Guaranteed Returns for Green Energy Producers in Germany
by
Dr. Christian Hullmann
. May 27, 2009
Being "green" has never been more profitable. Under the German Renewable Energy Sources Act (Erneuerbare-Energien-Gesetz - EEG), which came into force on 1 January 2009, producers of electricity from certain renewable energy sources are entitled to a guaranteed price for electricity fed into the grid. Almost all eligible renewable sources have a guaranteed price higher than the market price and the grid system operator must accept all offers of electricity. The opportunities are clear: guaranteed prices will create certainty for qualifying technologies which in turn will facilitate investment and growth in these sectors of the renewable energy industry. This is good news for both green electricity producers and investors. However, the new provisions are complex and need to be mastered before investments are made.
The EEG aims to increase the share of renewables in the market from its current figure of 16% to at least 30% by 2020. Therefore, all technologies aimed at generating electricity from renewable sources are being promoted. However, capacity, location or materials used may result in certain power plants being excluded from the scheme.
Which technologies are subject to the EEG?
The definition of renewable energy sources is challenging in any jurisdiction and there are always questions over certain sources that have non-carbon related environmental impacts, such as nuclear energy. The EEG includes the following renewable energy sources:
- wind;
- biomass (including biogas);
- solar;
- geothermal energy;
- hydropower (including wave power, tidal power and salt gradient and flow energy);
- landfill gas;
- sewage treatment gas;
- mine gas; and
- biodegradable household waste and industrial waste.
There are complex provisions which limit the technologies eligible for support under the EEG and care must be taken when investing to ensure that the chosen technology will qualify. For example, run-of-river hydropower installations are only eligible if they comply with detailed siting requirements and do not have an adverse impact on the ecological status of their location. The impact on ecological status will be determined under the detailed provisions of the European Water Framework Directive, and each site will be considered on its individual merits. It would be unwise to invest in such projects without a clear understanding of the Water Framework Directive.
The eligibility of wind energy is also subject to limitations. Installations providing an insufficient yield will not be supported and there are no guaranteed prices for installations with a capacity of more than 50 kilowatts if the installation operator is unable to provide evidence that the installation delivers at least 60% of the reference yield at the planned location. Again, careful consideration will need to be given to the EEG before investments are made and the appropriate due diligence will need to be undertaken.
The geographic location of solar power is a factor which will determine whether it benefits from guaranteed prices under the EEG. Installations will need to satisfy strict provisions aimed at limiting development in ecologically sensitive areas protected under zoning laws. Legal advice from lawyers conversant in such disciplines is recommended before investments are made.
How long will the guaranteed price last?
Prices for most green energy sources are guaranteed for a period of 20 years from the date electricity is first fed into the grid. Only hydroelectric power installations with a capacity in excess of 5 megawatts have a shorter guaranteed period of 15 years.
What is the amount of the guaranteed price?
The EEG stipulates a guaranteed minimum price which must be paid by the grid system operator. The price differs for each energy source. A number of considerations are taken into account including the degree of market penetration. The more established technologies such as wind power command a price which is closer to market prices while newer and developing technologies, such as solar, attract a higher price to promote improvements in technology. Calculation of the price is further complicated by differentiation not only between new and modernised installations but also between several levels of output while taking into account the facility's overall capacity.
The following tables give an overview of the price structures under the EEG:
Hydropower
|
Output
|
New Power Installations with a maximum capacity of 5 MW
|
Modernised Power Installations with a maximum capacity of 5 MW
|
Power Installations with a capacity over 5 MW
|
|
Up to 500 kW of output
|
12.67 Cents / kWh
|
11.67 Cents / kWh
|
7.29 Cents / kWh
|
|
Output between 500 kW - 2 MW
|
8.65 Cents / kWh
|
|
|
|
Output between 500 kW - 5 MW
|
|
8.65 Cents / kWh
|
|
|
Output between 2 - 5 MW
|
7.65 Cents / kWh
|
8.65 Cents / kWh
|
|
|
Output between 500 kW - 10 MW
|
|
|
6.32 Cents / kWh
|
|
Output between 10 MW - 20 MW
|
|
|
5,80 Cents / kWh
|
|
Output between 20 MW - 50 MW
|
|
|
4.34 Cents / kWh
|
|
Output over 50 MW
|
|
|
3.50 Cents / kWh
|
Landfill Gas, Sewage Gas and Mine Gas
|
Output
|
Landfill Gas
Installations
|
Sewage Gas
Installations
|
Mine Gas
Installations
|
|
Up to 500 kW of output
|
9.00 Cents / kWh
|
7.11 Cents / kWh
|
|
|
Up to 1 MW of output
|
|
|
7.16 Cents / kWh
|
|
Output between 500 kW - 5 MW
|
6.16 Cents / kWh
|
6.16 Cents / kWh
|
|
|
Output between 1 MW - 5 MW
|
|
|
5.16 Cents / kWh
|
|
Output over 5 MW
|
|
|
4.16 Cents / kWh
|
Solar radiation
|
Output
|
Installations attached to or
on the top of buildings
|
Freestanding Installations
|
|
Up to 30 kW of output
|
43.01 Cent / kWh
|
31.94 Cent / kWh
|
|
Output between 30 kW - 100 kW
|
40.91 Cent / kWh
|
31.94 Cent / kWh
|
|
Output between 100 kW - 1 MW
|
39.58 Cent / kWh
|
31.94 Cent / kWh
|
|
Output over 1 MW
|
33.00 Cent / kWh
|
31.94 Cent / kWh
|
Wind Energy
|
|
Onshore Installation
|
Offshore Installations
|
|
First 5 Years after Installation
|
9.20 Cents / kWh
|
|
|
First 12 Years after Installation
|
|
13.00 Cents / kWh (for installations erected prior 1 January 2016 compensation will be 15.00 Cents / KWh)
|
|
After 5 Years
|
5.02 Cents / kWh
|
|
|
After 12 Years
|
|
3.50 Cents / kWh
|
Biomass Energy
|
Output
|
Basic fees
|
|
Up to 150 kW of output
|
11.67 Cents / kWh
|
|
Output between 150 kW - 500 kW
|
9.18 Cents / kWh
|
|
Output between 500 kW - 5 MW
|
8.25 Cents / kWh
|
|
Output between 5 - 20 MW
|
7.79 Cents / kWh
|
Geothermal Energy
|
Output
|
Basic fees
|
|
Up to 10 MW of output
|
16.00 Cents / kWh
|
|
Output over 10 MW
|
10.50 Cents / kWh
|
This publication/newsletter is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.