Europe Phase Out Feedin Tariff by 2017

With the aim to promote the production of renewable energy (RE), the first German Feed-in Tariff (EEG) came into force in 2000. Since then it has been amended several times. The EEG serves the aim to promote renewable energies in order to increase the share renewable energy in the electricity mix and produce no greenhouse gas emissions (GHG) for a healthy environment and sustainable wealth creation for future generations.

This policy has been crucial in increasing the market share of renewable energy and has been extremely successful. In fact, the production of electricity from renewable sources in Germany was only 6.2% in 2000, increasing to 23.7% by 2012 and up to about 28 % in 2014. If this growth continuous accordingly, Germany could be powered by 100% renewable electricity by 2030.

With a growing interest in promoting renewable energy around the world, the German Feed-in-Tariff is frequently cited as a transferable model and has served as an archetype for similar legislation in more than 80 countries worldwide, particular in China.

At a Glance

• In 2000, the German Feed-in Tariff (EEG) came into force to promote the production of renewable energy (RE) by supporting the market development of renewables.
• The EEG was amended in 2004, 2009, 2012 and 2014 to adapt the law to the continuous positive development of renewable energies in all sectors.
• Key features of the EEG include:
  – Priority access to the power grid for RE.
  – A fixed price for energy producers for every kilowatt hour produced from RE for a fixed period (generally 20 years). This fixed price is high enough to ensure a return on investment.
  – All different types of RE are considered and tariffs are differentiated by source and size of the plant and the year the installation was put into operation.
  – The extra cost is shared among all energy users by the EEG surcharge meaning that end consumers of energy expect to pay a specific amount for each kWh used.
  – The fixed tariff is decreased by the government based on market developments.

• This policy ensures investment security and financial support for all kinds of renewables which allowed Germany to experience an enormous increase in the share of renewable energy in its electricity consumption.

• Triggering a decentralised, bottom up mobilisation, this policy gave people the chance to invest in renewable energy projects. This community-based approach fosters widespread citizen participation demonstrated by the fact that most RE infrastructure in Germany is owned by private individuals and cooperatives.

Policy Reference

Act on Granting Priority to Renewable Energy Sources (German Feed-in-Tariff) (EEG) 2000 [In English] and 2012. [In English]

Connected Policies

There are many other policy measures aiming to cut GHG and promote renewable energy in Germany. These include:

• The Integrated Climate and Energy Programme aims to cut GHG and addresses issues such as the expansion of renewable energy, support programme for climate protection and energy efficiency and the introduction of modern energy management systems though 29 specific measures.
• The German Strategy for Adaptation to Climate Change in 2008 creates a framework for adaptation to the impacts of climate change in Germany.
• The German Resource Efficiency Programme (ProgRess) aims for more sustainable extraction and use of abiotic natural resources, reduced associated environmental pollution, and improved sustainability and competitiveness within the German industry. The policy stimulates resource efficiency throughout the value chain, including design, cascading and recycling.

• Nuclear phase out 2001 and 2011.
• Eco-Tax approved in 2000 to increase costs for environmental damaging energy sources.
• Act on the Promotion of Renewable Energies in the Heating Sector.
• Electromobility Act.
• Increase of financial support for research in renewable energy and energy efficiency.
• Tax exemptions for biofuels (until 2007).
• Act to support entrepreneurial investments in renewable energy and energy efficiency through the KfW.

Selection as a Future-Just Policy

This policy is a key concept for the environmental protection of Germany. The EEG has increased the incentive to shift away from fossil fuels and nuclear power and move investments towards renewable energy.

The EEG has been the most effective instrument for reducing GHG and combat climate change in Germany. Also thanks to the uptake of renewables, it was estimated that CO2 emissions in Germany decreased by 27% in 2014 relative to 1990 levels. Renewables energy offset around 146 million tons of CO₂-equivalent emissions in 2012, a large part of which is attributable to renewable electricity generation promoted through the EEG.

This policy made investments in utilities as well in local renewable energy projects economically feasible by securing a fixed long-term income for individuals and communities that went from being only consumers to being also producers of energy, so called 'prosumers.' This encouraged a decentralised, bottom-up mobilisation led by energy cooperatives, local communities and municipalities and not by large companies and centralised interventions. This has led to an enormous increase in the share of renewable energy. In fact, most of the RE infrastructure in Germany is owned by private individuals and cooperatives and not so many by large utilities. This decentralised, community-based approach is considered to be one of the key aspects of the German Feed-in Tariff model, allowing a democratic and socially just transition towards a clean and sustainable energy future.

The EEG is financed through a cost-sharing mechanism, the 'EEG surcharge'. This mechanism equally distributes the costs of the EEG onto the electricity bills of all final consumers. The EEG-surcharge was around 1.50€ per month for a 2 people household (3000 kWh/year) in 2004, 3.10€ in 2009 and around 13€ in 2013. The major political advantage of this financing method has been its separation from the national budget, making it less vulnerable to changing political priorities.

Future-Just Policy Scorecard

Our "Best Policies" are those that meet the Future Just Lawmaking Principles and recognise the interconnected challenges we face today. The goal of principled policy work is to ensure that important universal standards of sustainability and equity, human rights and freedoms, and respect for the environment are taken into account. It also helps to increase policy coherence between different sectors.

   Sustainable use of natural resources

• The policy promotes the development and expansion of renewable energy over the use of fossil fuels. This reduces GHG and the policy clearly addresses the problem of global warming caused by a carbon-based economy.
  

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Equity and Poverty Eradication

• Although this policy is not directly related to poverty eradication or equity, Feed in tariff offers a way to 'level the playing field' by making sure that renewable energies are favoured compared to other sources of energy such as fossil fuels.
• By favouring options with lower external costs, i.e. renewable energy technologies, feed-in tariff offers a way to mitigate the negative effects of externalities, and thus protect those most exposed to the risks associated to climate change and environmental pollution.
• As Germany was one of the first countries to embark on this new energy pathway, costs for RE technology were very high. One of the challenges and valid frequent criticisms is that the higher energy price can be a burden for some people of the society. This is not necessarily a failure of the Feed-in Tariff itself, but rather a political mistake on how to finance the high upfront costs in the early years of RE technologies.
• In fact, the German Feed-in Tariff has catalysed the necessary demand which created a global industry that led to a massive decline in costs for all RE technologies. Hereby, through the German Feed-in Tariff people across the world, including the economical poor, have now access to cheap, reliable and sustainable energy.
• The German Feed-in Tariff follows the equity principle in that sense that it allows people from all parts of society to participate in the energy transformation. Citizens that do not own a building or cannot afford investing in a private RE installation (e.g. solar roof-top installation) still have the opportunity to buy a share in an energy cooperative and hereby benefit from the energy transformation.
• German Feed-in Tariff resulted in an increase of jobs in the renewable energy sector from 40.000 in 1998 to about 400.000 in 2014. Hundred thousand people hereby had new income opportunities and the unemployment rate was reduced.
• As the fuel for RE power installation is mostly free (e.g. wind and sun), the new infrastructure will provide very cheap power for citizens and hereby ensures that also the poor can have reliable energy access.
• The German Feed-in Tariff is financed through the surcharge mechanism that is shared among all energy consumers.
  

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   Precautionary approach

• The German government has decided to phase out nuclear power and eliminate the risk of nuclear accidents. This law provides a greater incentive to use more renewable energy sources.
• The EEG promotes renewable energy and a reduction of GHG emissions as action against inducing the harmful effects of climate change.
  

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   Public participation, access to information and justice

• In contrast to the conventional energy generation sector, many medium-sized enterprises and private households in Germany are involved in producing power from renewable sources after the EEG made it affordable and attractive. The EEG empowers new actors to enter the energy market and hereby enables a community-based and bottom-up approach.
• Most of the RE infrastructure in Germany is owned by private individuals and cooperatives showing that it possible for ordinary citizens to engage in the energy transition.
• The standard contract for feed-in tariffs is two pages long and is easy to understand.
• Information on the EEG and its impact is available on the website of the Federal Ministry for Economic Affairs and Energy as well as on several other platforms in German and English (incl. http://www.unendlich-viel-energie.de/ and http://www.hans-josef-fell.de/).
  

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   Good governance and human security

• Institutions are in place to implement and enforce the law, such as the Federal Network Agency.
• The governance processes of the EEG and the German Energy transition affect numerous government actors, different advocacy coalitions, and various political strategies. This multi-level, multi-stakeholder and path-dependent German governance structure needs to be improved and it is vital that all parties stick to the agreed long-term and mid-term goals.
• The policy promotes freedom from want and fear to the extent that concerns about climate change are being actively addressed and it promotes renewable energy as an alternative to nuclear power and fossil fuels.
  

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Integration and interrelationship

• The EEG is aiding Germany to build a greener economy positioning it well for future success in global markets and reducing dependency on importing fuel while integrating social justice and environmental protection into economic development plans.
• The policy protects the environment as renewable energy is less harmful than fossil fuel and nuclear power.
• The policy improves social justice as it enables private households to engage and invest in renewable energy and become energy produces, which is not possible with conventional energy.
  

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Common but differentiated responsibilities

• The policy takes into account historical inequalities as it addresses Germany´s responsibility to produce less GHG than in the past.
• The policy considers local circumstances, promoting the type of renewable energy technology which best suits the particular region. By promoting renewable energy and a nuclear phase-out, the policy is in line with the values and traditions of many Germans. The citizens are regarded as the backbone of the renewable energy boom in Germany as most renewable energy is in the hands of private people, farmers and cooperatives.

Context

The large resources of coal and lignite in Germany and a huge energy supply from fossil fuels enabled a fast industrial growth after World War II. From the 1960s, the energy supply then relied also on nuclear power. After the oil crisis of the 1970s, research into alternative sources to conventional energy was conducted and following the Chernobyl nuclear accident of 1986, as well as the general acknowledgment of climate change, the German government decided to reduce GHGs and promote renewable energies.

In 1991 an Electricity Feed-In Law was introduced in Germany to assist producers of electricity from small hydro stations and wind energy installations. This simple one-page bill required utilities to connect renewable energy generators to the grid, and to buy the electricity produced at a rate of 65-90% of the average tariff charged per unit to end-users. The law was one of the first support mechanisms for RE.

In response to the fact, that the Electricity Feed-In Law from 1991 was not successful in promotion of PV, Bioenergy, Geothermal it was replaced by the EEG in 2000. Key alterations included the differentiation of tariffs dependent upon RE type, size and site, as well as the replacement of percentage-based tariffs with fixed rates over fixed periods.

Objectives

According to the Act on granting priority to renewable energy sources (German Feed-in-Tariff – EEG 2012):

'The purpose of this Act is to facilitate a sustainable development of energy supply, particularly for the sake of protecting our climate and the environment, to reduce the costs of energy supply to the national economy, also by incorporating external long-term effects, to conserve fossil fuels and to promote the further development of technologies for the generation of electricity from renewable energy sources.'

'To achieve the purpose set out in subsection above, this Act aims to increase the share of renewable energy sources in electricity supply to at least: 35 percent by no later than 2020; 50 percent by no later than 2030; 65 percent by no later than 2040; and 80 percent by no later than 2050; and to integrate these quantities of electricity in the electricity supply system.'

These targets will most probably be even surpassed as mid-2015, the share of renewable electricity was already more than 30%.

The legislative goals (according to a coalition agreement of 2009 between CDU/CSU, FDP) are to:

• Reduce GHG by 40 % below 1990 levels by 2040 in Germany;
• Expand renewable energy and energy efficiency, making renewable energy the greatest proportion of future energy supply;
• Push forward the energy transition and make Germany home to one of the most modern energy industries, making it an attractive location for business and ensuring energy security and affordability.

Methods of Implementation

The EEG came into force in 2000, then amended in 2004, 2009, 2012 and 2014. The assurance of longer-term price guarantees has been central to the success of the EEG scheme in Germany. Since the introduction of the EEG, tariffs have been finely differentiated in order to adapt to the requirements of technologies and their markets.

2000

In 2000, the EEG came into force as the main mechanism – though the policy supported all sources of renewable energy. The amount of the EEG depended on the RE type, size and site and the amount was fixed over stated periods (often 20 years). The tariff rates of the EEG were determined by scientific studies in order to allow profitability and the use of state-of-the art technology. Adjustments in rates could be proposed every four years to keep up with technological progress and market developments. The EEG determined a yearly degression of the tariff for new installations to reflect the innovation progress. The tariff mirrored the market price of RE technology.

At this time the coalition of Social Democrats and Greens also introduced many legislative measures and incentives to promote renewable energy such as tax reforms (eco-tax on energy), tax emption for biofuels and the decision to phase-out of nuclear power taken in 2001.

2004

In 2004, the EEG was revised for the first time and this version provides a more differentiated EEG structure, taking efficiency aspects into account. Germany committed to increase the share of renewable energy in the country's total electricity supply to 12.5% by 2010, and to at least 20% by 2020. The rates at which the guaranteed tariff would reduce each year (annual digression rates) were also set fairly high in the amendment. The tariff rates were set to reduce annually in this way to encourage technical innovation and cost-cutting in the renewable energy sector. The fine-tuning of EEG law had a major impact on facilitating the development of Germany's supply of renewable energy.

The EEG 2000 also contributed to the implementation of the 2001 European Union directive on the promotion of renewable energies in the electricity sector.

2009

The EEG of 2009 was the first to be amended by the coalition of Christian Democrats and Social Democrats. The basic tenants of the EEG were retained (EEG and the priority of green power) but as some politicians felt that the policy should be altered to bring renewables 'closer to the market' and a market premium was introduced.

The market premium is a flexible premium paid for electricity as a compensation between the EEG tariff and the market value. For instance, producers of wind power are increasingly encouraged to sell directly on the power exchange instead of receiving feed-in tariffs, and a market premium is offered because of the extra work involved. Yet, this option only needs to be exercised if it proves more profitable than the EEG, so it essentially constitutes a risk-free bonus.

2012

The main aim of the 2012 EEG revision was to strengthen Germany as a business location through investments in construction, building and maintenance of renewable energy facilities. Politically, the EEG 2012 was part of the action by the German federal government after the nuclear accident in Fukushima, leading them to phase out nuclear power again (after a lifetime extension of nuclear power plants in 2010).

The function and main mechanism, the EEG, remained basically unchanged. The further differentiation and clarification aimed to improve the user-friendliness of the law and the remuneration system for bio-energy was also altered. To bring renewable energy prices closer to the market and contribute to the net, market and system integration, the EEG 2012 introduced further incentives for the direct marketing of energy with a market premium to improve the interaction between conventional and renewable energy as well as energy storage. However the renewable energy producers can still choose if they wish to receive the fixed feed-in tariff or the market premium.

2014

Unfortunately, with this reform the German government ends its success story by putting the energy system back into the hands of those who have a deep interest in remaining with conventional, dirty fossil energy sources. The new policy creates deficits for communities and regions and protects industry interests. In fact, the reform is a collection of compromises that shields fossil autocracy and large energy utilities at the expense of energy consumers, citizen cooperatives and the renewable energy sector. Here is an overview of the amendments:

Cap for wind and sun energy

The bill caps the amount of renewable electricity that qualifies for the FIT depending on the technology: on-shore wind 2.5 GW per year, photovoltaic 2.5 GW per year, biomass about 1 GW per year and offshore wind 6.5 GW to 2020. This is an attempt by the government to centralise and control the Energiewende – a transition that was successful precisely because of its decentralised and community-driven approach.

Exemptions for energy intensive industry

The reform continues to shield major industrial users of power from a renewable energy surcharge, which adds currently 6.3 euro cents per kilowatt-hour to the electricity bill of consumers. Exemptions for energy intensive industry are the main driver of the increasing electricity prices in Germany. Changing this was the key intention of the reform process and one of the main election promises of both governmental parties CDU and SPD. However, despite the fact that the European Commission would stop the exemptions due to European competition regulation, the German Energy Minister has helped ensure that 1,600 industry users are likely to continue to be exempt, saving them some 5.1 billion euros per year.

Taxing self-consumption of solar PV

The reform applies a Feed-in Tariff (FiT) surcharge to direct consumption. So far, owners of solar photovoltaic (PV) systems who use the electricity they themselves generate did not pay the FiT surcharge, which resulted in new business models for energy cooperatives and regional energy providers. This will now change for all operators of systems larger than 10 kW (existing installations are excluded). The industry has again successfully bargained an exception as the reform notes that energy intensive industries that generate their own electricity will pay only 15% of the surcharge, even if they are powered by gas or coal plants. Experts and associations have already announced that they will take legal action against this. Applying the FiT surcharge to direct consumption will destroy decentralised and cooperative-based business models.

Direct marketing

While the old Renewable Energy Act provided investment security by ensuring a fixed Feed-in Tariff for 20 years, the government now implements mandatory direct marketing. The reform foresees the mandatory direct marketing first for renewable energy plants with a capacity over 500 kW (from August 2014 onwards). From 2016 onward, this will also apply to installations over 250 kW and from 2017 installations over 100kW. Hence, owners are forced into a marketing system with immense bureaucracy and increased risk for them. It excludes energy cooperatives and private investors from the market – which have hitherto been the backbone of the energy transition.

Quota system instead of Feed-in Tariffs

The government foresees a change of the renewable energy policy approach from the successful FiT to a tender or quota system by 2017. Doing so scraps the determining success element – the purchase obligation – which provided guaranteed grid access for renewable energies and thus enabled the uptake of renewables in Germany. Studies and experience from several countries prove that a FiT system results in cheaper electricity than the quota model. Further, due to volatile market and trading prices for certificates, plant operators are affected by a lasting trend of little planning security. This has a major impact on the variety of actors involved in the energy market because energy cooperatives, farmers and individuals do not have the resources to take part in elaborate bureaucratic tendering.

Feed-in Tariff (FiT) surcharge

With the FiT surcharge, consumers pay the difference between the fixed price for renewable energy fed into the grid and the sale of the renewable energy at the energy stock market. As the price of renewable electricity on the stock market decreased, the amount of the FiT surcharge therefore increased. This leads to the paradox of electricity consumers paying more for their electricity through the surcharge added to their bill despite decreasing prices on the stock market. This mechanim was created by former governments and is not addressed in the new Renewable Energy Act reform. The reform, therefore, will be unable to achieve its ultimate goal of cost reduction.

Impact

The EEG has led to an unprecedented boom in renewable energy sources across Germany. Within just a few years, an autonomous, highly dynamic and efficient renewable energy industry has developed, covering the entire value-added chain. Driven by EEG legislation, Germany experienced an almost exponential increase in renewable electricity generation as shown in Figure 1. Germany generated 23.7% of its electricity from renewable sources in 2012 and 27.8% in 2014, whereas it was only 6.2% in 2000.

One of the key impacts of the EEG is that it has driven a decentralised, democratic and people-centred energy transition. Thanks to favourable EEG, investing in community energy projects and in local renewable energy infrastructure became financially profitable for many people and communities around the country, and allowed them to become the drivers of the energy transition. Energy cooperatives boomed, allowing citizens to collectively own their energy infrastructure and decide themselves what energy source they would prioritise. Between 2001 and 2011 the number of energy cooperatives increased by more than 8 times, totalling up to more than 800.  Also, the majority of the installed RE power capacity is owned by private individuals and only 5% of the RE installed capacity is owned by the four large power utilities (as shown in Figure 2) that used to own the whole energy generation and distribution market. This widespread involvement of local actors and citizens has ensured extensive public participation and acceptance which has been a key factor in speeding up the uptake of renewable energy in a socially just and democratic manner.

Further, this bottom-up movement created socio-economic value in regions, communities and districts across the country. Local governments invested in RE technology and hereby reduced public spending for high energy imports, generated new income through taxes and revenues from the Feed-in Tariff as well as created local jobs. The national framework has catalysed a local movement towards 100% RE. in 2014, there were more than 140 communities, regions and cities in Germany that have set a 100% RE target and more than half of them have already achieved it.

The EEG was developed to make dynamic development possible and to decrease the costs of renewable energy production by mass production. This goal was reached, as EEGs made solar and wind power more efficient and cheaper. The costs for installing photovoltaic systems dropped by 70% between 2000 and 2007 and since 2007, average installation costs have fallen from 5 €/kWp in 2006 to 1.60 per €/kWp in 2014. For wind turbines, costs were reduced by 25% between 2000 and 2012. Today is wind- and solar electricity the cheapest energy resource global, when compared new investments in energy.

The boom of renewable energy as a consequence of the feed-in tariff has also led to an increase in employment in the renewable energy industry – there were an estimated 371,000 direct and indirect jobs within the renewable energy sector in Germany in 2013.

Nonetheless, many critiques of the legislation have also been raised:

• The actual amount of the tariff has been greatly discussed. Despite, or perhaps because of its success, the EEG is subject to some criticism. In particular, the debate focuses on a suggested link between rising prices for electricity and the EEG. In 2013, the EEG surcharge was raised from 3.5 Cent to 5.3 Cent per kWh. However, this is not necessarily a failure of the policy itself, but rather a political mistake on how to finance the high upfront costs in the early years of RE technologies. In fact, the German Feed-in Tariff has catalysed the necessary demand which created a global industry that led to a massive decline in costs for all RE technologies. In fact, also in Germany, RE technologies reduce the price of electricity at the power stock market.  On sunny days with a lot of solar PV production, German electricity prices are even negative thanks to the high supply. Due to the merit-order effect which politicians fail to change, these low energy prices are not passed on to the final consumer.
• Poor households spend a larger proportion of their income on energy and could therefore be disproportionately affected by any higher cost. However, many other costs are not reflected in the current price, such as costs associated with environmental pollution, climate change or public health which are currently externalised at the expense of the environment and future generations. Further, as mentioned before, there would be political measures to avoid this.
• Also the thesis that Feed-in Tariffs are not market compliant and should be replaced by auctions, proves to be wrong. First, there is no fair energy market as fossil resources benefit from major subsidies and in addition do not reflect externalised costs. Scientific research shows that auctions or quota systems lead to higher costs for deploying renewable energy. Further, auctions or quota systems only strengthen established stakeholders and exclude new, specifically small and medium scale institutions or citizens to participate in the energy transition.
• There are exemptions for trade-sensitive and energy-intensive industries meaning that they do not have to pay the EEG surcharge. Due to this, the costs are mainly covered by private households which increases the share and does not follow the equity principle.

Potential as a Transferable Model

EEGs in Germany have been a huge success and the EEG is generally regarded as one of the best examples of an effective EEG law. As democratic support for a transition away from conventional and towards renewable energy is strong, the use of well-designed EEGs is likely superior to alternative regulatory support mechanisms, especially during the early phases of renewable technology development.

This policy has the potential as a transferable model to promote renewable energies. The Germans' EEG has acted as a model for the expansion of renewable energy to approximately 80 other countries. The EEG guarantees an attractive profitability for renewable installations and is effective in the promotion of renewable energy. The resulting high investment security and the lack of red tape are often cited as the main reasons why the EEG has brought down the cost of renewables so much.

Additional Resources

tarvertosible1989.blogspot.com

Source: https://www.futurepolicy.org/climate-stability/renewable-energies/the-german-feed-in-tariff/

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