Purchase prices fixed and barriers down -- Germany's new law aims to cut costs and control utilities

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As Germany's new renewable energy law took effect at the start of August, the wind power sector found itself more relieved than jubilant. While the solar, biomass, hydro and geothermal industries celebrated, the wind industry was coming to terms with a new reality. The rate of payment for wind power has been cut and will continue to drop by 2% each year until 2013 (table). Moreover, utilities no longer have to pay premium prices for wind power produced on sites with poor winds.

The new law is not all bad news. For offshore generation, the wind industry welcomes purchase prices, which start at EUR 0.0910/kWh. Both on and offshore, the pay rate drops after a specified volume of generation, though the starting rate applies for at least five years. All plant are guaranteed payment for 20 years. The 2% drop in rates each year for onshore plant encourages rapid development: the sooner a plant comes online before 2013, the higher the price paid for electricity over its operating life. The annual decline in the rate for offshore plant does not start until 2008.

As well as establishing the wind market's financial framework, the new law attacks a series of distribution and transmission barriers. The uptake of wind should be subject to "joint energy management agreements" on network expansion, grid upgrades and the balance of supply and demand, with the aim of reducing overall cost, says the federal environment ministry. To aid transmission planning -- all new plant larger than 500 kW must be entered in a nationwide register.

The extra cost of renewables, stresses environment minister Jürgen Trittin, is not high. Subsidised prices and support for renewable energy under the new law "will cost an average household just one euro a month -- the price of an ice cream cone," he says. For consumers of large volumes of electricity, relief from the renewables levy has been extended to cover a wider range of companies, he adds.

Other rules aim to prevent utilities tying renewables projects up in red tape. From now on access to the grid must be granted before the utility demands a signed power purchase agreement (PPA). Previously, lack of a PPA was used as an excuse for not granting grid access, enabling the utility to delay a project for months. The law also rules that the "natural monopoly" of network operators is no excuse for "unacceptably high" charges on wind plant owners for metering, billing and supply of reactive power. In the past, over-charging to trigger a court appeal has been a recognised utility delaying tactic.

Clear rules are laid down on the grid connection costs to be paid by the wind plant developer, and grid upgrade costs to be paid by the network operator. Furthermore, wind plant owners may now obtain a court order forcing the operator to connect their plant to the grid. Disputes over grid connection have run on for so long that projects have been abandoned

The requirement for utilities in windy areas to smooth out the fluctuations in wind power supply before feeding it into the transmission network have been removed. While the amendment particularly benefits two operators in the windy north, energy giant E.on Netz and the smaller Vattenfall Europe Transmission, Germany's second energy major, RWE, says it is "especially disadvantaged."

The environment ministry dismisses claims by the utility sector that the law will lead to higher consumer prices for electricity. The ministry says the law will drive down the cost of renewables and that by about 2015 wind power prices will be fully competitive with those of new conventional generation.

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