IN DEPTH: Germany reforms EEG

The Bundestag, Germany's lower house of parliament, has approved a reform of the country's Renewable Energies Act (EEG) that provides long-awaited visibility for the renewables industry.

But it also causes some increased hardship for solar and opens another front of disagreement with the European Commission.

"Companies like EWE that have pushed forward the Energiewende for years, with the new EEG receive a fair amount of planning security and can continue to work successfully," Werner Brinker, the chief executive of northern German utility EWE, says.

EWE is active both in onshore and offshore wind, and owns the 108MW Riffgat offshore wind park in the North Sea that was grid-connected this year.

Offshore has received a relatively good deal in the EEG reform, also thanks to a very active lobby by the sector and by Northern German coastal states that stressed the importance of thousands of jobs.

The government with the EEG reform has downsized Germany's offshore ambitions to 6.5GW by 2020 (down from 10GW previously envisaged), and to 15GW in 2030 (down from 25GW).

But the lower target, at least for 2020, is also seen as more realistic, and Berlin has given in to long-standing industry demands and extended the "compression model" for offshore feed-in tariffs (FITs) for two years until the end of the decade. It gives operators higher FITs during the first eight years of operation in order to meet high upfront investment costs.

Once the new EEG is in force on 1 August, new final investment decisions are expected in offshore wind for the German North and Baltic Sea coasts after a lull of more than a year.

Germany's less-influential lower house of parliament, the Bundesrat, still needs to vote on the reform, but a rejection is unlikely.

Onshore wind will for the first time see an annual cap of 2.5GW, but apart from last year that capacity has never been reached during the past 10 years, so the cap doesn't really bite. There will be some cuts to onshore FITs as well, but not as steep as previously feared and most companies say they can live with those.

The situation is trickier for PV, where steep FIT cuts and (in the case of manufacturing) cheap Chinese competition in the past years have already massacred the once-thriving sector in Germany.

To make matters worse, energy minister Sigmar Gabriel against widespread protests has insisted on introducing a levy on the consumption of self-produced renewable energy that will hit solar especially hard at a moment when the market for self-consumption is finally taking off thanks to steeply fallen PV prices.

The so-called "solar tax" has also unnecessarily woken up sleeping dogs at the European Commission, which has been wary of some aspects of the EEG for a while. Brussels now argues that Germany shouldn't discriminate between new RE installations that will have to pay the levy, and already operating ones that remain exempt.

Gabriel in last minute talks this week has managed to put the issue off until a review in three years, but Germany's engineering federation VDMA says the prospect of a retroactive measure – even if only in three years from now – is yet another factor to unsettle investors the industry could have done without.

Gabriel yesterday lashed out against the EU unusually sharply, saying competition commissioner Joaquín Almunia wants to "destroy" the EEG.

But the latest attack from Brussels could have been avoided if the minister had scrapped the solar tax from the EEG reform. It will hardly exonerate German power bills anyway.