Comment: Where will uncertainty about the German Renewable Energies Act lead? Essay by Jan Rispens, Managing Director of Renewable Energy Hamburg

Many international observers are watching the current discussion on the Renewable Energies Act (“EEG”) in Germany with great curiosity but are also becoming increasingly concerned. Since the beginning of 2013, the Federal Minister for the Environment, Nature Conservation and Nuclear Safety, Peter Altmaier, and the Federal Minister of Economics and Technology, Dr. Philip Rösler, have frequently been debating the future of the feed-in tariff system, sometimes in a highly emotional manner. Many countries have adopted this system during the last decade.

In the opinion of many observers in Germany, the heated discussion is a reflection of the fact that the election in September is approaching fast. Most think that things are not as bad as they look. Nevertheless, many international investors are increasingly worried about the reliability of the EEG support mechanism for renewable energies in Germany.

After three years of high growth in photovoltaic systems (totalling more than 20 GW between 2010 and 2012), last autumn the cost for the Renewable Energies Act rose to 5.2 eurocents per kWh. The reasons for this development were unusual market conditions and exceptions for big companies, which were not required to pay for the apportioned feed-in tariff. All private electricity consumers as well as smaller and medium sized businesses have to pay this contribution – an increase by almost 50% compared to 2011. These effects were amplified by sinking prices on the electricity spot markets that provide the benchmark for determining the effective cost per kWh of the feed-in tariff. At the beginning of 2013, Federal Ministers Altmaier and Rösler announced a plan for a “Strompreisbremse” (electricity price brake). The main elements of this proposal are: 1) limiting the number of industries exempted from costs of the Renewable Energies Act, and 2) changes to the Renewable Energies Act.

It is important to note that both the German Bundestag (the national parliament) and the German Bundesrat, which represents all the federal states, will have to ratify this proposal. The opposition which holds the majority of seats in the Bundesrat has announced that significant amendments would be necessary, otherwise the majority of the German federal states will not accept the proposal.

With regard to the number of industrial exemptions a compromise seems to be possible. In the Bundesrat and Bundestag there is a considerable consensus that only very large industries such as metal and other resources industries should be exempted. With regard to the proposed changes to the EEG a consensus is rather hard to imagine. Federal Minister Altmaier has proposed that already operational renewable projects would have to pay 1.5% of their legally applicable feed-in tariff. This would amount to a deferred reduction of the feed-in tariff which would seriously damage investor trust. Another proposal by Altmaier would imply that operators of future renewable projects would have to wait for several months before receiving their first remuneration from the feed-in tariff. This would in general prevent most future investments, since economic feasibility could no longer be calculated.

Even though representatives of the renewable energy sector know that constructive proposals to limit the electricity price increase are necessary, they do not support this fast pace. Furthermore, the Renewable Energies Act was already modified in 2012, effectively slowing down the level of growth of photovoltaics, the main cost driver. The parliamentary opposition in the Bundestag and in most German federal states in the Bundesrat seems to be of the same opinion. They do not want to risk losing several hundreds of thousands of jobs in the wind, solar and biomass industry by upsetting project developers and investors through hasty measures.

So what do we expect to happen in the upcoming months? Representing the Renewable Energy Cluster in Hamburg, we believe that an agreement could be reached on limiting industrial exemptions from financing the feed-in system as a solitary measure. However, we do not expect that the Bundesrat will accept the changes to the feed-in-tariff. It is important to bear in mind that the time frame for legislative initiatives seems to be very narrow. In 2013, many investors will be skeptical and careful, thus postponing investment decisions until the period following the German Bundestag elections. After the election it is likely that some substantial modifications to the renewables support mechanisms will be introduced. Hopefully, any new government and the current Bundesrat will change the mechanisms in a sensitive and balanced way.