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The EU Renewable Energy Directive provides for strengthening the use of self-consumption in decentralised generation. This article compares the regulatory framework in Germany and in other countries and discusses the implications of the EU’s Renewable Energy Directive.
Today, decentralised self-consumption plays an important role for energy generation using photovoltaics (PV), block-type thermal power stations (BTTPs) and small wind power. For many people, the possibility of consuming electricity produced by their own power plant primarily by themselves, feeding excess electricity into the grid and thus becoming a “prosumer” is a symbol of decentralised and sustainable power generation. In addition, by investing in renewable power plants, prosumers contribute to the improvement of the sustainability of the entire electricity system and thus also to the achievement of environmental policy goals, such as the goal of reducing primary energy consumption by 50% by 2050 compared to 2008.
Also the total costs of the energy transition can be reduced thanks to load shifting (decentralisation). This can ensure grid relief, especially if electricity is generated and consumed at peak times (or in combination with battery systems and, in future, with active peak shaving measures in the manufacturing sector or in electrical mobility).
Economic incentives, such as the very low threshold, e.g. of 10 kWp for PV, and the privileges concerning the EEG surcharge and network charges, are created to encourage consumers to invest in their own installations. The EEG remuneration (or grants for CHP power plants under the German CHP Act [KWKG] – support for BTTPs) also secures calculable minimum revenue when excess electricity is fed into the grid during off-peak periods. But the consumption of as much electricity as possible directly by the prosumer is also an incentive as such because this is how the maximum value is achieved when consumption of grid electricity is replaced with self-consumption. The following illustration presents the regulatory framework:
In the case of self-consumption of electricity, prosumers should observe certain regulatory requirements. This includes, first of all, the requirement to report information as per § 74a EEG and the payment of the EEG surcharge on self-generated electricity as per §§ 61 EEG et seq. For renewable power plants, mine gas, or efficient CHP power plants, the EEG surcharge on self-generated electricity is charged at a reduced rate of 40%. The EEG surcharge is not charged at all if a PV power plant’s installed capacity is only 10 kW or less, or if only 10 MWh of self-generated electricity in the meaning of the law is consumed per annum. According to §§ 19, 21 EEG, the statutory feed-in tariff may be granted to power plants with an installed capacity of up to 100 kW. On the other hand, in the case of larger power plants with a capacity of between 100 and 750 kW, the marketing risk is mitigated by the market premium measured based on the statutorily regulated fair value, while power plants with a capacity of over 750 kW have to additionally bear the risk of not being awarded a contract and the risk of their fair value being determined in a competitive procedure as part of the auction regime (§ 22 EEG). Here, if the power plant enjoys incentives under the auction regime, self-consumption is prohibited (§ 27a EEG). On the other hand, such power plants do not have to pay any network charges or electricity tax (power plants of less than 2 MW) (§ 9 (1) of the German Electricity Tax Act [StromStG]).
The following diagram summarises the EU Renewable Energy Directive in this regard:
The EU Directive 2018/2001 adopted by the European Parliament and the Council on 11 December 2018 on the promotion of the use of energy from renewable sources places a very strong emphasis on the self-consumption model in the individual EU Member States. The Directive should be implemented in the EU Member States by 30/06/2021. Article 2 (14) of the Directive defines self-consumption as generation, storage and consumption of renewable electricity within defined limits.
Article 21 of the Directive reads, for example, that the Member States should ensure that renewables self-consumers are entitled to generate, store and sell through peer-to-peer trading arrangements the self-generated electricity or to use aggregators. Aggregators’ activity is limited to the marketing or aggregation of excess electricity. In addition, according to the Directive, the electricity generated for one’s own consumption or fed into the grid may not be subject to “discriminatory or disproportionate procedures and charges, and to network charges that are not cost-reflective”. The Member States should also ensure that it is possible to use aggregated electricity storage systems without being exposed to a double burden such as charges or taxes. In addition, also the rights and obligations of final consumers should be safeguarded.
Nonetheless, the Directive also lists exceptions where the Member States may levy charges and fees, with these exceptions being specified in Article 21 (3). For example, charges and fees may be levied only if the self-generated renewable electricity is effectively supported without undermining the viability of the project in cases where the power plant’s installed capacity is over 30 kW, or where, from 1 December 2026, the overall share of self-consumption installations exceeds 8% of the total installed electricity capacity of a Member State. In the latter case, a cost-benefit analysis should be performed by the national regulatory authority of that Member State to check whether the incentive does not result in a disproportionate burden on the electric system or whether it does not exceed what is objectively needed to achieve cost-effective deployment of renewable energy.
Different definitions of self-consumption of electricityA particularly striking difference between the EU Renewable Energy Directive (RED) and EEG 2017 is that the definition in the RED directive only mentions renewable electricity while the EEG addresses generally the generation or consumption of electricity from both conventional and renewable sources.
Another considerable difference is the already highlighted concept of “aggregators”. According to the White Paper by BMWI [Federal Ministry for Economic Affairs and Energy], aggregators are “special suppliers of load management”. The definition included in EEG 2017 describes them as “self-operated” installations. The RED directive’s definition is yet to be broadened to include the construction, operation and maintenance of power plants by aggregators or third parties.
In addition, each Member State should ensure that (excess) electricity can be traded directly between market participants. Here, the relevant instruments should range from peer-to-peer trading arrangements to Renewable Power Purchase Agreements. It should be also ensured that trading through aggregators is possible. There is also a need for changes with regard to self-consumption within renewable energy communities. According to the RED directive, several persons may jointly act as trading self-consumers provided that they live in the same building. This is contradictory to the current version of the EEG. Furthermore, in this case, the German model of decentralised electricity supply to tenants [“Mieterstrommodell”] would be in conflict with the RED directives because, for example, jointly acting self-consumers would then classify as suppliers and thus would have to meet the relevant obligations and would be thus discriminated against.
In the RED directive, self-consumption is particularly protected in that any burdens such as charges or fees are disallowed. Because no network charges or electricity tax is currently levied in self-consumption models, there is no need to change anything in this regard, either.
In the case of power plants with a capacity of less than 10 kW or existing power plants, the EEG surcharge is not expected to change. For power plants with an installed nominal capacity of up to 30 kW, charges and fees may be imposed if the power plant is “effectively” supported. The term “effectively” supported leaves broad room for interpretation. The directive does not elaborate on whether self-consumed or/and fed-in electricity must be “effectively” supported. Therefore, it should be assumed that it primarily depends on the overall viability of the power plant even though only the electricity fed into the grid is supported. Because, an investment in power plants with an installed capacity of 10 to 30 kW is viable in most cases in Germany, it can be expected that the EEG will not have to be changed in this respect. But should the investment be no longer viable, this could result in a reduction or waiver of the entire EEG surcharge. The directive allows levying burdens on power plants with an installed capacity of 30 kW and more, so no changes are expected here, either.
In the case of power plants with a capacity of less than 30 kW that are not eligible for incentives, levying the EEG surcharge could be seen as contrary to law. This would be the case for PV self-consumption installations whose installed capacity is over the 52 GW expansion cap and that are thus not eligible for feed-in tariffs. This group of power plants also includes power plants whose incentive period ended and that were expanded, renovated or relocated during their 20-year incentive period. Such power plants are required to pay the (reduced) EEG surcharge. In these cases, the EEG surcharge could change. Generally, according to Article 21 (3c) of the RED directive, power plants with a capacity of over 30 kW may be subject to charges and fees, irrespective of whether they are eligible for incentives or not. This is, however, permitted as long as such charges or fees are non-discriminatory.
According to the European Consumer Organisation, an ideal regulatory framework for a self-consumption model has the following features:
These factors are largely fulfilled by the current version of the EEG or the RED directive. On the other hand, granting increased reliefs to energy-intensive companies or incentivising non-renewable energy sources is still a common practice in Germany. As a result, the same EEG surcharge is levied on fewer payers and thus its amount increases. Therefore, what should be done is implement tariffs that reflect the system costs or benefits and thus distribute the charges and fees fairly. In addition, the EEG is very complex as can be seen from the bewildering variety of reporting obligations that should be met with respect to most diverse institutions (e.g. waiver of the reporting obligation in the case of 7 kW power plants and the waiver of the EEG surcharge in the case of 10 kW power plants). Furthermore, the grid infrastructure is inadequate. Although the connection to the public grid is guaranteed, there are still no smart expansion opportunities to seize. Among other things, this is because network operators are not encouraged to expand smart networks, as they are not able to pass on the costs of it. Ultimately, in designing any future regulatory framework, the regulators will have to address the question of the provision of necessary network access and thus the refinancing of the existing infrastructure, the ensuring of market access, and the marketing of electricity – all this in a non-discriminatory way.
SpainIn the spring of 2019, Spain's regulators resolved to allow several consumers to be associated within the same generation plant. This promotes self-consumption in residential and industrial areas. In addition, bureaucratic hurdles such as reporting obligations were reduced and communal self-consumption, where neighbours can supply each other with electricity, is now possible. Also the “sun tax” was abolished in Spain and thus self-consumption was liberated from the tax burdens.
Austria
Remuneration for electricity fed into the grid in Austria is paid by Ökostrom-Verarbeitungsbehörde (OeMAG) based on prescribed tariffs for a guaranteed period (13 to 15 years) and VAT exemptions are available to households with annual household income of up to EUR 30,000. This change is also consistent with Article 21 (6a) of the RED directive. In addition, in April 2019, the Austrian regulators resolved to abolish self-consumption tax charged on electricity generated by PV power plants for own consumption; the tax will be abolished as from 2020.
In conclusion, it can be stated that the RED directive will not bring any significant changes to the EEG. No significant changes arising from the implementation of the RED directive are also expected as regards the EEG surcharge as part of the self-consumption model. However, in cases where a power plant does not use any incentives and is still subject to the obligation to pay the EEG surcharge, there could arise the need for transposition into national law. Particularly interesting are also the new EU guidelines regarding the communal operation of self-consumption installations. Changes can be expected also here. But what is striking is that many challenges remain unresolved, such as the reduction of network charges in the industry, the different contact points or reporting obligations, or the sluggish expansion of the network. Models from many other countries show that it is possible to regulate self-consumption in a cost-effective, simple and understandable way. Such as for example the net metering system in Denmark. Also the coupling of the support surcharges to the annual income in Austria could be an inspiration for a new regulatory approach to solving the German “debate about holding up electricity prices” and to ensuring a distribution of costs of support that would be socially acceptable.
Kai Imolauer
Partner
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Joachim Held
Associate Partner
