and power), and national grid extensions, including the 'Powerline Autobahn', needed to carry the wind power from the north to the becalmed industrial south.

Industrial consumers which do not qualify for exemption, mainly due to size, decry the rise in EEG costs, which exceed economic growth by more than 400%, although generating costs have fallen since the beginning of 2016 across the board, from 9.75 to 8.66 €¢ (-11%).

Article by Andrew Bone, Thursday, 15th December 2016