Successful Year for Wärmezielscheibe

​​​published on 10th August 2020

In May 2019 Rödl & Partner published the concept paper „Die Wärmezielscheibe” [„The Heat Target”] discussing how the energy transition in Germany could be successfully and efficiently approached.

The topics covered by the study ranged from discussing the status quo, existing technologies and their distribution on the heating market to examining the possible development paths of the heating market up to the year 2050.

The major part of Germany's heat has so far been generated in decentralised fossil-fuel-fired power plants. Heating grids have only played a minor role so far though – but they will have to gain in importance in the future. In a more detailed analysis, the heat-specific degree of urbanity was presented showing the relation between heat demand and the size of the settlement. It was found that 30 percent of heat demand was attributable to only 5 percent of areas – the densely populated areas (see Fig. 1). Due to socio-demographic effects, those areas, in particular, will play a prominent role in the transformation of the heating market in the future. Heat demand there will only decrease slightly due to efficiency measures, so it is necessary to ensure land- and energy-efficient technologies for generation and supply here.  

Thus, policymakers should first concentrate on decarbonising the densely populated areas. These areas offer large CO₂ savings potential with relatively little effort.

After a year since the first publication, the question arises as to what has happened in the meantime and whether, given the changed legal and economic environment, the landscape of the German heating market is changing today?

To answer this question, the developments in Germany and an initial overview should be presented first.

Developments in Germany

1. Climate Action Programme 2030
   The Climate Action Programme 2030 is the government measure to promote energy and heat transition. The primary goal is to reduce greenhouse gas emissions by at least 55 percent by 2030 against 1990.
   The Climate Action Programme 2030 also specifies further measures to promote heat transition. In decentralised plants, the Programme provides for subsidies of 40 percent for the replacement of oil-fired heating systems as from 1 January 2020. In addition, the installation of oil-fired heating systems will be banned from 2026.¹ As regards central heating supplied through district heating, the Climate Action Programme reads that heating grids should increasingly switch to renewable energies and unavoidable waste heat recovery.
   
2. Enactment of the Federal Climate Change Act (KSG)²
   On 12/12/2019 the coalition government laid the foundations for introducing further climate protection measures in Germany. The Act provides for cutting CO₂ emissions by 55 percent by 2030 against 1990.

   To achieve this goal, CO₂ emission allowances for various economic sectors until 2030 have been allocated first. From 2030, emission limits will be determined in a legal regulation. In addition, the Act regulates consequences for sectors failing to meet their emission targets. In this case, the responsible Federal Ministry will be required to submit an emergency programme to the Federal Government within three months, proposing measures for ensuring future compliance with the emission limits.

   The Federal Government also undertakes to continue and regularly update climate protection plans and programmes.

3. Adoption of the Fuel Emissions Trading Act (BEHG)
   One of the most important political developments in the energy sector is the decision to introduce a national Fuel Emissions Trading Act (BEHG). BEHG will come into force on 1 January 2021. From that date on, an emission certificate will have to be purchased for every tonne of CO₂ (potentially) put into circulation. BEHG consists of two phases. In the first phase (2021 to 2025), a fixed price system will be introduced, where the costs per tonne of CO₂ will be increased annually. In the second phase (from 2026), an emissions trading system (ETS) will be introduced, where prices will be determined according to market principles. It is initially planned that a price corridor will be introduced in the first year of the second phase (2026). In 2021, the year of enactment, the price will be 25 €/t and will increase by 5 €/t in each of the following two years to reach 35 €/t in 2023. Next, it will increase by 10 €/t per year to finally reach 55 €/t in 2025.

   The BEHG regulations will initially apply to all fossil fuel distributors. In the energy supply sector, this means that power plants that have not yet been covered by European emissions trading will now also be affected. For more information on the implications of BEHG click here.

4. The Coal Exit Act

   On 3 July 2020, the Bundestag passed the Act on the Reduction and Termination of Coal-fired Electricity Generation and on the Amendment of Other Acts (Coal Exit Act) and the Structural Strengthening Act for Coal Regions based on the results of the Commission on „Growth, Structural Change and Employment”, after intensive discussion also with the federal states.³ Even though it seems at first glance that the Act mainly applies to the generation of electricity from coal, it also has an impact on the heat supply.⁴ For example, many coal-fired power plants also supply heat for local utilities. Furthermore, the Act also applies to smaller power plants or local heating systems, as they are supplied with fuels obtained from coal mining (e.g. pulverised lignite). Policymakers want to create incentives for operators to shut down their coal-fired power plants early. Article 1 of the Coal Exit Act introduces auctions for the early shutdown of coal-fired power plants and regulates compensation payments.

   
   The auctions will be held until 2027. Furthermore, the Coal Exit Act introduces changes to the German CHP Act [KWKG], which are summarised below.

5. Amendments to the German CHP Act [KWKG]

   Article 7 of the Coal Exit Act introduces various amendments to KWKG. Under Article 7a KWKG the bonus for innovative renewable heat will be increased. As regards the coal phase-out, Article 7c KWKG will still introduce a coal replacement bonus or amend it so that it will now be paid out as a one-off payment. For coal-fired power plants with a maximum age of 25 years, the retrofitting bonus will amount to EUR 390 per substituted kilowatt of electrical output. The maximum rate will be paid out until the end of 2022 for retrofitting and will decrease by 25 €/kW annually in the subsequent years. Power plants aged between 25 and 35 years will receive a maximum rate of 225 €/kW, which will also decrease by 25 €/kW annually. These regulations were also finally adopted by the Bundestag on 03/07/2020.⁵ In addition, Article 7d provides for a „South Bonus”, which is an additional incentive for CHP plants that go into continuous operation after 31/12/2019 and before 31/12/2026 and are located in Southern Germany.
   
   In a further draft law dated January 2020, the incentive period under KWKG was extended until 31/12/2029. However, the draft law stipulates that in future only the first 3,500 hours that a power plant is in full use in a calendar year will be eligible for support.
   
   The existing incentives for heating grids granted under Article 18 KWKG and Article 19 KWKG will also be revised. The new or expanded heating grid will have to be commissioned by 31 December 2029 and the share of heat from CHP or renewable energies will have to be increased from the previous 50 percent to 75 percent. At the same time, the CHP share will be reduced from 35 percent to 10 percent in cases where several heat generators are combined. Eligible beneficiaries or support rates in the form of CHP surcharges will not be changed.

6. Introduction of the Building Energy Act (GEG)
   On 23/10/2019, the Federal Cabinet adopted a government draft of the Building Energy Act (GEG).⁶ Relevant to the heating market is the decision that the ban on oil-fired heating systems from 2026, already agreed in the 2030 climate action package, will be upheld. On 18/06/2020, a draft law „on the harmonisation of energy conservation law applicable to buildings” was adopted in the Bundestag, thus revising GEG.⁷ The draft law increases the need for and importance of renewable energy sources and represents a groundbreaking change. GEG also promotes efficient district heating and approves it as a substitute technology.
7. Amendment to the „Heating Networks 4.0” incentive programme
   In December 2019, the incentive programme was revised and renamed „Heating Networks 4.0 - Federal incentive for efficient heating grids”. The incentive will be granted for heating supply systems that are highly efficient, multivalent and transparent. These grids should guarantee an innovative supply of heating and cooling based on various energy sources to be as environmentally friendly as possible; at least half of the fed-in heat should come from solar thermal energy, deep geothermal energy and biomass, including industrial waste heat or waste heat from waste recycling. The cost efficiency criterion where the heat price could be maximally 12 ct/kWh, the meeting of which had to be evidenced, was abolished in the amendment. The basic incentive under Module II covering the implementation phase was increased from 20 percent to 30 percent and the ban on cumulation with KWKG allowances was lifted. This creates new opportunities for use and improves the framework for supporting innovative and sustainable heating projects.
8. Federal incentives for efficient heating grids
   The Federal Ministry of Economic Affairs is currently working on the specific design of a new incentive programme. The political guidelines are based on the „Strategy for supporting energy efficiency and heat from renewable energies” published by the Federal Ministry of Economic Affairs in May 2015. The programme will essentially focus on promoting investments in the expansion of the district heating infrastructure. In addition to pure investment grants, policymakers are debating on granting support for running costs and the removal of obstacles to the use of waste heat and deep geothermal energy. The programme is due to be published before the end of 2020.

Impact on the Wärmezielscheibe

In particular, the introduction of a national emissions trading regime from 2021 will be a step towards a departure from fossil fuels in the heating sector. The amendment to GEG will stimulate the construction of new buildings. The coal phase-out and the incentives created for switching from coal to lower-emission energy sources will reduce overall emissions and create room for the use of renewables. Overall, it can be stated that the developments of the last 12 months are positive. In the next step, specific guidelines for the supply of heat to densely populated areas should be defined.

For example, there is still a need to address certain challenges involved in heating projects based on deep geothermal energy and the integration of unavoidable industrial waste heat recovery systems.

Overall, the developments show a positive trend. The heat transition is becoming a more prominent topic, also in news reports and in the public eye. Political and scientific considerations are increasingly focusing on heating grids and their importance for a decarbonised future.

The results and conclusions of the heat shooting target continue to hold true. The transformation of densely populated areas has moved to the forefront. In the next step, the utilities sector should implement clear economic incentive systems in order to be able to cope with the challenging projects – the incentive regime for broadband expansion seems to be a promising direction. We will monitor and report on further developments.

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²https://www.bgbl.de/xaver/bgbl/start.xav?startbk=Bundesanzeiger_BGBl&start=//*[@attr_id=%27bgbl119s0010.pdf%27]#__bgbl__%2F%2F*%5B%40attr_id%3D%27bgbl119s2513.pdf%27%5D__1593438819026

³ https://www.bundestag.de/dokumente/textarchiv/2020#url=L2Rva3VtZW50ZS90ZXh0YXJjaGl2LzIw
MjAva3cyNy1kZS1rb2hsZWF1c3N0aWVnLTcwMTgwNA==&mod=mod674756

⁴https://dip21.bundestag.de/dip21/btd/19/173/1917342.pdf

⁵ https://www.bundestag.de/dokumente/textarchiv/2020#url=L2Rva3VtZW50ZS90ZXh0YXJjaGl2LzIw
MjAva3cyNy1kZS1rb2hsZWF1c3N0aWVnLTcwMTgwNA==&mod=mod674756 

⁶ https://www.bmwi.de/Redaktion/DE/Downloads/G/gesetzentwurf-zur-vereinheitlichung-des-energieeinsparrechts-fuer-gebaeude.pdf?__blob=publicationFile&v=4

⁷https://dip21.bundestag.de/dip21/btd/19/167/1916716.pdf; https://www.bundestag.de/dokumente/textarchiv/2020/kw25-de-energieeinsparrecht-698640

     
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