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Germany

Germany

First draft of new renewables law -- Germany kicks off discussions for market change

More attractive arrangements for replacement of old turbines with state-of-the-art technology, an improved market for offshore wind power and better integration of renewables electricity through sophisticated arrangements for system management are the most important changes proposed for Germany's renewable energy law, according to the country's federal environment ministry. A draft for revision of the law was presented by government on December 5 as part of an "integrated energy and climate protection program."

The draft retains the basic structure of the German wind power market: power purchase prices decreed by government and priority access to customers for all electricity generated from renewable sources of energy. The aim is to raise the contribution of renewables to electricity generation to 30-35% by 2020, from about 12% today, and to grow the share further beyond that. Once the law has been through parliament it should take effect at the start of 2009.

Pricing

The proposed purchase price for renewables is already under attack by the federal renewables association, the Bundesverband Erneuerbare Energien (BEE), which says it is too low to keep the onshore wind market going in the long term. The government is proposing the rate for onshore wind, applicable for five years or more depending on the quality of the site, fall from about EUR 0.081/kWh in 2008 to EUR 0.0795/kWh in 2009. Once the first threshold is reached for the volume of power generated, after about five years, payments drop to a base rate of EUR 0.0502/kWh.

The starting price for power purchases from new plant will continue to be reduced each year, though at an annual rate of 1% instead of the previous 2%. A bonus of EUR 0.007/kWh will be paid for power from wind turbines commissioned before 2014 that are equipped to provide grid support services.

To encourage repowering of good windy sites occupied with old turbines, the government proposes that replacement turbines qualify for the (higher) rate applicable to the original turbines, not the reduced rate available today. The rule applies to repowering of turbines that have operated for at least ten years, and where the repowering results in a two to five-fold increase in capacity.

Offshore, the purchase price is to be raised by EUR 0.05 to EUR 0.14/kWh, applicable for at least 12 years, longer for sites more than 12 nautical miles from the coast and at depths exceeding 20 metres. The price applies for turbines commissioned before the end of 2013; after that turbines coming online start at EUR 0.12/kWh. To compensate consumers for the high price they pay in the first 12 years, the government proposes it afterwards drops to EUR 0.035/kWh. From 2015, the start price for offshore plant coming online will decrease by 5% a year.

The current structure for integrating wind generation into the German power market comes in for criticism from the federal association of new energy suppliers, the Bundesverband Neue Energieanbieter (BNE). By preventing market forces coming into play, the renewables law is costing the consumer an extra EUR 430 million a year, says BNE.

The extra cost arises because transmission system operators (TSO) take it upon themselves to shape variable supplies of renewables power into a continuous supply by purchasing expensive balancing power from their sister generation companies before selling the packaged product on to electricity retailers. The BNE says that variable wind power should instead be sold directly through the EEX electricity exchange. It notes that intervention by the TSOs in sales of renewables power contradicts EU laws demanding separation, or "unbundling," of monopoly transmission system network companies from power generation and marketing companies.

Trading wind

Efforts to trade German wind power through the EEX instead of accepting the fixed purchase price have been made. But the requirement for wind and other renewables plant operators to choose for six months at a time whether to sell electricity on the EEX or sell to the grid at the fixed price, is a barrier, says a new association of independent electricity generators, Interessengemeinschaft Unabhängiger Stromerzeuger. It has 25 member companies representing 3.3 GW of capacity. If players could switch between the options at will, more would trade on the EEX, increasing market liquidity and reducing the cost of the renewable energy law, says the association.

In the proposed revision of the law, the government admits it is "aware that the rigid rules make self-marketing rather unattractive." These disadvantages, however, "are to be compensated by a bonus, the details of which will be set out in a regulation."

Slow expansion of the German electricity network, particularly in areas of high wind generation, is a problem in need of a solution, but insufficiently dealt with by the law, says BEE. Government is dealing with that problem, however, in an amendment to a separate law to be introduced in May. That amendment will also propose a single permit procedure for transmission lines for offshore wind.

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