Reform of the German Renewable Energy Sources Act (EEG) – Oeko-Institut’s suggestions

13.02.2013

To continue successfully promoting renewable energies and at the same time to remedy current defects of the act, the German Renewable Energy Sources Act (Erneuerbare-Energien-Gesetz, EEG) has to be revised. Oeko-Institut (Institute for Applied Ecology) presented suggestions for reform at today’s hearing of the Agora Energiewende . More The integration of electricity price signals in the support model as a complement to the standard remuneration used up to now is the most important element for the future flanking of power generation from renewable energies.

The German EEG – a successful model which needs to be optimized

Oeko-Institut assesses the German EEG as positive overall: There has been a huge expansion of renewable energies as a result of support provided by the German EEG. The costs for the plants to produce wind or solar power have fallen significantly at the same time. A large number of investors and plant operators ensure robust power generation. The priority position in the network’s merit order, the purchase guarantee and the fixed remuneration have decreased the risks for investments and strengthened confidence in the respective technologies.

Nevertheless the German EEG contains defects which should be remedied by implementing the suggestions put forward by Oeko-Institut. Setting remuneration payments through policy occurs too sluggishly to be able to react to changes such as falling costs for some technologies. In the case of biomass there is a proliferation of various bonuses which leads to unnecessarily high costs. Furthermore the expansion of renewable energies is entering a phase in which the operation and the building of renewable power generation plants has to more strongly optimized. In future the flanking model for renewable energies has to be more strongly geared to optimizing the value of the electricity production than to simply maximizing power generation.

Venturing more market: Suggestions for an improved German EEG

Oeko-Institut thus suggests that a differentiated remuneration model should be used, which takes better account of the different stages of development in which renewable power plants find themselves: in the case of onshore wind power and photovoltaics, technological development is already very advanced while offshore wind technology is in its infancy.

In addition, the market structures for the conventional and renewable segments should become harmonized in the long term. Up to now revenue has been accrued in the market of conventional energy production only for every kilowatt hour produced. In the future, however, revenues will have to finance power plant capacities. As a result Oeko-Institut has proposed taking the approach of the focused capacity market. The flanking system for renewable energies will have to develop in a similar direction in the long term.

In terms of the reform of the German EEG, this means the following: For onshore wind power generation and photovoltaics a combination of fixed and variable remuneration payments is conceivable, whereby the variable component could be oriented to the feed-in profile and respective trading prices on the power exchange. The fixed remuneration payment could also possibly be directly converted into a capacity payment. For offshore wind power plants additional capacity payments could be provided through auctioning as an innovation incentive. Biomass power plants would accrue revenues based on the wholesale prices of the energy-only market and would additionally receive a fixed premium (capacity payment) in the longer term.

Oeko-Institut provides further suggestions for optimizing the German EEG:

  1. Large-scale power plants of different sizes received different support. This diversity should and must be significantly reduced;
  2. In order to maintain the broad structure of investors, above all in the case of decentralized, smaller plants, the purchase guarantee of the network operators could be retained. However, the operators of (very) large renewable power plants should sell their electricity themselves.
  3. The apportioning of additional costs under the German EEG should be broadened.

In this way a step could be taken in the direction of a new power market model which, instead of guaranteed remunerations, is based on revenue flows for renewable energies that are predictable in the long term and which integrates important scarcity signals of the power market for optimal operation and optimal investments.

Background: Climate policy sets targets and direction

In order to meet the climate protection targets of the German Energy Concept (reducing greenhouse gas emissions by 40 per cent by 2020 and by 80-95 per cent by 2050 compared to 1990 levels) and the European Union (reducing GHG emissions by 20-30 per cent by 2020 and by 80-95 per cent by 2050), the expansion of renewable energies will make a crucial contribution. In Germany wind energy and photovoltaics in particular play a decisive role. As can already be observed, renewables are leaving their niche position in the power market and now have a market share of more than 20 per cent.

In the short and medium term, conventional, fossil-fired power plants will even out fluctuations in renewable power generation. Storage will provide this flexibility in the long term and step by step; decentralized power generation near to the power consumers will increase in the future. This diversity of renewable energy generation and the flexible options of its storage must be incorporated in a revised German Renewable Energy Sources Act.

Further information

“Vision and a sense of proportion. On the reform of the flanking framework for power generation from renewable energies” –Statements of Dr. Felix Chr. Matthes at Agora Energiewende’s expert meeting on “The future of the German EEG – evolution or system change?” on 13 February 2013 [in German only]

“Vision and a sense of proportion. On the reform of the flanking framework for power generation from renewable energies” – Presentation by Dr. Felix Chr. Matthes at Agora Energiewende’s expert meeting on “The future of the German EEG – evolution or system change?” on 13 February 2013 [in German only]

Contact

Dr. Felix Chr. Matthes
Researcher Coordinator Energy- and Climate policy
Energy & Climate Division
Oeko-Institut, Berlin office
Tel. +49-30/405085-380
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