Archive for the 'European and German energy law' category

Stiftung Umweltenergierecht On Commission Guidelines

Apr 15 2014 Published by under European and German energy law

The Stiftung Umweltenergierecht has published an 89 page analysis (in German language) explaining how the recent move by the European Commission to violate Germany’s legislation competences is illegal. Thanks to this Tweet by Heiko Stubner for the link.

This study was commissioned by the think tank Agora Energiewende.

The main reasons why they think the Commission’s guidelines are illegal:

1. The Commission fails to provide any reasons for their opinion that a transition to a “competitive bidding process” is needed to avoid distorting competition (which is the Commission’s job).

2. The guidelines violate Article 194 of the Treaty on the Functioning of the European Union. I recall having made a similar argument. My argument was based on my opinion that the German feed-in tariff is not State aid in the first place.

Their argument is wider. They note that with a technology-neutral bidding model, Member States may end up with an energy mix different from that they would get if they were free to decide about their policy. That, in their view, is incompatible with Article 194, even if the feed-in tariff was State aid.

3. The guidelines are incompatible with the Renewable Energy Directive.

Article 3 of Directive 2009/28 says that Member States may apply support schemes. And Article 2 gives a definition of the term “support schemes”, which reads:

‘support scheme’ means any instrument, scheme or mechanism applied by a Member State or a group of Member States, that promotes the use of energy from renewable sources by reducing the cost of that energy, increasing the price at which it can be sold, or increasing, by means of a renewable energy obligation or otherwise, the volume of such energy purchased. This includes, but is not restricted to, investment aid, tax exemptions or reductions, tax refunds, renewable energy obligation support schemes including those using green certificates, and direct price support schemes including feed-in tariffs and premium payments;

That means the combination of Article 3 and this definition gives Germany the right to use a feed-in tariff to support renewable deployment. If the Commission does not like that, they are free to propose an amendment to the Directive. But they can’t just go ahead and abolish this right Germany has unilaterally without worrying about a majority in Council and Parliament.

I think this third argument is a very worthwhile addition to the debate. And I am pleased that it helps my point of view.

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Build More Coal Power Plants!

Apr 15 2014 Published by under European and German energy law

That’s probably not a headline readers expect here.

Let me explain.

Cleantechnica just published an interesting interview with Peter Terium, CEO of RWE, one of the big German power utilities. From that interview:

EP: Still, I get the impression that you are filling the gaps in renewables, but you are still big in coal, lignite and gas. Has RWE really changed?

Terium: Look at where we came from. Some ten years ago, we were an extremely CO2-intensive company. We had a lignite power plant fleet that was not state of the art at all anymore. In five years’ time, we changed our CO2-profile from outlier to average. We did this by investing in renewables and gas-fired power, and by implementing new technologies in coal power plants. Coming from 100% conventionally generated power, now our portfolio includes 6% renewable capacities. We had to do all this in a very short time. Note that last year we had to buy €1.2 billion in CO2-certificates. If these had cost €30 per ton, RWE would have been in big trouble.

There actually is a case for building new coal power plants. That is when, like RWE did over the last decade, you build new coal plants with the newest technology that get more kWh per ton of coal and therefore emit less CO2 per kWh. If one has to fire coal (and Germany will need that for another couple of decades), one should use the most efficient way to do so.

So, build more coal power plants with better efficiency, and retire old and inefficient plants with the same capacity. It is basically the same thing like retiring an old car that burns lots of gasoline per kilometer and buy a newer model. The best solution would of course to have an electric vehicle, but if one has gasoline cars in the first place, they should all be built to achieve maximum efficiency. That reduces CO2 emissions while the transition to 100% renewable still is not complete.


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New Merit Order

Apr 13 2014 Published by under European and German energy law

I have written extensively about the fact that the market order for electricity in Germany is broken. A search with the term “merit order” brings up those posts.

These questions are complicated. With this post, I will try to make a very simple point:

“Merit” should not be based simply on price.

Even right now, that is true in part. The German Law on Priority for Renewable Energy says in Article 8 that electricity from renewable sources needs to be bought with priority, irrespective of price.

That is a very simple order with only two elements. Renewable beats everything else.

But one could very well imagine a more detailed merit order. I will show one example right now. It shows my personal ranking. Other people may have different ideas. But showing my idea will make the concept clear.

I’ll do so in two steps. The first step shows a very rough order. In a second step, I will go into more detail.

1. Rough Merit Order

I agree with the present legislation that renewable energy from all sources gets priority over everything else.

On second place comes nuclear. I don’t think that the dangers from radiation caused by nuclear accidents are as severe as the dangers caused from firing fossil fuel. Obviously, a lot of people will disagree with that. And anyway, nuclear in Germany will be phased out over the next decade, so this entry in the order will disappear completely eventually.

And fossil fuel (all sources) has no merit at all, so it deserves a place firmly at the bottom of the scale.

2. More Detailed Merit Order

There are a lot of renewable options. How should one decide on their relative merits?

I am not very sure about this right now. But the big picture is that the transition to renewable energy needs to process as fast as possible. To achieve that, the most important thing is to get prices down for technologies that are still more expensive than others.

For example, onshore wind is already very successful in Germany, but offshore wind development is still behind schedule and still much more expensive than onshore wind.

Therefore, offshore wind should get priority over onshore wind. All things equal, that will help offshore wind get to scale faster.

Note that this leads to higher average prices now, since it gives priority to the technology with higher costs. But it leads to a faster transition in the long term and therefore to saving more fossil fuel costs faster in the future.

For example, solar is still more expensive than onshore wind and will stay so for another couple of years before it becomes the cheapest option. Therefore, solar should get priority over onshore wind right now.

Firing fossil fuel has no merit at all. But the damage to the climate is different for gas, hard coal and lignite. It is also different depending on whether it is cogeneration (using the heat for other useful purposes like heating buildings or water) or not. The way to decide this would be to calculate the CO2 emissions per unit of useful energy, and put the worst alternatives at the very bottom of the list.

3. Prices

Once a policy decision has been made on a detailed merit order, the question is left who gets paid how much. The present way of dealing with this is broken. It makes it impossible to operate fossil fuel plants with a decent profit. That’s a problem since fossil fuel plants will still be needed for a couple of decades as backup. And it’s also a problem since in the future people will make coal and gas from renewable sources. There’s nothing wrong with firing gas if you make it from excess wind power in the first place. There is no problem with firing coal if you make the coal from present day biomass, as opposed to fire fossil reserves.

This post is not the place to discuss that in detail. But I think that the system needs to make sure that everybody gets paid a fair price that is enough to cover costs and a fair profit. The way to do this would be to have everybody bid based on the sum of their fixed and marginal cost, and pay everybody who gets to sell under the  new merit order based on these bids. More on that here.


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Useless and Harmful EU Guidelines On Renewable Energy

Apr 12 2014 Published by under European and German energy law

The EU Commission has adopted a useless and harmful Communication titled “Guidelines on State aid for environmental protection and energy 2014-2020“. Here are a couple of  remarks.

1. How To Work Around the Useless and Harmful EU Commission Guidelines

These guidelines are on “State aid”. Therefore, they don’t apply to a feed-in tariff system like the German one that isn’t State aid in the first place.

It would have been helpful if these guidelines discussed the relation between feed-in tariffs and State aid, so as to enable Member States to steer clear of anything that triggers application of these useless and harmful guidelines.

Unfortunately, the guidelines offer no such discussion. The document has a section on “scope of application”. The words “feed-in tariff” are not to be found in that section. Nor do these words appear anywhere in the section on renewable energy (section 3.3).

The only place this term shows up is at Paragraph 19-21, in the definition of the term “operating benefit”. That reads:

´operating benefit´ means, for the purposes of calculating eligible costs, in particular cost savings or additional ancillary production directly linked to the extra investment for environmental protection and, where applicable, benefits accruing from other support measures whether or not they constitute State aid, including operating aid granted for the same eligible costs, feed-in tariffs  or other support measures;

I have no idea what exactly that is supposed to say. That sentence is much lacking in clarity. But clearly the last part assumes that feed-in tariffs may constitute State aid, or may not (“whether or not”).

They got that right. Under Court of Justice case law Member States can mess up and build their feed-in tariff law as State aid (like France did), which triggers application of these useless and harmful guidelines. Or they can successfully avoid such a mistake, and avoid this Commission power grab.

It remains to be seen if there is a fight at the EU Court of Justice between Germany and the Commission over this. And it remains to be seen if the Commission succeeds in dictating their useless and harmful ideas about feed-in tariffs to the German legislator. And then it remains to be seen if this act, which is ultra vires, stands to a challenge before the German Federal Constitutional Court.

As far as I am concerned, the German feed-in tariff is not State aid. Therefore, these useless and harmful guidelines do not apply in the first place.

2. Increasing Cost of Renewable Energy

The Commission seems to be motivated by a desire to decrease the cost of the transition to renewable energy.

Unfortunately, the ideas they propose will work in the exact opposite direction.

The German experience with over ten years of feed-in tariffs shows one thing. There is not much risk building a project  under a feed-in tariff. Investors know exactly what return they can expect.

That point is very important for reducing cost. Capital costs (interest) will go up with more risk. And capital costs are the main cost factor for renewable energy. Once you have your solar panels or wind parks deployed, the fuel is free and operating costs are very low.

The risk for investors will go way up under the “competitive bidding process” the Commission favors. In such a competition there will be losers. And of course small scale citizen projects, which have been essential to the German renewable transition, won’t have the resources to participate in those bidding processes in the first place.

The risk for investors will also go up under the idea of paying premiums over market prices (Paragraph 125 of the Communication). Selling electricity directly to the market brings the new risk of not finding a buyer. And it of course adds new marketing costs, which again will be difficult for small citizen projects.

3. What Germany Should Do

There are several possible courses of action to deal with this power grab.

One is of course to fight the EU Commission at the European Court of Justice. I think the German government should defend the right of Member States to decide on their energy policy, and strongly resist this illegal Commission power grab with full force..

Another one is to actually introduce a State aid system for renewable energy on top of the existing feed-in tariff, which is not state aid.

Find a modest amount of public funds, let’s say one million euros. Then pay those out in “premiums” to installations of geothermal electricity generators, which is still a very small sector in Germany. Of course keep the feed-in tariff payments (not from public funds and not State aid) in place as well.

There would be two points in building such a system. One would be a contrast to the feed-in tariff system, which is not state aid. And the other one would be to empirically study, as a pilot project, if there is any chance that the model the Commission favors will be of any use for getting things done faster in the geothermal sector.




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Germany Doesn’t Matter Much Anymore

Apr 07 2014 Published by under European and German energy law

The recent news about reforming the Law on Priority for Renewable Energy in Germany is not great for people like me. As Hans-Josef Fell (one of the original authors of the law) explains in much detail, the reform that will likely become law is restraining growth just about everywhere.

That is bad news for the climate. It is also bad news for Germany’s economy. In the long term, renewable energy is much cheaper than importing fossil fuel. And it doesn’t make much sense to reduce the speed of deployment now, with costs for solar and wind already way down compared to when the Law was first enacted.

But the good news is that Germany doesn’t matter much anymore.

As this article by Bobby Magill at Climate Central just explained, Germany’s investment in renewable energy was a measly $10 billion last year, down from $22.4 billion in 2012. That’s around $125 per capita, which is close to $10 a month.

And it gives Germany a rather mediocre rank of five. China ($54 billion), United States ($36.7 billion), Japan ($28.6 billion) and the United Kingdom ($12.4 billion) all beat Germany’s record. If there was a World Cup for renewable energy, Germany would not even make it to the semi finals. On top of that, we may even fail yet again to win the FIFA World Cup this year.

And that’s before the further reductions in deployment speed from the 2014 reform are even enacted.

It’s all very depressing.

But the good news is of course that with Germany now out of the race, these further reductions don’t matter so much anymore for the global picture.

And that global picture still shows solar deployment up by 29 percent, even with total investment in renewable energy down. The explanation for that is of course less cost per kW of deployment.

So once the politicians in Germany have succeeded in their goal of reducing deployment speeds, we will see Germany fall back even more in the global race. Other countries with China at the top will reap most of the benefits from the cost reductions Germany has paid for with high feed-in tariffs while solar and wind were still expensive.


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Enemies of Wind Organize in Germany

Mar 30 2014 Published by under European and German energy law

Daniel Wetzel at WELT reports on a new nationwide anti-wind organization recently founded in Germany. The name of the new lobby group is “Vernunftkraft” (reason power). I am not linking to them, but I think that’s an interesting name. I was not aware that you could make electricity from your power of reasoning, but maybe I missed some technological breakthrough while I was distracted by the Bitcoin network.

Anyway, as the article describes, they want to petition the German legislation to end the privileges for wind power under the German building regulations (Bundesbaugesetzbuch). I don’t think they will get anywhere with that, since the enemies of renewable energy FDP have been booted out of the German Bundestag in last year’s elections (hooray again for that).

And this is a good opportunity to take a look at Article 35 of the Bundesbaugesetzbuch. In Paragraph one, it mentions different methods of generating power, with some of them allowed to be built even in the “undesignated outlying area” (Aussenbereich), which basically means outside of towns as well as outside areas within a binding land-use plan.

Wind power is one of them (Number 5), along with hydro power.

In contrast, solar can only be built on rooftops of buildings that are legal in the “undesignated outlying area” in the first place, Number 8. That is actually more generous than until a liberalization in 2012, which introduced this exception in reaction to a court case.

Nuclear energy used to get a free pass under Number 7, but that has been amended to make it clear that the exception does not apply anymore to building of new nuclear power plants. No one would dream of building new nuclear in Germany anyway, so this change does not have much practical relevance.

There are also rules on biomass generation (Number 6). Biomass energy plants can be built as an accessory to farms (which are allowed under Numbers 1, 2, and 4), within certain thresholds.

So, as long as the enemies of wind energy from the “reason power” movement don’t succeed with their petition, wind and hydro are the most privileged forms of renewable energy under Article 35. Solar and biomass are restricted, and new nuclear is shut out.

I am not sure why solar energy needs to be restricted to rooftop installations in “undesigned outlying areas”. But that problem is not very  relevant anymore, since people have not much incentive to build solar power installations directly on the ground. Such installations don’t qualify for feed-in-tariff payments since 2010.

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Feed-in Tariff and Minimum Wage: Both are NOT State Aid

Mar 07 2014 Published by under European and German energy law

This excellent article at Zeit Online (in German) by Armin Steinbach gives another strong reason why the present German feed-in tariff system for renewable energy is not “state aid” under European Union competition law.

The author notes that states can set minimum wages by law. If a state does that, employers need to pay their employees more than under simple market mechanisms. As an alternative, a state could choose to pay workers on low wages some kind of aid from taxpayer funds.

The first case is not state aid, since there are no taxpayer funds involved. The second one is.

In the same way, the feed-in tariff sets a “minimum wage” for solar, wind, and other renewable energy. That means that buyers of that electricity need to pay more than under a model that would leave all prices purely to market forces.

But just like with a minimum wage, there are no taxpayer funds involved. Which means that there is no state aid, and Commissioner Almunia should lose the case the German government just started against him at the European General Court.

That in turn is good news for renewable energy in Germany, which can get rid of the useless and harmful ideas the EU Commission has about how a feed-in tariff should be built. And it would be good news for the principle of democracy, which frowns on attempted power grabs by EU institutions. The Commission gets exactly as much powers as the Member States have transferred to this institution. If they could just start deciding about every policy question around with the excuse that there may be some kind of state aid angle, that would be the end of democracy, and the end of German participation in the European Union.

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German Government Just Sued the EU Commission

Mar 04 2014 Published by under European and German energy law

The German government just announced that they have sued against the EU Commission decision to open a “state aid” procedure against the German feed-in tariff law.

As discussed before on this blog, there are substantial disagreements. The EU Commission thinks that the German law qualifies as “state aid”, which would give the Commission the right to decide about German feed-in tariff policy. The German government disputes this.

While the government is talking to the Commission and wants to get this disagreement solved by negotiations, they had to file the lawsuit since yesterday was the deadline to do so.

If these negotiations succeed, the German government can always retract the lawsuit. If in contrast they do not succeed because the Commission insists on overstepping their competence, this step leaves the option of getting this problem resolved in court.

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Stop All Subsidies for Renewable Energy in Germany!

Feb 28 2014 Published by under European and German energy law

That’s what a new report by “experts” on innovation calls for, as Reuters just reported.

I actually agree with that. That probably comes as a surprise to readers, but it will become clear in a couple of moments.

The most important part of the Reuters article is this paragraph:

The report is unlikely to have much impact on policy.

That observation is correct. The only party that might have supported such a fringe minority loser position was the FDP. And they got booted out of the German Parliament in the last election. I am a former FDP voter, and I changed my mind and voted for the Green Party this time because of their horrible positions on renewable energy.

Former Green Party Member of Parliament Hans-Josef Fell has already demolished this report here (in German language). There is not much to add. I found a link to the report at Fell’s website, and here it is.

The “experts” only take two short pages to develop their critical point of view.

They start off with whining about the high costs of a feed-in tariff system. They don’t consider the cost of keeping energy based on fossil fuels, with prices for oil going up by a factor of 50 in the last 40 years.

That’s only to be expected. These are “experts” on research policy. They lack clue one on energy issues.

They then fall for the common error to state that it doesn’t matter how much CO2 the German electricity generation sector emits, since there is a ceiling on CO2 emissions in the EU anyway.

That’s correct as far as it goes, but obviously one can reduce that ceiling much faster if CO2 reductions proceed quickly than if one does nothing to improve the situation. With that particular argument one could doubt the value of any efforts in emission reduction. I don’t think there is any merit to it.

I learned from their position paper that there are people studying innovation in the renewable sector, and that those people have been unable to find any.

That says something about the quality of these studies. It does not change the fact that innovation in the renewable energy sector was the most resounding success of the German feed-in tariff systems.

It is a fact that prices of solar and wind energy have gone down massively in a very short time of only about a decade. That’s innovation. And you don’t need a “study” from “innovation experts” to understand the game changing and revolutionary effects of that innovation.

There are several goals of the Law on Priority of Renewable Energy, but the most important one is actually to help develop technology in the sector.

That’s because in contrast to the other goals (environment, saving costs compared to staying with fossil fuels, leave more fossil fuels for future generations), more innovation in renewable energy will help developing the sector everywhere on the planet. The first three goals are mainly about the situation in Germany only.

These “innovation experts” seem to think that you would get more innovation without a massive scale market enabled by the feed-in tariff. They are wrong. As Hans-Josef Fell correctly remarked, you don’t get any innovation without a market to actually sell the products you are developing.

So why do I agree with their conclusions?

That’s because we need to make sure that the German feed-in tariff law is not a subsidy law, or – in the terms of European Union law – a form of “state aid”.

If the system has any aspects that allow the EU Commission to view it as “state aid”, like the French feed-in tariff system, the EU Commission will try to abuse this for an illegal power grab and start dictating German energy policy over their competition competence.

So I agree with the part of stopping “subsidies”. The coming feed-in tariff law reforms in Germany should have as the most important goal to make the EU Commission shut up in this debate, for two reasons. One is that the EU Commission’s ideas about the feed-in tariff deserve a sound rejection. They are useless and harmful, like their stupid idea about requiring to run everything on an auction model. That fringe minority loser position was another idea supported by nobody in Germany, except possibly the FDP. The other is that basic values of democracy require to take the limits of competence delegation to the EU very seriously.

The feed-in tariff should be devised in a way as to make it impossible for the Commission to view it as “state aid”. There are several ways this may be done.

One is to frame the issue as one of safety. Germany has decided that nuclear energy is not safe. And even the EU Commission has – up to now – not dared to interfere with that decision.

So just decide in the same way that generating electricity with coal and gas is not safe. That’s correct, of course. Keeping fossil fuels in the mix risks enormous damage from global warming. Much more than damage from radiation in case of a large-scale nuclear accident.

Then declare everything in the feed-in system as necessary to phase out the extremely dangerous fossil fuel energy generation. Just set the goals of renewable energy market share, as the German government has done, and declare that the feed-in tariff policies necessary to achieve those goals are safety measures.

As I have argued before, fire prevention measures in building safety codes come with a cost. Are these costs state aid? Is requiring the use of fire resistant doors etc. a “subsidy” for the makers of such doors?

Of course not.

And exactly in the same way, requiring a certain market share of renewable energy as a safety measure against global warming is far from “state aid” or a “subsidy”.

It may be possible to make this even clearer than it is already under the present German system. If so, the German legislator should do anything possible for the noble goal of telling the EU Commission to stop their illegal and undemocratic power grab.




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German Government on Almunia Power Grab Attempt

Feb 19 2014 Published by under European and German energy law

Two days ago I blogged about the latest draft EU guidelines on state aid in the energy sector. I didn’t find a discussion of the question why the EU Commission has any competence to decide on German renewable energy policy in those draft guidelines. And I stated my firm opposition to the idea that the Commission may be able to decide on these issues.

I got some mixed reactions. One guy rather lacking in manners called me a “Japanese clown that can’t read” over the issue (link to that person omitted on purpose).

At the time I missed a release by the German Government on this.

It turns out that the German Government shares my concerns. From their announcement:

Ferner ist zu betonen, dass die EU nur eingeschränkte Kompetenzen in der Energiepolitik besitzt. EU-rechtliche Vorgaben für nationale energiepolitische Entscheidungen sind im Einklang mit dem europäischen Primärrecht im Rahmen eines ordentlichen bzw. besonderen Gesetzgebungsverfahrens unter Einbeziehung der nationalen Parlamente und Regierungen durch den Ministerrat und das Europäische Parlament zu etablieren. Dabei müssen sie die Kompetenz der Mitgliedstaaten, die Bedingungen für die Nutzung ihrer Energieressourcen, ihre Wahl zwischen verschiedenen Energiequellen und die allgemeine Struktur ihrer Energieversorgung selbst zu bestimmen, respektieren. Der Leitlinienentwurf hingegen will Einfluss auf sehr wichtige energiepolitische Detailfragen nehmen, was kritisch zu hinterfragen sein wird.

Furthermore, it needs stressing that the EU has only limited competences in the field of energy policy. Any requirements in EU law for national energy policy decisions need to be established in a ordinary or special legislation procedure that includes national Parliaments, and Governments over the Council, and the European Parliament. Such legislation must respect the competence of the Member States to determine the conditions for exploiting their energy resources, their choice between different energy sources and the general structure of their energy supply. The draft guidelines in contrast attempt to influence very important details of energy policy. It will be necessary to ask critical questions about this (my translation).

If the EU Commission insists and the German Government sticks to the above sensible position, both the European Court of Justice and the German Federal Constitutional Court may have to decide about the legality of this power grab.

The German Government is also critical of the substance of the draft guidelines. They say that it is too early for transiting to an auction model immediately.

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