E E G A M E N D M E N T

Transcription

1 E N E R G Y B R I E F I N G E E G A M E N D M E N T J U L Y AUCTION SYSTEM TO BE INTRODUCED FIRST AUCTION ONSHORE WIND 01/05/2017 FIXED CAPACITY FOR ONSHORE WIND EXPANSION RESTRICTIONS IN GRID EXPANSION AREAS On 7 July 2016, the Federal Parliament (Bundestag) passed legislation introducing an auction system for electricity from renewable energy sources and further amending the law on renewable energy (Gesetz zur Einführung von Ausschreibungen für Strom aus erneuerbaren Energien und zu weiteren Änderungen des Rechts der erneuerbaren Energien; EEG 2017 ). On the same day, the Federal Council (Bundesrat) refrained from lodging an appeal to the conciliation committee (Vermittlungsausschuss), i.e. it waived its right to raise further objections. These decisions follow an intense discussion of various key points papers and draft bills, which began in July 2015, and in which details were hotly debated until a few days prior to the Federal Parliament's decision. As expected, with respect to offshore wind power, a separate law (the Offshore Wind Act; WindSeeG ) was implemented, which is reviewed in a separate briefing. The new EEG will enter into force on 1 January The first rounds of auctioning will start in February 2017 (for photovoltaic ( PV ) plants) and May 2017 (for onshore wind projects), respectively. Overview Increasing the share of power generated by renewable energy sources remains the main component of Germany's proposed energy transition (Energiewende). Accordingly, the EEG 2017 stipulates an increase in the annual gross electricity

2 EEG Amendment consumption (i.e. the total power produced in Germany less any that is exported) from the current 33% to 40-45% in 2025, to 55-60% in 2035 and to at least 80% in INTEGRAL PART OF THE EEG 2017: THE TRANSITION OF RENEWABLE ENERGY SUBSIDIES TO A COMPETITIVE AUCTION SYSTEM. In order to take better account of fundamental energy policy objectives, such as environmental impact, supply security and cost efficiency, the new EEG introduces a competitive auction system for renewable energy. Such transition is in line with the European Commission's environmental protection and energy subsidies guidelines, which stipulate that, as of 2017, subsidies have to be awarded in an auction system in order to ensure the subsidies system is admissible as state aid. The direct marketing of energy (Direktvermarktung) remains mandatory in the new system. However, the relevant reference value (anzulegender Wert) for determining the market premium payable by the grid operator will no longer be determined by the EEG for most renewable energy sources, but by the outcome of the auctions. For this purpose, the EEG 2017 provides for technology-specific auctions for onshore and offshore wind energy (the latter is regulated by the WindSeeG) as well as for larger PV and biomass installations. The auction design for PV plants under the EEG 2017 is based on the current ordinance regulating auctions for groundmounted PV installations (Freiflächenausschreibungsverordnung; "FFAV"), on the basis of which auctions have been taking place since The introduction of penalties in case of the delayed realisation of projects is intended to ensure a high realisation rate. 5% of the annual capacity for all sources of energy are open to bids from participants from other EU member states. The law provides for a series of additional ordinance authorisations (Verordnungsermächtigungen), amongst others, for the design of a common pilot auction for onshore wind and photovoltaics. THE IMPLEMENTATION OF A SO-CALLED REGIONAL GREEN POWER CERTIFICATE AIMS TO INCREASE THE LOCAL ACCEPTANCE OF THE ENERGY TRANSITION. The EEG 2017 contains further innovations in addition to the implementation of the auctioning system. For example, implementing a so-called "regional green power certificate (regionale Grünstromkennzeichnung) aims to increase the local acceptance of the energy transition. Energy suppliers will now be allowed to disclose to their customers that their electricity has been produced in the immediate vicinity by renewable energy sources. Furthermore, an ordinance authorisation is envisaged, which may implement a reduced EEG levy for tenants electricity models (Mieterstrommodelle) regarding PV plants. Exemptions The EEG in force until 31 December 2016 ( EEG 2014 ) already contains a transitional provision for switching to the auction system. The respective provisions have been transferred to the EEG Installations which need to be permitted under the Federal Immissions Control Act (Bundesimmissionsschutzgesetz; BImSchG ) or which require a permit under another provision of federal law and have been approved or admitted prior to 1 January 2017 and commissioned prior to 1 January 2019 are exempt from the auction process (except for ground-mounted PV plants, which are already subject to an auctioning regime).

3 EEG Amendment Additional exemptions apply to prototypes of wind turbine generators ( WTGs ). Those installations are referred to as "pilot wind turbine generators onshore (Pilotwindenergieanlagen an Land) under the EEG 2017and defined as the first two WTGs of a kind listed in the installations register (Anlagenregister), which verifiably show significant technical advancements and innovations and require testing as well as certification, but do not exceed an installed capacity of 6 MW. The remuneration for these installations is regulated by law. However, in each year, only prototypes with a total capacity of 125 MW will receive funding under the law; additional pilot installations may assert their claims the following year. Further, under the EEG 2017 a de minimis rule of 750 kw applies to onshore WTGs and PV installations (which was decreased during the legislative process); for new biomass installations, such de minimis rule is set at 150 kw. Installations below such thresholds do not have to participate in the auction system. This exemption is mainly relevant to small- and medium-sized PV plants. A statutory EEG remuneration will apply to installations for which the auction system is not mandatory. ENVISAGED AUCTION DESIGN 1. ONSHORE WIND Participation requirements The prerequisites to participate in an auction are: (i) the WTGs permit under the BImSchG; and (ii) the notification of the permit to the installation register at least three weeks before the respective bid s submission. Operators of so-called transitional installations (Übergangsanlagen), i.e. WTGs permitted before the end of 2016 and to be commissioned before the end of 2018 are free to waive their claim for remuneration under the EEG 2014 and to voluntarily participate in the auctions instead. Such operators must announce their decision by 1 March Auctioned amounts and dates The first auction is scheduled for 1 May 2017, followed by two further auctions in Four rounds of auctions are envisaged for 2018 and 2019, respectively. As of 2020, there will be three rounds per year. Temporarily, onshore wind was intended to serve as the main component for managing compliance with the so-called expansion corridor for renewable energy provided for by the EEG. In case of an overall capacity increase in new installations (onshore wind excluded) without the balancing effects of significant decommissioning of older installations, the annual auction amount of onshore wind would have been reduced accordingly. Owing to the federal states strong resistance against this provision, however, the concept was abandoned. The EEG 2017 now provides for a fixed annual auction capacity for onshore wind, initially totalling a gross amount of 2,800 MW (i.e. including capacity added by repowering measures, regardless of decommissioned capacity) from 2017 to 2019 and a gross amount of 2,900 MW as of As of 2018, the relevant capacity is reduced by the capacity of prototypes that first received funding in the preceding year (up to 125 MW) as well as any capacity possibly awarded under

4 EEG Amendment SPECIAL REQUIREMENTS APPLY TO THE SO-CALLED GRID EXPANSION AREA INTHE FEDERAL STATES OF NORTHERN GERMANY. future ordinances (in particular with respect to cross-border auctions or joint wind/photovoltaics pilot auctions). If the awards did not cover all the available capacity within a calendar year, the following year's capacity will be increased accordingly. Special requirements apply to the so-called grid expansion area, which still needs to be determined by means of an ordinance before 1 March 2017, but is expected to cover the federal states of northern Germany (not more than 20% of Germany's territory in the aggregate). The background to this provision, which was not included until the governmental draft of the EEG 2017, is the wish to limit electricity produced from WTGs in the respective areas because of a lack of grid capacity. Inside the future grid expansion areas, a maximum of only 58% of the onshore WTG capacity added in the annual average from 2013 to 2015 may be awarded within the auction system per year. This rule is subject to review every two years; i.e. amendments may enter into force as of 1 January 2020 at the earliest. Bids, guarantees and reference yield model The bidders participating in the auctions need to issue a guarantee of 30/kW of their respective capacity to be installed to the Federal Network Agency (Bundesnetzagentur; BNetzA ) before the end of the auctioning period. Bonds on first demand (Bürgschaften auf erstes Anfordern) issued by credit institutions or credit insurers as well as money deposits are allowed. Group guarantees (Konzernbürgschaften) are not provided for. Participants will bid on the reference value (anzulegender Wert) relevant to calculate the market premium, for a period of 20 years from commissioning. Successful bidders will be awarded the amount of their bid ( pay as bid ). Each bidder submits a sealed bid. In case of identical bid amounts, the bidder with the smaller bid capacity will receive the award. In case of identical bid amounts and bid capacity, the award is assigned by lot. The EEG 2017 defines the maximum value to bid for. Therefore, bids regarding the so-called reference site (Referenzstandort) shall not exceed 7 Cent/kWh in As of 2018, there will be an automatic determination of the maximum value, which will be based on the bid value average of the highest awarded bids in the respective previous three bid dates (Gebotstermine), increased by 8%. Depending on the competitive conditions and the cost situation, the BNetzA may set this value up to 10% higher or lower. To calculate the on-site reference value, a single-step reference yield model (Referenzertragsmodell) will apply in the future (see below), i.e. the calculated value will be valid for the entire 20-year funding period. An altitude of 100 m and a wind speed of 6.45 m/s are used in the definition of the reference site (in the sense of a 100% site ), whereas to date the reference site was assumed at an altitude of 30 m and a wind speed of 5.5 m/s. The increased wind speed at increasing installation heights will be determined by means of the so-called power law (Hellmannindex 0.25).

5 EEG Amendment Participants will bid on the reference value based on a 100% site, in order to make the bids comparable. The desired value regarding the respective installation is to be converted to a 100%-site using the adjustment factors provided for. There will be a linear interpolation between the 10% increments stipulated by the law. Adjustment factors and calculation examples are shown in the following table. AWARDED VALUE Quality factor 70% 80% 90% 100% 110% 120% 130% 140% 150% Adjustment factor Ct./kWh (ex.) Ct./kWh (ex.) Ct./kWh (ex.) Source: Official reasons for the law (Gesetzesbegründung) Once an award has been issued, the effective reference value is determined using the adjustment factors above and counting back from the 100% site to a site with the actual quality factor (Gütefaktor). The site s quality factor must then be communicated to the grid operator before the WTGs are commissioned and needs to be confirmed by an expert opinion. After five, 10 and 15 years, the reference value will be reviewed and adjusted, if necessary, on the basis of the actual yield in the previous five years. The amounts of electricity actually fed in will be supplemented by certain deemed amounts, which cover electricity that was not fed in because of curtailment measures (Abregelung) by the respective grid operator or direct marketer. Over- or underpayments within the respective period have to be reimbursed, if the deviation of the quality factor amounts to more than 2%. Payment claims from the grid operator are to be paid with interest. An additional review of the actual wind yield will also be mandatory for existing installations (commissioned from 2012 onwards). Such older WTGs are subject to the current two-step reference yield model. For these installations, the additional review of the site yield (Standortertrag) in relation to the reference yield takes place one year prior to the end of the period during which the increased initial remuneration (erhöhte Anfangsvergütung) is paid, but not later than 10 years after commissioning. In case of any deviations, the period of increased initial remuneration will be adjusted and overpaid amounts will be returned, just as for new installations. Realisation period and assignment In case installations are not commissioned within 24 months of the notification of the award, the awarded bidders face penalties and ultimately a revocation of the award. Where commissioning occurs after the end of the 24th month after the award has been issued, a penalty of EUR 10 per kw of capacity not

6 EEG Amendment commissioned becomes due, 20/kW after the end of the 26th month and 30/kW after the end of the 28th month. The award will expire 30 months after its public notification regarding any capacity not installed by then. This deadline is subject to a one-time extension by the BNetzA upon request, if, after submission of the bid, a third party claim becomes pending in court (rechtshängig); the immediate enforceability of the respective permit (Anordnung der sofortigen Vollziehbarkeit) is a precondition of such extension. In any case, the 20-year remuneration period starts 30 months after the notification of the award at the latest, even if commissioning may occur afterwards because of the extension of the deadline. The award issued for a specific project may be transferred only with the respective project. A transfer to a different project belonging to the same bidder is not possible. Legal protection Legal remedies are as stipulated for PV plants in the FFAV already permissible in one respect only, namely to compel the BNetzA to issue an award. An appeal for revoking an award issued to a third party is not permitted. AIMING AT PRESERVING THE DIVERSITY OF MARKET PARTICIPANTS, SPECIAL PROVISIONS APPLY TO CITIZENS ENERGY COMPANIES THAT HAVE NO MORE THAN SIX ONSHORE WTGS AND NO MORE THAN 18 MW OF CAPACITY. Special regulations for citizens wind farms (Bürgerwindparks) Aiming at preserving the diversity of market participants (Akteursvielfalt), special provisions apply to citizens energy companies (Bürgerenergiegesellschaften) that have no more than six onshore WTGs and no more than 18 MW of capacity. Citizen energy companies within the meaning of the law have to meet certain requirements with regard to shareholder structure. Such companies are allowed (subject to certain conditions) to participate in auctions under easier conditions, namely before receiving the mandatory BImSchG permit for the project. Moreover, further privileges regarding guarantees, the nexus between bid and project site (which stipulates only the same administrative district (Landkreis)) and prolonged realisation periods are provided for. In a deviation from the pay as bid principle, citizens wind farms are subject to the so-called uniform pricing system (Einheitspreisverfahren), i.e. in case they receive an award, they are granted the highest awarded bid value (instead of their own, as the case may be, lower bid value). Preconditions include, among others, that the respective municipality has been granted or at least offered a 10% financial participation in the citizens energy company. The federal states may enact further legislation with regard to citizens' participation. Transitional installations For so-called transitional installations (Übergangsanlagen), commissioned in 2017 or 2018, further new features, besides the additional review of the reference yield mentioned above, will be implemented: The principle already known as the breathing cap in the EEG 2014, i.e. a degression in relation to expansion (Zubau) during the reference period, is maintained in principle. However, from 1 March 2017 and including August 2017, a monthly degression of 1.05% will apply, initially regardless of any previous expansion. From October 2017, there will be a return to the

7 EEG Amendment quarterly degression, the amount of which will be determined depending on the expansion within the respective reference period. There will be an adjustment of remuneration as early as when a gross expansion of 2,500 MW is exceeded (instead of 2,600 MW under the EEG 2014). If the expansion value is exceeded by more than 1,000 MW, an additional degression will be implemented, i.e. the quarterly degression step may amount to up to 2.4%. 2. PHOTOVOLTAICS The FFAV, which provides for auctions for ground-mounted solar power plants until the end of 2017, will be repealed at the beginning of 2017 pursuant to the EEG From then on, auctions will be subject to the provisions stipulated by the EEG Participation requirements In the future, auctions will not apply only to ground-mounted PV plants (regarding which bids are still confined to a capacity of 10 MW), but also to rooftop plants and installations on other structures (e.g. landfills). Furthermore, the permitted areas (Flächenkulisse) for ground-mounted installations have been extended in a way to also include commercial and industrial property as well as areas for which a plan approval decision (Planfeststellungsbeschluss) has been made. By introducing a clause allowing federal states to impose further regulations (Länderöffnungsklausel), it is at the states discretion to allow for bids for installations on farmland and/or greenfield areas within disadvantaged areas (benachteiligte Gebiete; in accordance with the definition laid down by the EEG 2017). The EEG 2017 introduces the requirement for ground-mounted installations to provide a declaration of having secured the relevant areas by means of ownership or lease agreements (Flächensicherung) alongside their bid. Auctioned amounts and dates As already stipulated by the FFAV, three auction dates are provided for now on 1 February, 1 June and 1 October of each year. OWING TO THE ADDITIONAL INSTALLATION CATEGORIES DESCRIBED ABOVE, THE CAPACITY ANNUALLY AUCTIONED WILL INCREASE FROM 400 MW UNDER THE FFAV TO UP TO 600 MW. Owing to the additional installation categories described above, the capacity annually auctioned will increase from 400 MW under the FFAV to up to 600 MW, divided into 200 MW for each of the three yearly auction dates. The value is reduced by the capacity of ground-mounted installations with a capacity below 750 kw commissioned in the respective previous year, which are subject to a statutory reference value, as well as any capacity that may have been awarded under planned ordinances (in particular with respect to cross-border auctions or joint wind/photovoltaics pilot auctions). Where the awards did not cover all the available capacity within a calendar year (or any guarantees have not been issued by the respective operators, see below), the following year's capacity increases by the previous year's shortfall.

8 EEG Amendment Bids and guarantees The maximum bid value is 8.91 Cent/kWh and is subject to a monthly degression. The degression corresponds to that for PV installations not subject to the mandatory auctioning system. The principle already known as the breathing cap in the EEG 2014 (i.e. the level of degression depending on the expansion within the respective reference period) is maintained, but the details have changed. Upon submission of the bid, a first guarantee amounting to 5/kW has to be provided. Once the award has been issued, a second guarantee amounting to 45/kW is due. If the bid contains evidence that a development plan (Bebauungsplan) or a plan approval decision is in place, the second guarantee is reduced to 20/kW. If the second guarantee has not been provided on time, the award lapses and a penalty payment in the amount of the first guarantee is to be paid. Permissible guarantees are bonds on first demand (Bürgschaft auf erstes Anfordern) issued by credit institutions or credit insurers as well as cash deposits. Group guarantees (Konzernbürgschaften) are not permitted. Realisation period and assignment If the payment entitlement (Zahlungsberechtigung; referred to as funding entitlement (Förderberechtigung) under the FFAV) for a commissioned solar power plant is not requested within 18 months of the award being issued, the reference value is reduced by 0.3 Cent per kwh. An award lapses, if the payment entitlement is not requested within 24 months of the award being issued. Further, a penalty in the amount of the entire guarantee becomes due, i.e. amounting to 50/kW or 25/kW respectively (depending on the amount of the second guarantee). Bidders have the option of returning awards in total or partly. However, in this case, the aforementioned penalty also becomes due. Penalties are due, however, only if more than 5% of the bid capacity is affected. The request for payment of the entitlement does not have to be made for the installation for which the bid was submitted. In order to mitigate bidders risks associated with auctioning, a flexible allocation of awards is permitted. In this way, the distribution of an awarded capacity to multiple payment entitlements is possible. Similarly, a merger of multiple awards to a single payment entitlement is possible as well. However, if the installation s location does not at least partially match the land parcels (Flurstücke) stated with the bid, the reference value is reduced by 0.3 Cent per kwh. If bid amounts of multiple bids are allocated to a single installation, the compliance with all of the awarded bids will be reviewed and, if necessary, the awarded value will be reduced. Once a payment entitlement has been issued, a transfer to other installations is no longer possible. Definition of installation within the meaning of the EEG The respective definition laid down in the EEG 2017 explicitly clarifies that each PV module is an independent installation within the meaning of the law. The EEG 2017 is thereby explicitly contradicting the recent interpretation of the term

9 EEG Amendment installation (Anlage) by the Federal Supreme Court (Bundesgerichtshof), according to which all combined modules constitute a single installation within the meaning of the EEG. Existing installations will be subject to the relevant new provision as well, starting with the 2016 annual statement (Jahresabrechnung). 3. BIOMASS The EEG 2017 unlike the previous ministerial drafts provides for auctions for biomass installations. The annual gross expansion amount, awarded in a single auctioning round each year, is set to 150 MW per annum until 2019 and 200 MW per annum as of The maximum bid value for 2017 amounts to Cent per kw and is reduced by 1% annually. Penalties become due if installations are not commissioned within a certain period. Unlike other sources of energy, biomass installations already commissioned may participate in auctions as well, provided their statutory remuneration expires in less than eight years. Contrary to new installations, existing ones with a capacity of 150 kw or less may also participate in the auctions. Those small installations are subject to the uniform pricing system, i.e. when being awarded, they receive the highest awarded bid value (instead of their own as the case may be lower bid value). Subsequent funding commences in the 37th calendar month that follows the public notification of the award and lasts for 10 years. The installations are classified as newly commissioned as of the start of the subsequent funding period and, accordingly, need to comply with the requirements of the EEG 2017, i.e. possibly require certain technical upgrades. 4. OTHER RENEWABLE ENERGY SOURCES, SELF-SUPPLY AND ENERGY STORAGE Electricity generated by other sources of renewable energy is not subject to the mandatory auctioning system in order to receive funding under the EEG. The law stipulates that operators of installations for which the reference value was determined by auction are not allowed to use their own electricity (Selbstversorgung). Grid losses and the installations' own consumption (Eigenverbrauch) which also include other installations connected to the grid via the same grid connection point) are excluded. Also excluded are the self-supply at times of negative spot market prices, during which no market premium is payed anyway, and times of curtailment measures (Einspeisemanagement) because of grid overload. At these times, the produced electricity may be used for self-supply instead of reducing production. In principle, generated electricity can be stored and fed into the grid at a later stage. The official reasoning of the EEG 2017 (Gesetzesbegründung) clarifies that this is considered to be a deferred feed-in and any storage losses do not constitute (unauthorised, see above) self-supply. However, as it is the case under the EEG 2014, any remuneration is payable for only the amount of electricity actually fed into the grid from storage, i.e. the operator bears any storage losses.

10 EEG Amendment COMMENT Before the EEG 2017 can enter into force, the European Commission needs to give state aid approval. Since the law reaches even beyond the European Commission s environmental protection and energy subsidies guidelines, in particular, providing for fewer exemptions from auctions, such approval can be expected. THE EEG 2017 HAS BEEN DISCUSSED INTENSELY, HOWEVER, A NUMBER OF CONCERNS FROM AFFECTED MARKET PARTICIPANTS HAVE NOT BEEN IMPLEMENTED. The EEG 2017 has been discussed intensely. However, a number of concerns from affected market participants have not been implemented, plus innovations that were previously envisaged have been abandoned. For example, the "six-hour-rule" of section 51 EEG 2017 (section 24 EEG 2014, respectively) and the Electricity Market Act (Strommarktgesetz) did not implement the requirement of negative prices within the day-ahead-auctions as well as intraday trading, which would have reduced the provision s scope. WTGs below 3 MW are excluded from this provision at least. Substantial changes to the law occurred at short notice, such as the expansion limitation for onshore wind within the grid expansion area in northern Germany. The new law is not only relevant for installations commissioned from 2017 onwards. The EEG 2017 rather follows the concept already chosen for the EEG 2014, according to which the new law generally applies to all installations, as long as the transitional provisions do not provide for exceptions. Consequently, operators of existing installations need to thoroughly assess whether any new provisions apply to their renewable energy plants. This is especially the case for the additional review in the reference yield model for onshore wind, which may even lead to a payback obligation, which also applies to existing plants commissioned from 2012 onwards. At least, after some delays, the extremely quick conclusion of the legislative process has now brought certainty with regard to the future legal framework, so that market participants can adjust and prepare their projects and business models accordingly.

11 EEG Amendment FOR MORE INFORMATION Should you like to discuss any of the matters raised in this Briefing, please speak with a member of our team below or your regular contact at Watson Farley & Williams. DR. CHRISTINE BADER Partner Hamburg cbader@wfw.com DR. MALTE JORDAN Partner Hamburg mjordan@wfw.com THOMAS HOLLENHORST Partner Hamburg thollenhorst@wfw.com Publication code number: v3 Watson Farley & Williams 2016 Alle Verweise auf Watson Farley & Williams und das Unternehmen in diesem Dokument beziehen sich auf die Watson Farley & Williams LLP und / oder deren verbundene Unternehmen. Alle Nennungen eines Partners beziehen sich auf ein Mitglied von Watson Farley & Williams LLP, ein Mitglied oder einen Partner eines verbundenen Unternehmens oder einen Mitarbeiter bzw. Consultant mit vergleichbarer Position und Qualifikation. Diese Broschüre ist ein Produkt von Watson Farley & Williams. Sie stellt eine Zusammenfassung zu Rechtsfragen dar und ist nicht darauf ausgerichtet, rechtlichen Rat zu erteilen. Das hier Dargestellte ist möglicherweise nicht auf Ihre Situation anwendbar. Bei Anfragen oder Wünschen nach einer Rechtsberatung wenden Sie sich bitte an Ihren Ansprechpartner bei Watson Farley & Williams. Diese Publikation dient ausschließlich dem Zweck der Werbung. wfw.com