Archive for the 'European and German energy law' category

FIT as Efficient Auctions

Jul 23 2014 Published by under European and German energy law

Craig Morris at Renewables International kindly quotes my recent blog post about the recent German reform of the feed-in tariff. And he makes a very interesting point in closing his post:

No problem – show me a bidding process that is more cost-effective than feed-in tariffs and provides greater competition between market players large and small (not between energy sources; solar and wind complement each other, they do not compete with each other), and we can throw out feed-in tariffs. If the Commission is saying that we have to transition from FITs to bidding processes that are better , then there will be no such transition at all, for no such bidding processes exist.

The case for phasing out feed-in tariffs and replacing them with auction models is based on the idea that this will reduce costs. There is a true core to that idea. If you hand out feed-in tariffs that are higher than what is necessary under market conditions, electricity consumers will end up paying higher surcharges than needed.

But actually the present system (especially after the last reform) already makes sure that the feed-in tariffs are not above what market conditions require.

That’s because they are based on deployment records. If those are high, the feed-in tariffs get slashed. If they are too low, they stay constant, or may even increase.

That clearly is a reaction to market conditions.

And in contrast to auctions, there is no need for a complicated process to auction off individual projects, something that certainly won’t work for small rooftop solar.

We also know that the feed-in tariff has actually a rather good track record in reducing costs, to the point that it won’t matter ever so much that those costs will go up again slightly under the failed auction model Germany just introduced, with the EU Commission illegally requesting that to happen.

While I think it is a great point Morris made here and I agree completely with that, there is one technical detail where I disagree with his post. Morris writes:

Essentially, the ECJ made a distinction in its ruling of 2001 between “illegal state aid” and “legal state aid,” with German feed-in tariffs from the 90s constituting a legal form.

That’s not how I see the PreussenElektra case. In that case, the Court decided that the German system is not “State aid” in the first place. They did not say it is State aid, but should be allowed anyway.

That was the reasoning in PreussenElektra as well as in the recent Ålands Vindkraft case concerning measures of equal effect as quantitative restrictions (Article 34 of the Treaty on the Functioning of the European Union). The fact that the German system as well as the Swedish one does not allow electricity generated in other Member States is a restriction, but it is justified by an overriding purpose of environmental protection.

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Commission Power Grab Failure

Jul 19 2014 Published by under European and German energy law

The EU Commission may think that their illegal power grab ordering Germany around in the latest round of reform of the Law on Priority of Renewable Energy was a success.

And, on the surface, it was. Congratulations to the Commission, they did manage to have a larger influence on the final legislation than the German Bundesrat. Their idea of giving up the resoundingly successful feed-in tariff in Germany and introduce a system based on auctions has found its way into the final text of the law.

But this victory comes at a price.

For one, it is clear to anyone paying attention that the Commission has blatantly overstepped their competences. If you are interested in the legal details of that I recommend the latest paper from the Stiftung Umweltenergierecht (in German). There is just no reasonable doubt possible about the fact that this is a major Constitutional crisis for German democracy.

When the feed-in tariff was enacted in the first place, that was done by a democratically elected coalition of the Green and the Social Democrat Parties. When it was ended in 2014, it was done on orders from the Commission, who is not democratically elected by anyone, and who has no business whatsoever to give the German legislators any orders in this situation.

In basic Constitutional theory, the Commission is part of the executive force. Giving them the power to legislate instead of Parliament is a serious violation of basic Constitutional values. Having them grab that power when they don’t have it in the first place makes this even worse.

That in turn makes it very hard to accept this introduction of an auction model for me. I was not convinced of its merits in the first place. But the fact of this illegal power grab actually succeeding makes me feel something close to seething hot anger at this failed policy.

Not a good place to start from. But now comes the fun part.

The German legislation until now was only a starting point setting a framework for the introduction of an auction model. To actually pull it off, there remains quite a lot of work to do and details to discuss.

Who is going to be responsible for the auctions? What exactly is the model for such an auction? Are people bidding in such an auction trying to form a contract with the entity who holds it? Are sanctions for someone winning an auction but failing to follow through a penalty for breach of contract (Vertragsstrafe) or an administrative sanction?

This will be one big, complicated mess. Good luck with trying to pull this off in the first place. It will of course be completely impossible to reduce costs with such a stupid basic idea.

Factors raising costs going forward are easily identified. Everyone brave enough to still consider building any solar project in Germany will need to hire a couple of lawyers to wade through the thousands of pages of regulations needed to actually pull an auction system off. It introduces a huge new layer of complexity.

Then they will need to pay their banks double of the interest they needed to pay under an easily understood and reliable feed-in tariff, because the bank will correctly perceive the risk as much higher. There is the completely new risk of failing to succeed with any bid. There is the completely new risk of having to pay high penalties because the project gets delayed for one reason or another.

The German Ministry of Economy is now in the process of trying to figure out how to do auctions for large-scale solar projects in a first experimental phase. And they are asking for comments.

I am not going to comment there, since that might possibly help with improving the auction model, which is the last thing I want. I want them to test their stupid idea and fail spectacularly.

But I note with interest a long paper the Ministry has commissioned, which discusses some of the possible alternatives. That paper states on page 9 that they expect the resulting price for large scale solar projects to be higher than the feed-in tariff in place right now. They note correctly that the transition to an auction model introduces a whole new set of costs, which will make the whole exercise more costly than a feed-in tariff model.

The fun part I was referring to earlier is this: Now an auction model gets its chance at bat. It will fail, of course, like it has failed almost everywhere else it has been tried. But we will see for the first time how utterly and indisputable that failure will be and have an opportunity to compare it to the feed-in tariff system in place until now.

There are basically three ways to measure the failure. One is the amount of cost added by the transition to an auction model. That will remove the idea behind this kind of thinking that auction models help to reduce costs. The costs will increase, as the study states at page 9. The only question is by how much.

The second is the complexity of the system. The study notes as one of their goals to find a system easily understood by citizens, so as to have citizens accept the transition to this model. They also note that this will be quite a challenge, considering the failure of this model in many foreign countries, and that the system needs to be transparent and easily understandable to achieve acceptance (page 10).

Their problem there is that it is completely impossible to build a “transparent and easily understandable” auction system. One of the big advantages of feed-in over auction is that the system is much easier to understand. No amount of tweaking at the details will ever change this fundamental disadvantage of auctioning.

And the third metric to measure the failure will be the volume of projects actually installed under an auction system. I am not sure how that will play out.

Of course, the auction system will by definition be unable to deliver more projects than the volume up for auction. But it may very well fail to deliver even that low volume for one reason or another. It depends on how much the system fails in reducing costs if that happens or not.

An auction system by definition allows bidders to enter high prices, so maybe the additional costs will get so high that some substantial volume will get installed by some brave souls still not terrified by the 1001 pages of legalese and the new sanctions introduced for failing to follow through on time.

And of course, I may be wrong in my assessment. Maybe the experiments with this idea will show that costs really go down, like the Commission and the German coalition parties seem to think.

Then they can build on that success and extend the auction model to rooftop solar systems in 2017. That should be even more fun to watch.

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German Federal Court of Justice: EEG is Constitutional

Jul 15 2014 Published by under European and German energy law

The German Federal Court of Justice has published a decision from June 25 on an attempt to resist the German feed-in tariff system.

The plaintiff in that case paid the feed-in tariff surcharges for April 2012 (about 10,000 Euro) and claims them back with this lawsuit. They argue that the Law on Priority for Renewable Energy is unconstitutional.

The reason for that: In their view, the surcharges are a “special tax” (Sonderabgabe), which means a tax raised for a specific purpose. Such a tax is problematic under the German Constitution, because it calls in question Parliament’s right to decide about how to spend all tax income.

The Federal Court of Justice did not share these concerns. They say that this is not a tax in the first place. A tax requires that the funds raised by the surcharges become part of the state budget. They don’t. All these funds never touch the state budget, they all flow only between private persons.

That of course is also true when discussing if the system is a form of “State aid”, as the EU Commission claims. For exactly the same reasons explained in this opinion, that is not the case as well.

Some people call the new requirement for renewable energy installations over 10 kW to pay 40% of the surcharges (after a transition period) a “solar tax”. That is not correct either. Again, these funds are never in the state budget.

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NER 300 Award Decisions

Jul 11 2014 Published by under European and German energy law

The EU Commission has published a press release and a FAQ document on the final awards in the NER 300 program.

I recall blogging about this briefly in summer 2011. This program wants to provide subsidy funds for renewable energy and carbon capture and storage projects. The funds come from selling 300 million EU carbon emission allowances. In 2011 one could expect EUR 4.5 billion from that, but the final result was much less. As the European Investment Bank reports, they only got an average of EUR 8.05 for the first 200 million and an average of 5.48 for the last 100 million. That adds up to 2.158 billion, or less than half the sum expected.

The awards in this second and final round were for 18 renewable energy and one carbon capture and storage project. The latter got the biggest award at 300 million. Most of the awards for renewable energy projects are one order of magnitude smaller.

EUR 2.158 billion is not much when distributed over the whole of the EU. That would be less than 5 per capita. But even small steps in the right direction should be cheered.

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Putting the Brakes on Renewable Deployment in Germany?

Jul 06 2014 Published by under European and German energy law

The German Economy Ministry has put out a 17 page document explaining the reform of the Law on Priority for Renewable Energy in a FAQ format. Thanks to this Tweet by Heiko Stubner for the link.

According to the Ministry, the reform is not about putting the brakes on renewable deployment (page 3 of the document). They point to the fact that under the new law the renewable share for electricity is to reach between 40 and 45 percent until 2025, and between 55 and 60 percent ten years later.

The present law requires 35 percent in 2020, 50 percent in 2030, 65 percent in 2040, and 80 percent in 2050. If one averages the goals for 2025 to 42.5 and for 2035 to 57.5 percent, that is exactly what was required by half time of the ten years’ periods under the old goals.

So yes, the new goals are the old goals, at least in the big picture.

But the new FAQ also has this to say, on page 2:

Das Motto lautet nun nicht mehr „je mehr und schneller, desto besser“, sondern „je planvoller und vernetzter, desto besser.“ (The new motto is not any more “the faster and the more the better”, but “the more planned and the more integrated into the grid the better”.

Rejecting the previous idea of “the faster the better” sure sounds like putting on the brakes.

I don’t like that. But I have voted for the Green party, which lost in the election last year. So I can’t expect to have my ideas about the matter prevail. Instead, I need to accept that the majority parties building the coalition in Germany are not interested in a speedy transition to renewable energy.

But it is also true that they have at least not reduced the speed of the big goals in Article 1 of the law.

I guess that’s good news under the circumstances.

 

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Higher Feed-In Tariffs for Solar Energy in Germany

Jul 03 2014 Published by under European and German energy law

The reform of the German Law on Priority for Renewable Energy that recently passed the German Parliament (Bundestag) is a long text with many interesting aspects. Understanding all the details requires some serious efforts. Energy lawyer Matthias Lang reports he had an intern running away from his internship when he asked him for help studying this issue.

I for one don’t plan on running. But it is of course also impossible to discuss all aspects of this reform in one blog post. For anyone who wants a short overview I recommend this post by Craig Morris.

The way to go ahead is to look at the new law and discuss interesting points in separate posts.

With this post, I would like to point to Article 29 Paragraph 4 Number 3 of the new law. It introduces for the first time the possibility to increase solar feed-in tariffs.

Paragraph 1 sets a goal of between 2.4 and 2.6 GW a year of new capacity. Wind has the same goal in Article 28 Paragraph 1, except that for wind all capacity abandoned in that year is added, so the goal is a net increase.

If there is less than 1 GW new solar capacity, the feed-in tariffs go up by 1.5%. As far as I know that is a new idea. Solar feed-in tariffs only ever moved in one direction.

Down.

There was already a ceiling of 52 GW solar capacity before this reform. And Germany already has 36.5 GW as of 31 May of this year. There are only 15.5 GW left until that ceiling is reached. It doesn’t matter ever so much now how fast that will happen. 70 percent of the goal of 52 GW is already achieved.

But it is still worth noting that this law does not want the remaining 15.5 GW to take much more than six years. And it resorts to the unheard of extreme measure of increasing feed-in tariffs if the speed goes down too much.

Update: As Paul Gipe kindly pointed out by mail, the possibility of increasing feed-in tariffs for solar actually already existed before. I should have checked this and regret the mistake. A look at Article 20b of the Law in its current state confirms this.

Damn. So much for my attempt to find any good news.

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Oettinger on Ålands Vindkraft

Jul 03 2014 Published by under European and German energy law

The German newspaper Welt has collected some reactions by Energy Commissioner Oettinger on the Ålands Vindkraft decision of the European Court of Justice I blogged about yesterday. Thanks to this Tweet by Heiko Stubner for the link.

The headline is that Oettinger asks for a EU-wide “subsidy scheme” as a consequence.

That impresses me as kind of cheeky. The Court of Justice just said a couple of days ago that no, Member States are free to restrict their support schemes to renewable energy generated inside of their territory, so as to be able to plan the cost for those schemes exactly, and in consequence make sure that those schemes stay in place over the long term, to achieve investor confidence in the stability of these support schemes.

So how is that ammunition for the Commission position in their useless and harmful “Guidelines on State aid for environmental protection and energy 2014-2020” (Paragraph 122) that Member States are required to open their support schemes?

The logic goes like this. Since the Court has made it clear that there is no legal obligation to open these markets, it is all the easier to get Member States to cooperate voluntarily with this position.

I agree. Much of my opposition to the EU Commission’s position here is motivated by an intense distaste for the fact that they think they get to decide on these matters instead of the Parliaments of the Member States, who are actually elected by citizens and have the competence to decide about these matters under current European Union rules. If the Commission drops this position and argues for their point of view on the merits, it’s a completely new situation.

And there actually may be some merit to open support schemes. All things equal, having an internal market leads to more competition and more efficient production. That is true for renewable energy as well as for any other sector.

The decisive reason against doing this right now is, as noted by the Court, that Member States need to make sure the cost of their support schemes remains under control.

The way to deal with that problem is to have some kind of mechanism to distribute costs. If there is a lot of wind energy from Denmark coming into the German market, that would not be a problem if Germany and Denmark agree on how the associated costs are distributed between the two countries. Such agreements are possible under Directive 2009/28 already, which addresses this question in recital 25:

Member States have different renewable energy potentials and operate different schemes of support for energy from renewable sources at the national level. The majority of Member States apply support schemes that grant benefits solely to energy from renewable sources that is produced on their territory. For the proper functioning of national support schemes it is vital that Member States can control the effect and costs of their national support schemes according to their different potentials. One important means to achieve the aim of this Directive is to guarantee the proper functioning of national support schemes. as under Directive 2001/77/EC, in order to maintain investor confidence and allow Member States to design effective national measures for target compliance. This Directive aims at facilitating cross-border support of energy from renewable sources without affecting national support schemes. It introduces optional cooperation mechanisms between Member States which allow them to agree on the extent to which one Member State supports the energy production in another and on the extent to which the energy production from renewable sources should count towards the national overall target of one or the other. In order to ensure the effectiveness of both measures of target compliance, i.e. national support schemes and cooperation mechanisms, it is essential that Member States are able to determine if and to what extent their national support schemes apply to energy from renewable sources produced in other Member States and to agree on this by applying the cooperation mechanisms provided for in this Directive.

Articles 6 to 8 of the Directive provide the framework for joint support mechanisms, and Article 9 extends that to joint projects with third countries (for example Northern African countries building capacity in the Sahara desert, Desertec).

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European Court of Justice Ålands Vindkraft Decision

Jul 02 2014 Published by under European and German energy law

Has been published yesterday at the Eur-Lex website.

In that case, Ålands Vindkraft applied for wind energy they generated outside of Sweden to be considered under the “green certificate” support scheme for renewable energy in place in Sweden. The Swedish authorities refused, since support is available only for renewable energy generated in Sweden.

The Swedish court deciding about this matter asked some questions about how to understand Directive 2009/28 and Article 34 of the Treaty on the Functioning of the European Union in this context.

The Court confirmed that Sweden has the right to introduce this kind of support scheme. That is a blow to the recent EU Commission power grab asserting that Member States are only allowed to have support schemes that the EU Commission happens to like (at present some kind of auction model).

The Court also decided that Member States are free to limit their support schemes to renewable energy generated in their own territory. While this clearly is a measure with an effect equivalent to quantitative restrictions under the Dassonville definition (paragraphs 65 to 75 of the judgment). But this restriction of trade is justified by an overriding purpose of environmental protection (paragraphs 76 to 119).

One of the reasons stated for this is found in paragraph 99:

Furthermore, as was also noted by the EU legislature in recital 25 to Directive 2009/28, it is essential, in order to ensure the proper functioning of the national support schemes, that Member States be able to ‘control the effect and costs of their national support schemes according to their different potentials’, while maintaining investor confidence.

If Member States were not allowed to limit their support schemes to renewable energy generated in their territory, it would become very difficult for them to predict the costs of such a scheme. That would destabilize any such system, leading in turn to less investor confidence in its stability.

Such investor confidence is vital for keeping costs down. The costs for renewable energy are almost all fixed costs of building the installation in the first place. The interest rate for financing that cost is very important. If lenders need to perceive such a project as risky, they will ask for higher interest rates. If in contrast they can rely with confidence on the stability of such a system, a low interest rate will be enough.

This decision is in line with what the Court said earlier in the PreussenElektra case. I agree with this.

And this is another blow to the EU Comission. They seem to think that they get to decide about this matter. In their useless and harmful communication “Guidelines on State aid for environmental protection and energy 2014-2020″ they say (paragraph 122) that they want Member States to open their support schemes for installations in other EEA Member States. This decision of the Court says quite clearly that this is nothing of the Commission’s business, and that Member States retain the right to restrict their support policies to renewable energy generated on their own territory.

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Gabriel Wants to Exempt Coal Mines from Surcharge Rebates

Jun 09 2014 Published by under European and German energy law

Says the Sueddeutsche Zeitung. Thanks to Heiko Stubner for the link. According to the article, he has sent a letter to Michael Fuchs from the CDU. His reason is that it doesn’t make much sense to make coal cheaper when you have to worry about global warming.

He is right. And there is another reason for this.

As I said about two weeks ago, there is no way anyone can close their coal mine in Germany and take it to China. The carbon leakage that is supposed to be prevented by these rebates is not possible in the first place in the mining sector.

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Stretching Out Payments for Existing Renewable Installations

Jun 06 2014 Published by under European and German energy law

First published here on February 5, 2013.  Reposted as answer to this question by Ben Paulos.

Since I happen to think that higher electricity prices are a good thing on a planet threatened by global meltdown, I hesitate to write down this idea I just had about reducing surcharges.

On the other hand, this is probably a minority positi0n. And reducing surcharges helps keeping the successful German feed-in tariff system in place.

So here we go.

The worst proposal in the recent paper of German Environment Minister Altmaier was to retroactively reduce feed-in tariffs for existing installations. It would irresponsibly undermine trust in the German government.

But if one wants to reduce costs, one needs to somehow reduce payments to existing installations. These are responsible for over 90 percent of the costs. If you can’t touch them, you can forget about actually reducing costs.

By the way, some of the proposals have no impact on cost in the first place. For example, the surcharge reductions for industry are only about distribution of the cost, they don’t change the cost as such.

So here is how to reduce payments for existing installations without undermining trust in the system, and without violating Constitutional law, as well as the guarantees against expropriation in the Energy Charter Treaty:

Don’t reduce the sum of payments. Spread them out over a longer term. And do so by giving investors a right to choose to do so voluntarily.

For example, a small rooftop installation registered in 2005 is entitled to another 13 years of feed-in tariffs at 54.53 cents. Give the owner an option to choose another twenty years at 37 cents instead. That would be slightly more than the 35.44 cents one gets by multiplying 54.53 by 13 and dividing by 20, but considerably less than what is paid now.

If one stretches out the payments over a longer term, it follows logically that payments now will be reduced. And if one does so by giving investors an additional choice, no one can complain about broken promises.

The nice thing about this idea is that 13 years from now, when the 2005 installation would drop out of the feed-in tariff system without this option, the cost of the feed-in tariff system will be going down anyway. The costs will peak in the next couple of years and then go down in the next two decades.

Therefore, it makes sense to stretch out payments into later years which have less of a burden in the first place, and profit from basically zero cost solar electricity paid for mostly now.

The existing law has a similar concept already in place in Article 31, Paragraph 3. Investors in offshore wind have a right to choose a higher feed-in tariff for a shorter period. My idea would be just the reverse of that.

 

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