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5. RENEWABLE ENERGY

Renewable electricity

The EEG is the pivotal policy instrument driving renewable electricity growth in Germany since its adoption in 2000. In its initial version, the EEG promoted renewable electricity production via guaranteed, long-term FiTs, kicking off renewables deployment in the country.

The act was substantially amended several times, including since the last IDR. The 2014 reform removed FiTs for utility-scale projects and required projects to use a direct marketing scheme for support. The reform also introduced capacity auctions as the price-finding mechanism for large-scale solar PV projects with pilot auctions rolled out in 2015 and 2016. The cross-border auction was tested in the same period in co-operation with Denmark per EU requirements.

After successful results of the initial rounds, the EEG was further amended, requiring all systems greater than 750 kW seeking support to participate in competitive auctions starting in 2017. This marked a paradigm shift as competition became the main pricediscovery mechanism for renewable electricity technologies, moving away from administratively set FiTs for the majority of renewable electricity deployment going forward. Today, beyond large-scale solar PV, onshore and offshore wind as well as biomass projects are required to compete in auctions in order to obtain power purchase agreements, awarded to the lowest bidder. Only hydropower, geothermal and small PV roof systems still have fixed FiTs.

The deployment of annual renewable capacity additions over time is illustrated in Figure 5.8, which also shows selected major amendments to legislation.

Oversimplifying a bit, the deployment of renewable capacities in Germany can be classified into three phases: 1) the early phase of FiTs, first fostering onshore wind then increasingly PV; 2) the years of the PV boom, when regulation struggled to cope with very fast technology cost reductions and rapid installation volumes, leading to a sizeable increase in the EEG surcharge; and 3) since 2014, the renewables deployment phase based on competitive auctions.

New capacity installations also depend on other factors aside from major legislation amendments. For instance, every announcement of a tariff reduction systematically brought boom and bust cycles, i.e. a rush of new installations before the deadline, followed by empty project pipelines in the following year. Other important factors are non-economic barriers, e.g. social acceptance and permitting issues, such as those currently impacting Germany’s onshore wind sector.

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The Landlord-to-Tenant Electricity Act 2017 allows tenants to profit directly from the energy transition and creates new incentives for expanding solar energy generation in Germany. The goal of landlord-to-tenant electricity funding is to help tenants participate directly in the energy transition and to provide additional incentives for installing solar power on residential buildings.

Initial results from competitive auctions for wind and solar PV under the EEG revisions in 2014 and 2017 confirm that these reforms are important steps on the path to a successful and more cost-efficient energy transition. For the first time in 2017, total installed capacity of renewables (112 GW) surpassed that of fossil and nuclear combined (105 GW). The share of renewables in electricity generation increased from 25% in 2013 to nearly 38% in 2018. The success is particularly clear for solar PV, as average auction prices fell from around EUR 90 per megawatt-hour (MWh) in December 2014 to a record low of EUR 43.3/MWh in February 2018 (Figure 5.9).

The first auction for offshore wind was held in April 2017 for 1.5 GW, and four projects were selected. One project was awarded at EUR 60/MWh and the remaining three, totalling 1.4 GW, were awarded at EUR 0/MWh, i.e. a “zero” premium on wholesale market prices, signalling the increasing competitiveness of offshore wind. Similar results were observed in the second offshore wind auction held in April 2018 for 1.6 GW. Six projects were awarded at an average weighted price of EUR 46.6/MWh, with two projects bidding at EUR 0/MWh premium. Only existing projects for which there was remaining network capacity available after the first round could participate in the second round; 500 MW was earmarked for projects located in the Baltic Sea.

Figure 5.9 Price reductions in recent auctions for solar PV and onshore wind, 2014-19

Since 2014, competitive auctions in Germany have been effective at reducing average prices of renewables, in particular solar PV.

Sources: Bundesnetzagentur (2019a), “Ausschreibungen für EEund KWK-An­la­gen” [Tenders for RES and CHP plants] and Bundesnetzagentur (2019b), “Be­en­de­te Ausschreibungen” [Closed Tenders].

The introduction at scale of competitive auctions and the recent policy changes have proven to be effective in stabilising EEG surcharges in the past few years (Figure 5.10), during which the generation of renewable electricity grew by 50%. The surcharge in 2018 was EUR 6.79 cents per kWh (kWh), i.e. slightly lower than in 2017.

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Figure 5.11 Share of solar and wind in electricity generation in IEA countries, 2018

Germany has the fourth-highest share of variable renewables in electricity generation in the IEA.

Notes: For Luxembourg, domestic electricity generation only covers a small part of demand (most is imported). Data are provisional.

Source: IEA (2019a), World Energy Balances 2019, www.iea.org/statistics/

Figure 5.12 Conventional electricity generation in Germany, November 2017

In Germany, increased power plant flexibility has allowed for greater variable renewables integration as well as allowed conventional power plants to remain in the market.

Source: IEA (2018b), Status of Power System Transformation.

In the context of the Grid Development Plan for 2019-30, a review is under way on transmission grid measures necessary to accommodate the growing shares of variable renewables. By the autumn of 2019, the coalition parties will decide on the technologyspecific expansion paths needed for this, up to the year 2030. Where applicable, adaptations may need to be made to auction amounts to reach the 65% objective.

Today, the biggest issue in terms of integration are congestion issues, due to the fact that the vast majority of wind installations are in the north, while strong electricity demand from industry comes from the south and the west. This calls for strong grid reinforcements, which were planned a while ago but are significantly lagging behind plans (for a more detailed discussion, see Chapter 7 on electricity). Reinforcement and new construction of power lines will bring benefits in terms of increasing flexibility, reducing curtailment and enabling a more secure and cost-effective deployment of wind and solar.

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Offshore wind capacity is expected to increase by 25%, from projects currently under construction and in advanced stages of development.

Based on these trends, the IEA estimates that renewable electricity will increase to 300 TWh by 2024. Should the pace of deployment be maintained to 2030, renewable electricity generation could reach over 360 TWh. The IEA estimates that this trend would put the share of renewable generation on a path to exceed 50% by 2030, based on current plans for nuclear and coal phase-outs over the same period.

Higher shares of renewable electricity generation are possible by 2030, as assumed in IEA’s Accelerated Case. Overall renewable capacity growth in Germany could be twothirds higher – reaching almost 60 additional GW – with increased policy certainty for solar PV and fewer administrative challenges for permitting of onshore wind.

For solar PV, one of the main challenges is policy uncertainty from 2020 onwards. For utility-scale systems, the auction schedule beyond 2021 is unknown, while for distributed PV growth there is no clarity whether remuneration above market prices of electricity exported to the grid will be extended beyond the 52 GW cumulative installed capacity cap. If remuneration is not changed, growth could be 50% higher over the next five years.

Two of the main challenges for higher onshore wind growth are lengthy permitting times and the impact of decommissioning/repowering older turbines. Tighter state-level permitting requirements, less availability of regional development zones, and increased legal challenges stemming from local opposition have led to longer permitting times; now up to two years (WindEurope, 2019). In addition, the pace of decommissioning of older plants, which averaged 300 MW per year over 2013-18, could also challenge growth. Over the next six years, more than 10 GW of capacity will reach the end of its support lifetime, which can prompt developers to decide whether to dismantle, enter into the wholesale market or repower their plants and compete for support with new-build projects in auctions. Measures to decrease the permitting procedures times, solve the grid constraints and increase the business case for repowering could result in over 40% more onshore wind growth by 2024.

Renewable heat

Heating (and cooling) in Germany accounts for over 50% of total final energy consumption and around 40% of carbon dioxide (CO2) emissions. The German heating sector is still heavily dependent on fossil fuels, supplying more than 80% of direct heat in the residential sector. Of particular note, 25% of heating is fuelled by heating oil. The share of renewables is limited (14%) in district heating, which supplies 10% of heat demand in residential and commercial buildings.

Overall, the share of renewable energy in heating and cooling was 14.2% in 2018. While this number meets Germany’s renewable heat target for 2020 of 14%, it is much lower than the renewable heat share in many other IEA countries, especially in Europe (Figure 5.14).

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The federal government has to report every four years on experience with the act and to submit proposals on its further development. The second Progress Report was published in November 2015. So far, the EEWärmeG has been considered effective in achieving the EU 2020 target, with specific reference to new buildings. For instance, the share of oil heating systems in new buildings has decreased from 10% in 2004 to 0.7% in 2016. However, yearly renovations in Germany occur in only around 250 000 buildings, or 0.5%. Going forward, it is clear that new and additional policy instruments will be needed, addressing the entire building stock of around 51 million units.

The MAP is an additional and complementary support scheme intended to help reach the 14% goal of the EEWärmeG by 2020. It aims at further expanding the deployment of technologies to use renewable energy in the heating/cooling sector, such as solar thermal installations, wood pellet heating systems, and efficient heat pumps.

The MAP provides two kinds of support, depending on the type and size of the installation. For small installations, primarily in existing buildings, investment grants are issued through BAFA. Applications for such funding mainly come from private investors in single-family or two-family homes. For larger installations, as well as for heat networks and storage, repayment grants are offered in the form of low-interest loans under the KfW Renewable Energies Programme, mainly to commercial or local government entities.

The annual budget is approximately EUR 320 million. In 2017, the MAP for Renewable Energy in the Heating Market supported the installation of approximately 70 000 renewable energy heating systems – most of them in residential buildings – for a total volume of grants of about EUR 200 million and a corresponding investment level of nearly EUR 900 million.

While the MAP has certainly been beneficial to the deployment of renewable heat technologies, in the absence of stronger interventions (e.g. a carbon price and/or taxation reforms), the most important determinant influencing private investment remains the price of oil. IEA analysis shows that there is a clear correlation between residential heating oil prices, which vary with crude oil prices, and market trends in heating system installations. From 2008-18, during periods of high heating oil costs, the number of new oil boiler installations reduced, while biomass heating systems grew. The opposite is generally observed at times of lower oil prices (Figure 5.15).

Last but not least, renewable heat technologies are eligible for financial support under the CO2 Building Rehabilitation Programme, which provides financial incentives for energy-efficient and clean energy renovations. The programme’s 2017 budget was EUR 2 billion, the bulk of which was used for low-interest loans; around 400 000 buildings received funding in 2017. Germany does not provide financial incentives in the form of tax breaks to households or businesses for upgrading heating systems (see also Chapter 3 on energy and climate change).

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