2014 was a record year for Germany’s renewable power producers. For the first time, renewables (wind, solar, hydro and biomass) topped the power mix, contributing 27.8% of Germany’s power for the year, overtaking lignite as the country’s principal generation source, and defying critics the world over who claimed that dependence on renewables is economically and technically impossible.
For those familiar with the market, the figure comes as little surprise. In fact, it represents just a marginal uptick from the previous year, when Germany sourced 25.4% of its power from renewables.
With ambitious targets in place and until recently, apparently limitless political will and social support, Germany has become the renewables powerhouse chancellor Angela Merkel envisaged in 2011, when she launched the country’s famous low-carbon energy transformation, or Energiewende.
As of the end of 2014, Germany has 39.2 GW of installed onshore and offshore wind capacity, having installed a record 5.2 GW of new and repowered capacity during the year. Of this, 528 MW was offshore, while 4.8 GW was onshore – far above government’s target rate of 2.5 GW per year. In fact, capacity installed in Germany in 2014 accounted for 45% of all new wind capacity installed across the EU 28. Moreover, according to Germany’s department for trade and industry there is an additional 9 GW of offshore wind in the pipeline.
Total solar PV capacity has now reached 38.2 GW, after several years in which new capacity additions were between 3 and 7 GW – a rate which dropped sharply to 1.9 GW in 2014. Biomass power capacity, consisting mostly of solid biomass, currently stands at around 8 GW.
Electricity is the main driver of Germany’s renewable success story: the 2014 figures for renewable heat and renewable transport remained static, with renewables accounting for 9.9% and 5.4% of those markets respectively, illustrating that Germany still has some way to go to match its expansion of the renewable power market. However, the country remains a world-leader in biodiesel production, increasing its production 16% in 2013 to 3.1 billion litres – the second highest rate in the world. Similarly, despite a declining rate of installations, it is the world’s second-largest solar thermal market, with 12.3 GWth installed at the end of 2013.
Much of this growth has been driven by the policy framework, starting with Germany’s ambitious renewable energy, energy efficiency and emissions reduction targets. Under the Renewable Energy Sources Act, or the Erneuerbare Energien Gesetz (EEG), first enacted in 2000 and amended several times since, Germany aims to reduce total consumption of energy by 20% on 2008 levels by 2020, and 50% by 2050, in which electricity use will be reduced by 10% and 25% respectively. Meanwhile, the 2014 version now envisages renewables making up 40% of the power mix by 2025, 55% by 2035 and 80% by 2050. Correspondingly, the EEG sees renewables making up 18% of the total energy mix by 2025, 30% by 2035 and 60% by 2050.
The success of renewables in 2014 has its roots in the Energiewende plan, first drafted in 2010 by Angela Merkel’s government in response to rising energy prices and Germany’s ambition to lead on climate change. By the time the Fukushima nuclear disaster occurred in March 2011, resulting in Merkel caving to pressure to also abandon Germany’s entire 20 GW nuclear fleet, renewables were at the heart of the Energiewende by necessity as well as ambition.
Crucially, the Energiewende has enjoyed broad public support, largely due to its inclusive nature and measures to encourage citizen participation and investment in local renewable infrastructure. Burgerwindparks, or community- or cooperative- owned wind farms, now account for nearly half of Germany’s onshore wind capacity, as a direct result of EEG rules allowing citizens access to low interest rates for renewable developments, clear planning regulations and changes to tax law ensuring that profits are returned directly to the local community.
However, over the past two years, this support has waned. As capacity ballooned, so has the EEG surcharge added to customer bills to support the development of renewable energy. Germany currently has the second-highest energy bills in Europe, behind Denmark. And, as gas now makes up a negligible part of the German power market, national electricity bills have been virtually untouched by the oil price drop over the latter half of 2014. Indeed, retail prices are so high that they now often exceed the feed-in tariff (FIT) rates for renewables, making it more profitable for producers to either consume the power themselves, or to directly market the power to the wholesale markets outside the FIT.
With consumer disquiet over the cost of renewables support growing, and the European Union demanding that all states overhaul subsidy provisions to make them more competitive, the German government has introduced a number of reforms to the EEG regime, the EEG 2014, sometimes known as EEG 2.0.
Enacted on August 1 2014, it clarified the development corridors for onshore wind, solar, biomass, which now stand at fixed figures of 2.5 GW per year each for onshore wind and solar, and 100 MW per year for biomass. The 2020 and 2030 development targets for offshore wind were also reduced from 10 GW to 6.5 GW for 2020, and from 25 GW to 15 GW for 2030. It also introduced breathing caps for onshore wind and biomass, (solar which already had a breathing cap), which adjusts the FIT level upwards or downwards depending on the level of installed capacity each year. Furthermore, the degression of support for both is now reduced quarterly, rather than annually.
Crucially, however, the element of competition has now be introduced into the proceedings. Instead of applying for a set FIT tariff, from 2017 all developers will be required to take part in a tendering process, with auctions to determine the level of support. The tenders are being piloted on the PV industry, which is required to take part as of 2015, however, the exact structure of the tendering process remains unknown.
Meanwhile, compulsory direct marketing has also been introduced, requiring generators to market their power on the wholesale market – an option which is already reportedly utilised voluntarily by developers operating around 30 GW of Germany’s 39.2 GW wind capacity. However, with this comes a caveat: if the price of electricity on the European Power Exchange is negative for six consecutive hours, the support for renewables falls to zero for the number of hours that the prices are negative, a significant marketing risk for Germany’s power producers.
The last major change is the introduction of the self-consumption tax, labelled the “sun tax”, by the solar PV industry, which is virulently opposed to it. Under this rule, generators with systems of 10kW or more that consume their own power or supply their tenants, will be required to pay a tax amounting to 30% of the EEG surcharge from 2015. This will rise to 35% in 2016, and 40% by 2017. Around a third of solar PV generation is currently self-consumed, and crucially, it will mostly affect the solar industry’s commercial and industrial customer base, which has been a key driver for the expansion of solar PV thus far.
Part II of this feature delves more deeply into Germany's solar PV sector.