The amendment of the Renewable Energy Sources Act 2021 – Innovations in the wind sector

published on 19th February 2021

Over the past two years, wind power has arguably been a problem child in Germany's energy transition. The approval situation was so bad that the tenders were signed but the expansion is now lagging behind the targets. The EEG 2021 could have set the course here, but seems to lack ambition in many aspects, also because important decisions were postponed. In the following, we are stating which changes have been made and the economic effects these changes could have.

In another article in this issue, you will also find the changes regarding  photovoltaics as well as landlord-to-tenant electricity and biomass.

Wind power - the new regulations from a legal and economic perspective

Expansion path and adjustment of the tender volume

After a relatively large number of tender rounds were held per year in the last two years, the number will now be reduced to three per year. The tender volumes - distributed proportionally over these dates - will be reduced by 1,600 MW in 2022 compared to 2021. Further, they will increase only slightly by 100 MW per year until 2025, then more strongly by 800-1000 MW per year until 2028. The target is an installed capacity of 71 GW in 2030 (§ 4 No. 1 EEG 2021). At the end of November 2020, onshore wind turbines with a capacity of 54.2 GW were connected to the grid.

A fundamental novelty here is that the tender quantities are to be reduced by the Federal Network Agency in the event of imminent signature. The determination of imminent signature is based, among other things, on the permits reported in the market master data register for the respective bid date and the bids not admitted at the last bid date. Signature in the last bidding round also plays a weighty role (Section 28 (6) EEG 2021). Three years later, the volumes not tendered in this way will be tendered again (Section 28 (3) no. 1 EEG 2021). If we look at the last bidding rounds, it becomes clear that the competition that was actually intended was cancelled out by the permanently signed bidding rounds. The consequence of this was that almost all bids accepted were at the maximum permissible value. It can be assumed that this state of affairs meant that any permit issued resulted in a relatively high rate of return. With the mechanism introduced, this is prevented by the onset of competition, because participants must assume when submitting bids that competitive pricing is taking place.

Instead of the maximum value, the project-specific cost structure is now once again the pricing parameter. The historical developments mentioned and the requirements of the EEG 2021 are shown in the following diagram.

   Fig. 1: Own Illustration; Source: EEG 2021, BNetzA 

At the same time, it must be assumed that reductions in the tender volumes will take place in individual bid dates. In particular, this will be the case until the approval situation improves due to possible facilitations, which are provided for in a resolution also passed as part of the EEG amendment. It remains to be seen whether and how these quantities can then be made up. A (political) side effect should also be that announcements of notoriously signed wind tenders can be avoided in this way.

Introduction of the southern quota and new quality factor

To promote low-wind sites, a new quality factor of 60 percent with an associated correction factor of 1.35 was introduced (§ 36h EEG 2021). Low-wind sites with reference yields between 60 percent and 70 percent, which were previously possibly at the limit of economic viability, are thus upgraded by up to 4.56 percent of the value to be applied. Plants with a reference yield of just below 60 percent should be checked again for feasibility.

The southern quota, which can be seen as a new version of the regulation on grid expansion areas from 2022, goes in the same funding direction. It provides that 15 percent (20 percent from 2024) of the tender volume per bid date will be preferentially awarded to plants in the southern regions (Baden-Württemberg, Bavaria, Saarland, parts of Hesse, parts of Rhineland-Palatinate) (§ 36d EEG 2021).

These two regulations promote low-wind locations. Projects or sites that were previously excluded from further consideration can thus be realized economically after all.

Bid requirements

In order to facilitate the implementation of a possible reduction of the bid quantity upon signature, the notification deadlines have also been tightened. Thus, four weeks before the bid date, both the BImSchG must have been issued and the notification to the market master data register must have been made. In the future, it must also be stated which partial quantity of the bid quantity is attributable to the respective plant in the case of a uniform bid for several plants (§ 36 EEG 2021).

Maximum value

The new maximum permissible value for the reference site is 6.0 ct/kWh. This will be subject to an annual degression of 2.0% per year from 2022 (§ 36b EEG 2021).

Additional bids

A quite positive new regulation states that an increase in the output of the wind turbine of up to 15 percent is permissible for the original remuneration period at the original bid value. If a power increase of more than 15 percent is planned, there is also the possibility of submitting an additional bid (§ 36j EEG 2021). This regulation creates the possibility to carry out efficiency-increasing renewal measures on a smaller scale in an uncomplicated manner.

Financial participation of municipalities

A new apportionment mechanism in favor of the siting municipalities to promote acceptance and to balance interests was created by the possibility of financial participation of municipalities. This gives plant operators the opportunity to involve neighboring municipalities in the proceeds with a total of up to 0.2 ct/kWh. Only municipalities within a radius of 2.5 km around the wind turbine can benefit, and the max. 0.2 ct/kWh is to be divided among them according to the proportion of the affected area within this radius. This cost item can be passed on directly to the grid operator. The plant operator does not incur any direct costs (§ 36k EEG 2021).

Assuming an average WT with 5 MW at an average location with 2,000 full load hours, a total of € 20,000 per WT and year can thus flow to the municipalities. Even if it can be assumed that this payment will contribute to an increase in acceptance, it remains doubtful whether the desired acceleration of approval or an increase in new construction will occur.

Conclusion

Since 2018, the realization of wind turbines depends significantly on the granting of the BImSchG permit. Since then, the bid value or the maximum permissible value & the tendered capacity is no longer a limiting factor. The only significant improvement in this area is the measures to promote locations with weaker wind conditions in order to give more plants or locations an economic basis. The financial participation of municipalities does not promise to open this enormous bottleneck of wind energy expansion and thus of the Energiewende. The increasingly urgent issue of repowering was also postponed, and changes in licensing law such as open-type approval were not mentioned. Against this backdrop, the effectiveness of the expansion path pales as an empty quantity with the obvious hope that 2027 / 2028 will see the big move. The fact that there is no majority-supporting idea and how great the political disagreement is also testifies to the postponement of precisely these most essential points. Measures such as an artificial shortage of tender quantities and the lower maximum permissible value effectively attempt to restore the idea of competitive determination of generation prices in this unbalanced system.

Ultimately, the rate of return on the approvable remaining wind projects will decrease due to competition, but will still be attractive. Due to the improved framework conditions for low wind sites, it is worthwhile to explore existing options in this area or to re-examine projects that have been shelved as unprofitable. One option is the innovation tenders, in which PV and wind plant combinations are eligible for participation.

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