Utilities gain equal access to premium price tariffs alongside independents

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A new draft law to replace Germany's nine year-old electricity feed-in law is being heralded as a major breakthrough by the renewable energy lobby. The draft, the result of a cross party agreement between the Social Democrats and Greens, rests on four pillars: a renewables purchase obligation on all grid operators, fixed price payments for renewables electricity under a continued Renewable Energy Feed-In Tariff (REFIT), rules governing payment for grid connection, and equal distribution of the cost of buying renewables power among all of Germany's electricity grid operators.

A major change from an earlier draft (Windpower Monthly, December 1999) is that utilities are to have equal access to the premium REFIT payments alongside independent power producers. Power from both new utility plant and old (uneconomic) plant will be eligible. Allowing utilities access to the REFIT was made at the insistence of the federal economy ministry in the name of fair play. Before liberalisation, utilities were free to add the cost of running renewables power plant to household tariffs. Under the new proposal, the additional cost of renewables is added to grid-use charges and utilities have no way of covering their costs other than by applying for the REFIT rate.

Ursula Fuentes, the Greens energy and climate expert, points out that utilities may now be more inclined to accept the REFIT as a means of supporting renewables once they become beneficiaries rather than victims of it.

The draft is a "great breakthrough" for renewables, says Heinrich Bartelt of the Bundesverband Windenergie (BWE), the federal wind association. "The arrangements will mean that wind energy can continue to expand as it has until now," he says. BWE, however, was to press for changes to details in the draft before its first parliamentary reading, scheduled for December 16. Further changes are possible at the committee stage, particularly when the draft proceeds through the economic and environment committees. The bill is on a fast track, however. As a cross-party proposal it did not have to go to the Upper House before its first reading.

BWE is not entirely happy about utilities being granted access to REFIT payments. "In general we are in favour," says Bartelt. "But first we must have fair competition. Utilities have been able to build up reserves over the last decades which they can now invest in new plant without the need for borrowing, he points out. Bartelt also fears that utility generators and grid operators could reserve all available grid capacity for utility renewables plant, thereby squeezing out the independents.

This is not possible under the draft law, assures Fuentes. Grid operators are obliged to buy all renewables power, with the cost of any necessary grid expansion shared equally with the renewables generator. A clearing office is to be set up at the federal economy ministry to settle disputes over grid access and grid expansion.

Higher price

Grid operators may either sell the green power they are obliged to buy "at the best possible price" on the market, or use it to run their grid operations. Rules and regulations for doing so are being prepared by the economy ministry with the aim of ensuring that no market players or consumers are discriminated against. A primary task is to ensure that grid companies are not allowed to exclusively sell the green power to their own subsidiary power marketing companies.

The fixed price for wind will initially be higher than the current REFIT rate. In a more complicated arrangement than for other renewables, operators of wind turbines will receive DEM 0.178/kWh for the first five years of operation. From the sixth year, the tariff for turbines that have generated 50% more power than a defined "standard turbine" will drop to DEM 0.138/kWh. For wind turbines which produce less than the theoretical 50% "reference turbine" limit, the period of maximum payment is extended by two months for every percentage point by which production falls short.

For wind turbines on-line before January 1, the maximum payment period is calculated as five years, minus half the number of years the turbine has been in operation. For turbines which have been on line for ten years or longer by January 1, the cut-off date for maximum payment is June 30, 2001.

BWE is concerned that the 18 month period for which turbines of ten years and more can receive the maximum tariff is too short. "We need the maximum payment for these old turbines until the end of 2002," says Bartelt.

The defined standard turbine or "reference turbine" is in practice a series of turbine types operating at an average wind speed of 5.5 m/s at 30 metres height in specific conditions averaged over a period of five years using an internationally recognised and EU approved power curve model. The output of actual turbines will be compared with the equivalent reference model.

As soon as the renewables power which a local grid operator is obliged to buy reaches 1% of its total electricity sales, it can apply for compensation for the extra cost it is incurring from the next electricity distributor in the chain of supply. This is a change from the earlier draft which set the threshold at 2%. The compensation amounts to 80% of the average kilowatt hour payment for wind power, 65% for power from other renewables. There is also a mechanism by which all grid operators equally share the total cost of renewables.

Doubling renewables

The aims of the draft law are to double the share of renewables in Germany by 2010, make renewables competitive with conventional energies, and boost the German renewables industry on the world market. To meet these aims requires a dynamic development of the various technologies, the draft states. The policy of the two political parties behind the law is to expose independent power producers to "normal business risk" while guaranteeing the economics of renewables. The plan is to mobilise private capital, boost demand for renewables and reap the benefits of large production series of renewable energy plant. The policy is expected to cause prices to fall, which will improve the competitiveness of renewables and step up their market penetration, according to the two parties.

The law will apply not only to wind energy but also to hydro, solar, geothermal, landfill gas, methane and other gas from mines, sewage methane, and biomass. It is not expected to have any significant impact on the national budget as the extra costs will be paid for out of transmission fees. The only cost to the state will be the economy ministry's report on the workings of the law every two years.

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