Bottom taken out of German market - Wind law amendment rules out development of low wind sites

GERMANY: The decline of the world's largest wind power market is likely to be sharper than previously forecast.

In a proposed revision of Germany's renewable energy law, hammered out between the federal economy and environment ministries last month, all development of wind plant on low wind speed sites is ruled out. If the proposal is passed by parliament this month, about a quarter of projects in early stages of development will be dropped, says the German wind association, Bundesverband Windenergie (BWE).

Commercial wind power developers are not as alarmed as BWE. Rainer Heinsohn of Plambeck Neue Energien says his company has stayed away from low wind speed sites because it is uneconomic for it to develop them. Development that may get hit, he suggests, is that by small groups of private people, farmers and property owners driven by "a large portion of idealism." From Energiekontor, Martin Bretag says tightening up Germany's system of fixed premium prices for wind power will have benefits. "Wind turbine installation will be more focussed and this will help to maintain public acceptance for wind power," he says. Energiekontor, however, has yet to examine the full effect on its projects of the proposed revision to the renewables law, the Erneuerbare-Energien-Gesetz (EEG).

Nasty surprise

Although the government had warned several times this year that it was unhappy about wind plant development in areas without wind, the decision to completely deny access to all EEG payments for turbines built on low wind sites came as a surprise to the wind lobby. The ruling is one of a series of EEG amendments contained in a compromise agreement on the law reached between economy minister Wolfgang Clement and environment minister Jürgen Tritten. Turbine manufacturers offering machines optimised for low wind speed operation will be hardest hit.

BWE's warning of a 25% reduction in the size of the market on land is partly based on an industry survey earlier this year by Deutsche Windguard, which identified the volume of development planned for low wind sites over the next three years (Windpower Monthly, July 2003). According to the survey authors, latest reports from 80 project developers indicate that 1850 MW of wind plant is already planned for 2004-2006. BWE's assessment of the impact of the proposed EEG revision suggests that around 450 MW of this will not go ahead. The indication is that with good wind sites now fully developed and low wind sites out of the frame, earlier projections of market size will not be met. The wind industry has so far been working on the basis of projections by German wind institute DEWI for a market of 1975 MW next year, 1460 MW in 2005 and 1220 MW in 2006.

Honour intact

In striking the compromise agreement, Clement, a Social Democrat, and Trittin, from the Green Party, both came away with their honour intact. Germany is ruled by a coalition of the two political parties. Clement's aim was to reduce the cost of renewables electricity to German industry and to exert more downward pressure on prices. His preference is to replace the EEG's fixed prices with a market for competitive tenders. Trittin was determined to protect the EEG and ensure that industry bears its fair share of the costs of renewables, rather than rolling too large a chunk of the renewables levy onto domestic consumers.

Partly meeting Clement's aims, the compromise cuts wind power's costs by making further development of low wind sites uneconomic and requiring that payment rates for wind are reduced each year by 2%, compared with the current 1.5%. The annual reduction is not retroactive and applies only to new projects. Clement also secured dispensation from the full renewables levy for a wider circle of industry than previously included.

In Trittin's favour, he secured the immediate future of the EEG, ending a year of market uncertainty which has made financing difficult, and introduced a cap on the EUR 1 a month renewables levy on domestic customers. This may not rise beyond 10%. No agreement has yet been made on who pays any costs above the cap.

Of more concern to Energiekontor than the stop to low wind speed site development is the revision's introduction of a sharper annual decline in EEG rates. Although the 2% reduction does not start until 2005, next year's rates will be hit by the expected 1.5% cut plus a one-off adjustment to correct an earlier decimal error. The adjustment will reduce the top rate -- applicable for at least the first five years of operation -- by an extra EUR 0.001/kWh, resulting in a 2004 rate of EUR 0.087/kWh, compared with EUR 0.089/kWh this year. The base rate -- applicable to plant no longer eligible for the top rate -- will be reduced to EUR 0.055/kWh, instead of the expected EUR 0.059/kWh.

For turbines commissioned in 2004, the reductions over the 20 years for which the rates are applicable mean a 6.3% fall in earnings for good coastal wind sites, and a 2.3% drop in income at good inland sites, according to the federal environment ministry.

"Development will become more difficult, margins will shrink but we can live with the cuts. Everyone must reduce costs," says Energiekontor's Bretag. Christoph Gawin of Reconcept agrees. "The sharper decline of 2% instead of 1.5% annually is probably the biggest difficulty. Productivity must be raised to a very high pitch to compensate," he says.

The proposed EEG revision makes incentives available for repowering of wind plant at windy sites. Provided that a repowering triples capacity at the site and the turbines being taken down were commissioned before 1996, the period for which the top pay rate is applicable will be extended until a specific output is achieved (box). "The idea is good. But many sites, especially where single turbines are installed at farms, are too small to allow installation of turbines large enough to triple capacity," says BWE's Peter Ahmels.

The good news

Market conditions for offshore wind energy remain unchanged from Trittin's earlier proposals (Windpower Monthly, September 2003). Offshore wind is to be developed swiftly, states the environment ministry. The top rate for offshore wind in the proposed revision is EUR 0.091/kWh, applicable for at least 12 years, with the period extended with the distance from shore and the water depth at the wind station site. The deadline by which offshore developments must be online to qualify for the higher rate of payment is pushed back to 2010.

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