Renewables incentives renewed1 January 2009
A raft of new incentive measures designed to encourage renewables, in particular offshore wind, and CHP will enter into force on 1 January 2009 in Germany, further improving the country’s already positive environment for clean energy investment, which can be largely ascribed to its embracing of the “feed-in tariff” concept.
The measures, passed by German parliament (Bundestag) in June, are part of the government’s “Climate Package” (see Figure 1) the goals of which are saving 250 million t of CO2 by 2020, with renewable energy contributing to 30% of electricity production by the same year (compared with 14.2% in 2007).
A key element of the new regime is an amended Renewable Energy Sources Act (EEG) that increases the wind “feed-in tariff” – the compensation paid to renewable generators when power from their facility is fed into to the grid. The new law raises the initial feed-in tariff for onshore wind to 9.2 euro-cent/kWh and for offshore wind to 15 euro-cent/kWh (see Table 1 for further details of the scheme, which is designed, among other things to incentivise offshore wind farms at greater depths and further out to sea). Onshore wind is certainly well established in Germany but it still remains to be seen whether the increased incentives for offshore development (in-line with what the industry was asking for) are sufficient to get things moving in that challenging sector, particularly with the added problem of the credit crunch.
The feed-in tariff for biomass is slightly increased in the amended EEG, to 7.79-11.67 euro-cent/kWh, with additional bonus incentives to encourage the use of sustainable raw materials and the construction of plants combining heat and power. In addition, feed-in tariffs increased for innovative technologies such as gasification or the upgrading of biogas to biomethane.
In contrast, when it comes photovoltaics, feed-in tariffs are reduced in the amended EEG, as from 1 January 2009, with a further decrease (degression) of 8-10% in 2010 and then of 9% annually after 2011 (see Table 2). (In fact, rather confusingly the degression rates will actually be adjusted depending on total annual PV installation each year. If the amount of new PV exceeds a certain limit in a given year, degression rates increase by 1% the following year, whereas if it falls below a certain limit degression rates decrease by 1% the following year. The “growth corridors” for 2009, 2010 and 2011 are, respectively, 1000-1500 MW, 1100-1700 MW and 1200-1900 MW.)
The lowering of PV?feed-in tariffs is a measure of how successful the support scheme has been and reflects the progress that has been made in lowering PV generation costs in Germany recent years, reducing the need for subsidies. Indeed Germany has emerged as a market leader in PV in recent years (see also pp 41-42), accounting for 47% of the world’s new PV generation capacity in 2007. The German figure for 2007 was 1.1 GWp, bringing its total installed PV capacity to 3.8 GWp, and annual PV installations in Germany are expected to increase those in other main markets, eg, Spain, Italy, France, Greece, Japan and the USA, for many years to come.
Even at the reduced feed-in tariffs, Germany provides a very attractive environment for the development of PV generation, see Figure 2.
Another part of the climate package, the amended KWK (Cogeneration Act), benefits investors in CHP, making a total of 750 million euro available annually (from 2009 onwards) to support such projects. The goal of the KWK is to have 25% of electricity produced in cogeneration plants by 2020.
The Act includes a bonus scheme for CHP units, see Figure 3, with provision for up to a total of 600 euro in annual payments, plus subsidies (up to 20% of project investment cost) for construction or modernisation of heating networks that use cogeneration (for at least 60% of their heat), up to a total of 150 million euro/year (the work having to begin between 1 January 2009 and 31 December 2020.
The climate package also calls for the promotion of heat from renewable sources, with the Renewable Energy Heat Act (EEWärmeG) requiring that new buildings have heating systems deriving heat from renewable sources. Financial incentives are being made available to equip older buildings with such technologies. These laws provide a ready made market, plus EUR 500 million/y of available funding, for investors in energy efficient heating technologies such as solar thermal heating. Germany is already Europe’s largest market for solar thermal technologies and offers foreign investors many possibilities.
All of these legal reforms, plus others that encourage energy efficient technologies, eg “intelligent electricity meters”, make it clear that Germany hopes to consolidate its position as a world leader in renewables.
Germany’s success is reflected in the way it has climbed up the rankings in Ernst & Young’s renewable energy country attractiveness indices. Germany is now second (to the USA) in both the all renewables and the long-term wind index, due to “its coherent legislative framework, which includes the introduction of attractive tariffs to support its industry – making it fit to meet the challenge of the new EU Renewables Directive,” says Ernst and Young.
Jonathan Johns of Ernst and Young contrasts the recent performance of the UK with that of Germany and says that “to make the UK a world leader in attracting investment in this sector, and to avoid it slipping further down the index, the government needs to consider creating tangible incentives for investors, following the lead of Germany…”
The actions taken by Germany regarding incentives have forced Spain, the US and the UK to start re-evaluating their models and Johns believes this has the potential to change the face of the investment landscape significantly. This will result in a major shift in how countries attract investment in the sector, depending on the incentives they offer and their value for money for the consumer in terms of the number of tonnes of carbon dioxide saved.