Analysis: German government asks for industry input on auctions

GERMANY: "Please tell us your views, we need your expertise," appealed Uwe Beckmayer, parliamentary state secretary for Germany's federal economy ministry, to wind industry executives gathered at the opening of Husum Wind 2015.

Husum Wind 2015 conference and exhibition
Husum Wind 2015 conference and exhibition

He was calling for input for the consultation on competitive tendering to set the support rate for wind energy, to be introduced from 2017.

Beckmayer stressed the importance of designing auction rules that will maintain today's wide diversity of players in the German wind sector.

Even before auctioning begins, the wind sector faces a challenge it can hardly meet unless the federal government takes action, warned German wind energy association president Hermann Albers.

Through the Renewable Energy Act of 2014 (EEG 2014), onshore wind support will fall by 4.8% next year and another 4.8% in 2017. Additionally, no wind energy support will be paid after a six hour period when wholesale electricity market prices have been negative, which could affect onshore wind in up to 2% of annual hours in 2016. Onshore wind is thus facing a potential 10-15% reduction in support in 2016, Albers warned.

On top of this, a planned alteration in the "reference earnings curve" — used to calculate the period in which onshore wind turbines are entitled to a higher rate of support, before dropping to the basic rate — could result in an overall 30% reduction in support from 2017.

Too much too soon

"It's not possible to cope with such a drastic reduction in onshore wind support in such a short period," Albers stressed to an audience that included senior politicians from the state’s of Schleswig-Holstein and Hamburg.

The auction mechanism was widely discussed at the Husum event. Wind developer Juwi pointed out that current proposals would rule out most wind projects in southern Germany from ever winning an auction.

Yet, added Fred Jung, board director at the company, a broad geographical spread of onshore wind energy would reduce the need for both balancing power — used to ensure stable operation of the transmission networks — and electricity storage.

Others fear the government may lower the annual auction volume in the first few years of the new auction mechanism to compensate for exceeding the government's target growth rate of roughly 2.5GW per year in 2015 and 2016.

In an onshore reference scenario presented by market research specialist Wind:Research, growth is expected at 3.5GW, 2.7GW and 2.3GW for 2015, 2016 and 2017 respectively. Yet, others believe this could be increased to 4GW for 2015 and 2016, with projects being pulled forward for installation before the auction mechanism is introduced.  

Lender’s warnings

To secure the supply chain, the annual auction volume should not fall below a net 2.5GW a year, stressed the Bremer Landesbank bank just before the Husum trade fair. It claims to lead the field in financing German onshore wind projects, with a market share of 15% in the first half of 2015.

The bank is also concerned about the German government's reluctance to consider exempting wind farms of up to six turbines from the auction rules, although this is possible under European guidelines on energy and environment state aid, according to Albers.

"The auction rules will increase financial risks for small wind parks — large investors threaten to dominate the market," the bank warned. It called on the government "not to make the same mistakes as in the photovoltaic and biomass sectors and almost completely eliminate all investment incentives."

Ironically, medium-sized wind developers such as Juwi and Energiekontor see new business opportunities in assisting such small wind developers to tackle the auction requirements.

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