The German government’s ambitious plan to transform its energy system by phasing out nuclear and drastically increasing the use of renewable sources — the Energiewende — has hit the buffers of the global economic crisis and the need to cut costs. This is hitting offshore wind power particularly hard.
Recent government proposals state that renewable-energy projects coming online after 1 August 2013 should receive no feed-in tariff support for the first five months. From the sixth month, the tariff would kick in, but at a rate that is reduced by 4%.
Things would not be much better for existing projects. In 2014, they would suffer a one-off 1.5% cut in feed-in tariff rates. Another element of support for green energy, the renewables levy, would be frozen in 2014 at the 2013 level of €0.05277/kWh and rise at just 2.5% a year in the ensuing years. Renewables developers will be faced with the future risk that their project may be one too many to benefit from support if the overall renewables support paid out in a given year would mean the renewables levy had to be raised beyond what the cap would allow — something that is impossible to predict given the number of factors involved, from the weather to the number of other projects needing support.
Offshore woes
Even without the latest government proposals, offshore wind developers are already struggling. Installation delays could take many projects beyond a 2017 commissioning date, depriving them of the option to access the "concentrated" payment option of €0.19/kWh payable for eight years.
From 2018, offshore wind feed-in tariffs will fall by 7% a year for new turbines coming online each year. In 2020, the payment rate for newly commissioned offshore turbines will be just €0.12/kWh payable for 12 years. At present, €0.19/kWh is payable for eight years or alternatively €0.15/kWh is payable for 12 years.
Much of the government’s campaign seems based on doubtful assumptions. The government has warned that electricity prices for industry will rise dangerously high, damaging its ability to compete with other European companies. This calls for an "electricity price brake", the government argues. However, state-owned development bank KfW pointed out in February that non-privileged industry electricity prices rose by an average 4.8% per year in Germany in the period 2008-2012, when photovoltaic capacity in particular increased sharply. Yet the average increase over the same period in the European Union as a whole was higher, at 5% per year.
Domestic customers are groaning under the burden of the renewable-energy levy, of which they pay the largest share, according to the government. Yet, despite sharp price-hike announcements by electricity retailers at the start of 2013, only 25% of electricity customers plan to switch supplier this year, a representative survey by consultants Putz & Partner revealed in January 2013. This compared with 21% in 2012 and 26% in 2011.
Also, federal environment minister Peter Altmaier’s warning that prices will "run out of control" is contradicted by analysts at Germany’s fourth largest energy company, EnBW. In a position paper released in February, EnBW said that, under the current system, the renewable levy is set to rise by no more than €0.002/kWh in 2014 from the current €0.05277/kWh. Reducing the so-called liquidity reserve held by transmission system operators that administrate the levy system, the study said, could easily make up for this.
EnBW suggests alternative solutions that would not stymie renewables growth. These include reducing the electricity tax or waiving the value-added tax increase resulting from the rise in the renewables levy component of electricity prices. Even if the wholesale price of electricity dropped to as low as €0.036/kWh, the levy would only have to increase to €0.058/kWh to cover the difference between this market price and the feed-in tariffs paid to renewables generators, EnBW said.
Nuclear fallout
Until the Fukushima nuclear disaster in March 2011, the pro-nuclear federal conservative and liberal parties saw little need to get to grips with the effect of increasing reliance on variable renewable generation on the electricity system. The learning curve is fast and steep now: the government’s proposals show they are not up to the task of steering and coordinating the Energiewende, claims the opposition Green Party.
It has been argued that the recent raft of government proposals stems from a desire to be seen by the voting public to be doing something about energy prices — ostensibly keeping them under control regardless of the effects this might have on the renewable-energy sector.
The project company behind the Global Tech I offshore wind farm said on 26 February: "We assume that the aim behind the plans was to start a political debate, and that no law will be implemented in this form." If the ministers’ plans are indeed implemented, "the project’s financial reserves will be negatively affected as project finance is calculated based on the renewable energy law and its ‘concentrated’ arrangement for offshore wind [€0.19/kWh for eight years]. We would hold talks with the financing banks and stakeholders to adapt the financing model," it continued.
The effects of these proposals on the offshore wind sector would be "disastrous", said EnBW. Its Baltic 1 project is in operation in the Baltic Sea, and another three are at various stages of planning. "This relatively young industrial sector needs a stable framework over a period of years to work through the urgently needed learning curves. Investments made in offshore wind farms completed or under construction are threatened with being subsequently devalued," it warned.
Investor confidence
If the proposals are turned into law, "there will be a massive effect on investor confidence, federal constitution issues will arise, and the economic feasibility of offshore wind projects will be jeopardised with all the consequences this brings for the component-supply and logistics sectors", offshore wind foundation Stiftung Offshore Windenergie has claimed.
"Reliable political framework conditions are the central foundation for expanding renewable energies," according to Swiss company Axpo Services, which has a stake in Global Tech 1. "At the moment, we don’t want to speculate on possible consequences. However, we are following the situation closely and are preparing ourselves for various legal scenarios," an Axpo Services spokeswoman said.
"We hope the plans are not implemented. In view of the ministers’ plans, we are of the view that bank financing for future projects will be significantly more difficult," said a spokesman for Stadtwerke München, which has stakes in Global Tech 1 and DanTysk. "Reducing the feed-in payments for existing projects will reduce their profitability in the long term. Economic feasibility calculations and investment decisions are virtually impossible in view of the planned backdated cuts in payments."
EnBW and many other market players expressly acknowledge that the Renewables Energy Act has to be revised to take into account new developments. But the Offshore Wind Foundation wants decisions to be made on the basis of firm information. Along with other organisations, it has commissioned a study from consultants Fichtner and Prognos on the potential for cost cutting in the offshore wind sector, due to be completed this summer.
A second study commissioned by the foundation along with the Power Systems division of engineering federation VDMA is to analyse the economic significance of offshore wind power. They expect its findings to underline the important role that offshore wind plays in achieving Germany’s target of generating 80% of its electricity supply from renewable sources by 2050.
