THE AMENDED RENEWABLE ENERGY SOURCES ACT 2014 (EEG 2014)

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1 THE AMENDED RENEWABLE ENERGY SOURCES ACT 2014 (EEG 2014) Energy Regulatory & Governmental Affairs The Amended Renewable Energy Sources Act 2014 (EEG 2014) With the most recent amendment of the Renewable Energy Sources Act (EEG), which came into effect on , the promotion of renewable energies has been changed in significant parts. Some of the amendments are extensive, for example in the case of the obligatory direct selling, the wide restriction of financial incentives for biomass plants, the introduction of invitations to tender for free-standing solar (PV) plants, or the adjustment of the special compensation for large-scale electricity consumers ( industry discount ). With regard to the rates for the financial support of electricity from renewable energy sources (RES), the changes are not as dramatic. The rates have only been amended to a rather minor extent. Dr. Jan Dinter Practice Group Energy Rechtsanwalt T We briefly summarise the amendments for convenience below. We also provide a detailed overview of the recent amendments in German. We will be glad to provide you with this overview if you send us an . Objectives of the Amended EEG 2014 The objective of the EEG 2014 is to steadily and cost efficiently increase the share of RES in gross electricity consumption (Sec. 1 EEG 2014). The amendment of the Renewable Energy Sources Act is based on the following guiding principles (cf. Sec. 2 EEG 2014): Better integration of RES into the grid (Sec. 2 ss. 1 EEG 2014): RES plants shall increasingly take over tasks so far provided by conventional energy generators. Integration of RES plants in the market (Sec. 2 ss. 1 and 2 EEG 2014): In principle, the direct selling of generated energy to energy providers should be the basis for the financial support scheme set out by the amended EEG 2014 (Sec. 2 ss. 2, Sec. 19 ss. 1 No. 1 EEG 2014). The financial incentives shall be concentrated more strongly on the less expensive technologies (Sec. 2 ss. 3 EEG 2014), i. e. on onshore wind power and solar energy (PV). The costs for the financial incentives are intended to be reasonably distributed among all stakeholders (Sec. 2 ss. 4 EEG 2014). Dr. Martin Geipel Practice Group Energy Rechtsanwalt T twitter.com/noerrllp xing.com/companies /NoerrLLP Steering the Expansion of Power Generation from RES In order to provide for a foreseeable expansion of power generation from RES, expansion targets for individual RES are stipulated by the amended regulatory framework. These targets amount to: Onshore wind energy: MW (net) annually Offshore wind energy: 6,500 or 7,700 MW to the end of 2020, thereafter 800 MW annually PV: 2,500 MW (gross) annually Biomass: 100 MW (gross) annually For the other RES, no expansion targets are prescribed. 1

2 To determine whether the expansion target have been reached or are exceeded, a register of RES plants has been introduced by the amended EEG 2014 (Sec. 6 EEG 2014). Therefore, all new RES plants will have to register with the Federal Network Agency (under certain conditions, existing RES plants will have to be registered as well). With the exception of onshore wind energy, the expansion targets are determined by simply adding up the additional installed capacity within a given period ( gross targets). However, for onshore wind energy the capacity, which is decommissioned within the same period, will be deducted from the amount of additional installed capacity ( net target). The expansion of offshore wind energy will be steered by the allocation of grid connection capacities (Sec. 7d, Sec. 118 Energy Industry Act [EnWG] in its amended edition). Financial Support for Individual RES 2

3 The remuneration rates for RES are listed in Sec EEG 2014 in detail. In our overview on the amended EEG, the remuneration rates are set out for convenience in table form. For comparison, we include in the overview the most recent figures under the EEG Obligatory Direct Selling, Feed-in Tariff Model Available only for a Limited Number of Cases to limit the costs for the financial support of RES, all new RES plants are intended to be better integrated in the market than before. Therefore, the energy generated from RES shall above all by marketed by way of direct selling (Sec. 2 ss. 2 EEG 2014). Under this direct selling model, the plant operator sells the generated electricity to an electricity supplier ( direct seller ). In addition, the plant operator is entitled to claim for supplemental financial support, the market premium (Sec. 34 EEG 2014). The remuneration rates set out in Sec EEG 2014 for the individual RES are thereby the basis for the calculation of the market premium. The classical feed-in remuneration model, whereby the plant operator feed the generated power into the grid and in turn receives remuneration based on a feed-in tariff (FIT), is applicable in exceptional cases only: In the case of small plants (Sec. 37 EEG 2014), if the installed capacity does not exceed 500 kw (if commissioned until the end of 2015) or 100 kw (commissioning after 2015). The feed-in tariff for small plants is based on a deduction of 0.2 or 0.4 ct/kwh from the value s set out Sec EEG In exceptional cases for all plants (Sec. 38 EEG 2014): Any plant may opt for a feed-in tariff, which is 20 % below the support rates in the case of direct selling. As a result, this feed-in tariff model is not very attractive from a commercial point of view and will be used only in exceptional cases (e. g. insolvency of the direct seller or after commissioning of the plants before a contract with a direct seller has been entered into). Invitations to Tender as New Financial Support Scheme From 2017, the financial support for RES will be determined by invitations to tender (Sec. 2 ss. 5 EEG 2014). The amended EEG 2014 indicated that the design of the auctions may differ from the financial support schemes available in the EEG as of today. For example, the auction could also be based on contracts for the provision of generation capacity (instead of generated power). The invitations to tender are intended to be technology specific, i. e. the various kinds of RES will not compete against each other. However, for the time being until 2017, it is envisaged to gain experience with the invitations to tender through auctions for the financial support of free-standing PV plants (Sec. 55 EEG 2014). The invitations to tender as a method to determine the financial support for all RES will be implemented by a further amendment of the EEG. However, for plants going into operation by 2018/2020, financial incentives can still be claimed according to the support schemes of the current EEG 2014 under certain conditions (transition provisions in Sec. 102 EEG 2014). Reduction of the Remuneration Rates As known from the previous editions of the Renewable Energy Sources Act, the remuneration rates are being decreased regularly in order to adapt the financial support for RES to the technological advances and cost reductions for RES plants. Similar to the already existing reduction model for PV plants, the reduction for onshore wind energy and biomass in the EEG 2014 is also determined based on the expansion in a previous reference period ( flexible cap ). Onshore Wind Energy The financial support of onshore wind energy amounts to 8.90 ct/kwh for the 3

4 initial remuneration period and 4.95 ct/kwh for the following baseline remuneration (Sec. 47 ss. 1, 2 EEG 2014). These remuneration rates will be reduced quarterly from the beginning of 2016 (Sec. 29 ss. 2 EEG 2014). The amount of the reduction steps depends on the net expansion of installed onshore capacity within a reference period of twelve months, which ends five months prior to the relevant reduction step (Sec. 29 ss. 6 EEG 2014). Offshore Wind Energy The financial support for offshore wind energy remains rather stable at ct/kwh for the initial remuneration period (or ct/kwh for the initial remuneration period in the optional acceleration model) and 3.40 ct/kwh for the following baseline remuneration period (Sec. 50 ss. 1-3 EEG 2014). The optional acceleration model according to which higher initial remuneration will be paid in the first eight years after commissioning, can be chosen in case of commissioning until the end of 2019 and is therefore available for an additional two years in comparison to EEG 2012 which required commissioning until the end of

5 Solar Energy (PV) For PV plants, the remuneration rates (as of 1 August 2014) pursuant to Sec. 51 EEG 2014 range from ct/kwh ( 10 kwp) to 9.23 ct/kwh ( 10 MWp) in the case of installations on buildings (cf. Sec. 51 ss. 2 EEG 2014). For free-standing PV plants, the remuneration rate amounts to 9.23 ct/kwh (installed capacity 10 MWp), however, as described above the support scheme for free-standing PV plants will soon be converted to an auction model (cf. Sec. 2 ss. 5 EEG 2014). As previously, the monthly adaption of the remuneration rates depends on the gross expansion of installed capacity in a previous reference period (Sec. 31 EEG 2014). Biomass, Biogas and Bio-Methane The new provision for promotion of biomass, biogas and bio-methane is the most widely revised of all energy providers (Sec. 44 ff. EEG 2014). While the existing complexity of the promotion requirements has been reduced by the 5

6 recent amendments, the financial support has also been considerably restricted. The legislator does not stop as in the case of other RES at individual amendments but deliberately considerably restricts the incentive for biomass, biogas and bio-methane. Waste, Purification and Mine Gas The promotion of dumping areas and purification gas remains almost unchanged in EEG 2014 compared to EEG 2012 apart from the systematic conversion from a single feed-in payment to promotion of direct selling (cf. Sec EEG 2014). Hydroelectric Power The promotion of hydroelectric power was adopted mainly from EEG 2012 with some changes regarding public law and permit issues (Sec. 40 EEG 2014). Geothermal Power The promotion of geothermal plants is continued with regard to basic remuneration (Sec. 48 EEG 2014). Imposition of EEG Surcharge on Self-sufficient Suppliers ("auto supply") In contrast to the EEG 2012, according to which energy produced in generators owned by the energy consumer ("auto supply") did not pay the EEG charges, all energy generators have to pay the EEG charges. Existing self-sufficiency plants will be protected by far reaching provisions from this fundamental system change (Sec. 61 ss. 3 and 4 EEG 2014). For new self-sufficient energy plants, a number of exceptions are intended from this new imposition of the EEG charges (Sec. 61 ss. 2 EEG 2014). Special Compensation Provision With regard to the main testing proceedings of the European Commission, the legislator amends the provisions on special compensation. The main points of the new provisions are summarised as follows (cf. Sec. 64 EEG 2014): the privileged companies and customers will in future be defined in particular by their industries which are listed in Annex 4 to EEG the requirements as to intensity of power costs remain mainly unchanged. in addition, the limited EEG nominal charge payable by those privileged (Sec. 64 ss. 2 sent. 1 no. 2 EEG 2014) increases. This nominally increased limited EEG charge is, however, subject to various caps and also to a lowest limit (minimum EEG charge; Sec. 64 ss. 2 sent. 1 no. 3 and 4 EEG 2014). for companies which in the past profited from the special compensation provisions but which do not fulfil the new conditions, a hardship case provision is intended which permits restriction of the EEG charge to 20 % (Sec. 103 ss. 4 EEG 2014). Transitional Provisions for Existing RES Plants For existing RES plants, comprehensive transitional provisions are found in Sec. 100, 101 EEG 2014 A plant taken comissioned prior to is in principle an existing plant and therefore benefits from the far-reaching transitional provisions. In addition, RES plants which are subject to licence according to federal law and which were approved prior to and commissioned by the end of 2014 are also deemed to be existing plants (Sec. 100 ss. 3 EEG 2014). This applies for example to plants licenced according to emission protection or water law (e. g. wind energy plants or biomass plants). However, PV plants which require only a construction permit (based on the laws of the federal states of Germany), cannot therefore benefit from this transitional provision. In spite of being commissioned prior to , existing RES plants are deemed to be new plants if they are operated only after

7 for the first time with RES (Sec. 100 ss. 2 EEG 2014). This excludes the possibility to convert gas power plants, which previously existed for existing cogeneration plants taken into operation in the past on the basis of natural gas, into bio-methane plants with the old remuneration rates of the year of taking into operation after the coming into force of EEG Overview with Further Details We will be glad to send you our overview of amended provisions in German, if you send us an . This overview contains tables laying out the financial support schemes pursuant to the EEG 2012 and the EEG