December 15 2008
Electricity from Biomass
Electricity from Landfill Gas, Sewage Treatment Gas and Mine Gas
Since 2000 the generation of electricity from renewable sources has been promoted by the Renewable Energy Sources Act. The act was substantially revised in 2004, but has remained unchanged (notwithstanding minor amendments) since then.
On June 6 2008 the German Parliament resolved on substantial revisions to the Renewable Energy Sources Act. The amendments were published in the Federal Gazette on October 31 2008 and will enter into force on January 1 2009. This will result in significant changes for plant operators, in particular regarding remuneration, self-marketing of electricity and the consequences for grid system operators of disconnection due to grid capacity shortages.
According to the Renewable Energy Sources Act, operators of plants generating electricity from renewable sources are entitled to claim minimum fees from grid system operators for electricity fed into the grid system. These fees are determined by law for the year of a plant’s grid connection and remain constant for a period of 20 years plus the year of grid connection (except for hydropower, where the period is 15 years). Feed-in tariffs for plants connected in subsequent years will be lower, as the applicable fees are progressively reduced each year.
The statutory minimum fees for electricity produced from renewable sources depend on whether the energy is generated from biomass, landfill gas, sewage treatment gas or mine gas, geothermal sources, wind power, hydropower or solar radiation. Minimum fees generally comprise base fees and several bonuses which are paid for various purposes, such as the use of innovative technologies or early action. Unlike feed-in tariffs, the bonuses are not subject to progressively reduced rates according to the 2004 act, so their amount is not affected by the year of grid connection. This will change under the 2009 act, however, as the same progressively reduced rates as apply to feed-in fees will also apply to bonuses.
In addition to the year of grid connection of a plant and the source of energy used, the level of feed-in fees and bonuses depends on various other factors - in particular, the capacity of a plant. Higher classification in terms of capacity may lead to the reduction or revocation of guaranteed minimum feed-in fees or bonuses. As a consequence, several plant operators in the past built many small plants with low capacity instead of one large plant with high capacity. These small, low-capacity plants were often combined to form one large park, as operators tried to benefit from both economies of scale and the higher feed-in fees for small plants.
However, this is not what the legislature had intended. Consequently, under the 2004 act, several plants were regarded as one plant in the sense of the law (and classified as a plant with higher capacity) if they were directly attached to the same building structures and commonly used installations technically required for their operation. Under the 2009 act, this provision will be strengthened by a provision stating that several plants will be classified as one if:
The new plant classification will also apply to plants that were connected before the new act enters into force. Therefore, operators of plants that are classified as several small plants under the 2004 act, but as one large plant under the 2009 act, risk a substantial reduction in the feed-in fees and bonuses to which they are entitled. However, the retroactive effect of this new plant classification may be repealed by the German courts - in particular, the Federal Constitutional Court - as it may violate a principle of estoppel developed under German constitutional law for public law provisions.
Electricity from Biomass
Plants generating electricity from biomass are classified into four categories, ranging from those with a capacity of up to 150 kilowatts (kW) to plants with a capacity of between five megawatts (MW) and 20 MW. Operators of plants with a capacity exceeding 20 MW are not entitled to remuneration under the 2004 act. However, under the 2009 act such operators will be entitled to minimum fees for the portion of electricity generated with the capacity below 20 MW.
The basic feed-in fees to which operators of biomass plants connected to the grid in 2009 are entitled range from 7.75 to 11.67 cents per kilowatt-hour (ct/kWh), depending on capacity. Contrary to one of the basic principles of the Renewable Energy Sources Act, the fees for plants with a capacity not exceeding 150 kW (11.67 ct/kWh) also apply to all plants connected to the grid prior to the entry into force of the 2009 act. The progressively reduced rates will be lowered from 1.5% under the 2004 act to 1% under the 2009 act.
One of the basic principles of the 2004 act regarding remuneration for electricity from biomass was that operators are entitled to receive minimum feed-in tariffs only if the biomass plant solely uses biomass in the sense of the Biomass Ordinance for energy generation. However, under the 2009 act, operators will receive minimum fees even if they additionally use other biomass in the plant. Operators will have to keep proper accounts on the sources used and will receive minimum remuneration only for electricity generated from biomass in the sense of the Biomass Ordinance.
Another important amendment under the 2009 act relates to newly built plants using biogas withdrawn from the natural gas network and plants with a capacity exceeding 5 MW. In future, these will have to be operated as combined heat and power stations (ie, plants that additionally use the heat generated by electricity production for specified purposes), or else will not be entitled to minimum fees under the Renewable Energy Sources Act.
In addition to the base fees described above, the operators of biomass plants may be entitled to:
Under the 2004 act, operators of plants generating electricity from biomass are entitled to a bonus of 2 ct/kWh on top of the base fee if the plant uses innovative technologies or biogas withdrawn from the natural gas network (technology bonus).Under the 2009 act, the technology bonus for plants withdrawing biogas from the natural gas network with a capacity exceeding 700 standard cubic metres will be reduced to 1 ct/kWh and dry fermentation technologies will no longer be rewarded, while other technologies will be promoted for the first time.
Under the 2004 act, power stations generating electricity solely from renewable primary products (ie, plants or parts of plants originating from agricultural, silvicultural or horticultural operations, or from landscaping activities) or from liquid manure are entitled to a bonus depending on the size of the plant (Nawaro bonus). Under the 2009 act, the conditions for the Nawaro bonus will become more precise, but also more complex. The use of other byproducts that are not renewable primary products or liquid manure will in future not result in forfeiture of the Nawaro bonus. However, this will apply only if the byproducts are on the positive list attached to the law. The Nawaro bonus will be paid only for electricity resulting from renewable primary products or liquid manure, and only if appropriate accounts have been kept and certified by an environmental verifier.
A further amendment applies to plants with capacity exceeding 150 kW. The operators of such plants will no longer be entitled to receive the Nawaro bonus for using fluid biomass, as the government intends to avoid the promotion of palm oil or similar sources produced under unsustainable conditions in third countries.
On the other hand, the 2009 act will increase the Nawaro bonus for plants using manure or material from landscaping activities.
The bonus for plants generating electricity from biomass in combined heat and power stations has been increased from 2 ct/kWh to 3 ct/kWh (combined heat and power bonus). Existing provisions defining what is regarded as an appropriate use of the heat in the sense of the law have been rendered more precisely.
Under the 2009 act, operators of plants using biogas not withdrawn from the natural gas network will be entitled to a newly established bonus of 1 ct/kWh if they comply with formaldehyde thresholds (formaldehyde bonus). This will also apply to plants not exceeding 500 kW and connected to the grid prior to January 1 2009.
Electricity from Landfill Gas, Sewage Treatment Gas and Mine Gas
Base fees for electricity generated from landfill gas, sewage treatment gas and mine gas depend on plant capacity. Under the 2009 act, the plant classifications with regard to capacity for plants using mine gas will be amended, disadvantaging plants with a capacity exceeding 1 MW and benefiting smaller plants. The base fee for plants with a capacity not exceeding 500 kW that generate electricity from landfill gas will be increased from 7.11 to 9 ct/kWh (for plants connected in 2009). Otherwise, plant classifications, base fees and progressively reduced rates will remain unchanged.
Operators of plants for the generation of electricity from landfill gas, sewage treatment gas and mine gas continue to be entitled to receive the technology bonus that applies to operators of biomass plants.
Under the 2009 act base fees for electricity generated by geothermal energy will be increased significantly. This will apply in particular to large plants with a capacity exceeding 20 MW, for which the feed-in fees will be increased from 7.16 ct/kWh to 10.5 ct/kWh (for plants connected in 2009). Plants in the lowest category with a capacity of below 5 MW connected in 2009 will receive base feed-in fees of 16 ct/kWh (increased from 15 ct/kWh). The progressively reduced rates will remain unchanged at 1% per year.
Operators of newly installed plants and of geothermal energy plants which were activated before the entry into force of the 2009 act will be entitled to claim newly established bonuses on top of the base fees. An early action bonus of 4 ct/kWh will be paid if the plant is put into operation prior to January 1 2016. Further, a heat use bonus of 3 ct/kWh will be paid if the power is produced in combination with heat use in accordance with the law, and a technology bonus of 4 ct/kWh will be paid if the electricity is produced using petrothermal technologies. These include hot dry rock, deep heat mining, hot wet rock and hot fractured rock systems, and stimulated geothermal systems.
Operators of wind energy plants receive an initial fee for at least five years from connection of the plant to the grid. From the end of this initial period until approximately 20 years from connection of the plant to the grid, the operators receive a lower base fee. As regards power from offshore plants, (eg, plants that are erected at least three nautical miles away from the coastline), special remuneration tariffs apply, including the early action bonus for plants connected prior to January 1 2010, which is paid in addition to the initial fee for a period of at least five years.
The feed-in tariffs for newly installed onshore and offshore wind power plants will be increased under the 2009 act. For plants connected in 2009, the initial fees for onshore turbines will be increased from 7.87 ct/kWh to 9.2 ct/kWh, and the initial fees for offshore turbines will be increased from 8.74 ct/kWh to 15.00 ct/kWh. The base fees for onshore wind plants will largely remain unchanged and the base fees for offshore turbines will decrease from 5.95 ct/kWh to 3.50 ct/kWh. Further, the early action bonus for offshore plants will be extended to January 1 2016 and reduced slightly to 2 ct/kWh.
The progressively reduced rates will drop from 2% to 1% for onshore plants and rise to 5% for offshore plants. However, these rates will not apply to offshore plants until 2015.
The 2004 act promoted the replacement of old wind turbines with modern, more efficient turbines by allowing operators to extend the period for payment of the initial fees for a certain timeframe, depending on the new turbine’s performance. However, this incentive system seldom worked. Thus, the 2009 act will establish a repowering bonus of 5 ct/kWh, which will be paid on top of the initial fee, if a wind turbine which has been in operation for at least 10 years is replaced with a modern turbine with a capacity of between twice and five times that of the old turbine.
Under the 2009 act, wind power facilities must render certain services to the grid system, the details of which are to be determined in a federal government ordinance. Once this ordinance has been enacted, newly built plants generating electricity from wind power which are not designed to deliver such services will not be entitled to the minimum feed-in tariffs as set out in the act. To compensate wind power operators for any additional costs associated with providing such services to the grid system, the 2009 act will entitle these operators to a bonus of 0.5 ct/kWh in addition to the initial fees for newly erected wind turbines. Operators of existing wind turbines that decide to upgrade their plants to comply with the ordinance will be entitled to a bonus of 0.7 ct/kWh for a period of five years following the upgrade.
As regards remuneration for electricity generated from hydropower, the Renewable Energy Sources Act distinguishes between small hydropower, with a capacity not exceeding 5 MW, and large hydropower, with a higher capacity.
The feed-in tariffs for small hydropower stations will be increased significantly. However, this is solely because the remuneration period will be reduced from 30 to 20 years; the actual amount of remuneration remains unchanged. The progressively reduced rates will also remain unchanged at 1% per year.
Under the 2009 act, newly built large hydropower stations will be granted the minimum feed-in tariff for 15 years following connection to the grid, leaving the remuneration period unchanged. However, the remuneration period for modernized large hydropower plants will be extended from 15 to 20 years. As the feed-in tariffs for modernized large hydropower stations will remain unchanged, this will result in a significant improvement for operators of modernized large hydropower stations.
The base fees for electricity generated from solar radiation vary depending on capacity and depending on whether the plant is integrated into a building or a standalone plant. Under the 2009 act, the base fees will be significantly reduced. For operators of integrated plants connected in 2009 with a capacity exceeding 1 MW, fees will drop from 41.79 ct/kWh to 33.00 ct/kWh. For operators of smaller plants up to 30 kW, the fees will drop from 1.41 ct/kWh to 43.01 ct/kWh. In particular, plants integrated into the façade(rather than the roof) of a building will suffer from a drastic drop in minimum remuneration, as a bonus of 5 ct/kWh will be abolished for such facilities.
Under the 2009 act, operators of solar power plants with a capacity not exceeding 30 kW will be granted an allowance of 25.01 ct/kWh if they do not feed generated electricity into the grid, but consume it themselves. Assuming an electricity price for end consumers of 20 ct/kWh and a base fee of 43.01 ct/kWh, this will result in an additional bonus for self-consumption of approximately 2 ct/kWh.
Under the 2009 act the progressively reduced rates for base fees for photovoltaic energy will be substantially increased, resulting in base fees being reduced annually by a rate of between 8% and 10%, depending on capacity and whether the plant is integrated into a building. Things are complicated further by new provisions stating that the progressively reduced rates will themselves depend on annual newly installed capacity. For example, the progressively reduced rates relating to fees for plants connected in 2010 will increase by one basis point if newly installed capacity in Germany exceeds 1,500 MW in 2009 (ie, the fees for those plants will be reduced). However, if newly installed capacity in Germany is below 1,000 MW in 2009, the progressively reduced rates will be reduced accordingly.
To ensure that newly installed capacity can be monitored, operators must notify the Federal Grid Agency of the location and capacity of plants generating electricity from solar radiation upon the entry into force of the 2009 act.
Under the 2009 act, operators of plants generating electricity from renewable sources with a capacity exceeding 100 kW will be obliged to integrate technologies into their plants allowing grid operators to effect (i) remote monitoring of generated electricity and (ii) remote reductions of electricity fed into the grid.
This will apply to all plants connected to the grid after January 1 2009. Existing plants must be upgraded by January 1 2011.
Currently, grid operators are entitled to disconnect plants generating electricity from renewable sources if there is a capacity overload in the grid resulting solely from plants generating electricity from renewable sources and combined heat and power stations. In principle, this always affects the plants that were last to connect to the grid.
The sole remedy for operators is to seek damages, but these can be claimed only from a grid operator that is regarded as legally responsible for capacity shortages, which is the case only if a grid operator has not fulfilled its duty to expand the grid.
Under the 2009 act, grid operators will now be entitled to disconnect or reduce the electricity fed in only by such plants which exceed 100 kW. Moreover, it is not those plants which were last to connect to the grid, but rather those with the most significant impact on grid stability, from which the electricity fed into the grid will be reduced or whose plants can be disconnected. However, plant operators will now automatically have a compensation claim against the company operating the grid in which the capacity overload occurs if their facility is disconnected or if the amount of electricity fed into the grid has been reduced. This claim will exist irrespective of whether the grid operator is deemed legally responsible for grid capacity shortages.
Under the 2004 act, operators of plants generating electricity from renewable sources can choose whether to sell generated electricity either according to the feed-in tariffs of the Renewable Energy Sources Act or directly on the spot markets. Under the 2009 act, this choice will be restricted, as plant operators will have to announce, with one month’s notice, that they intend to sell electricity directly on the spot market in the forthcoming month and the extent to which they wish to do so. To the extent that a sale on the spot markets has been announced, operators will lose their entitlement to Renewable Energy Sources Act minimum fees for the respective month. If the sale of a specific quota of the electricity generated has been announced, operators will have to stick to that quota at all times during the respective month. The new rules on direct marketing are intended to prevent operators from seizing market opportunities while avoiding the related market risk.
The 2009 act has been designed to meet Germany’s renewable energy target of 30% of total power by 2020 and feedback from renewable energy associations indicate that it seems well suited for this purpose. However, the 2009 act will also create some uncertainty as regards, for example, the retroactive effects of provisions for the classification of several plants as a single plant, which might weaken the position of operators of existing plants. Further, the wind industry is still speculating about the details of the technical requirements in connection with the system services which wind turbines will have to provide to the grid in the future, as such details are still to be determined in a federal government ordinance.
For further information on this topic please contact Christian Hamann or Michael Obst at Gleiss Lutz by telephone (+49 30 800 9790) or by fax (+49 30 800 979) or by email (email@example.com or firstname.lastname@example.org).
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