Germany’s Renewable Energy Act (EEG) reforms are unwelcome - but not fatal – for CHP industry
Earlier this year, German policy makers announced plans to reform the EEG, the country’s much-publicised package of policies aimed at dramatically increasing the uptake of renewable technologies. While the EEG has been hugely successful in this overall aim – in 2000, approximately 6% of Germany’s electricity was sourced from renewable sources; in 2012 this stood at around 25% - it has come at a cost.
A cost in terms of the price end consumers pay for electricity , with an EEG ‘surcharge’ added to bills to help fund these low-carbon, yet expensive, technologies.
And a cost in terms of an energy market which is now prone to wildly erratic wholesale electricity prices, with fluctuations literally caused by weather patterns and the unerring regularity of night and day.
In a word, the energy market is ‘unwell’. No longer can the likes of E.ON and RWE – Germany’s largest utilities - continue to operate existing assets without sustaining significant losses. Over the past five years, their share prices have dropped by 45% and 50%, respectively. In 2013, E.ON was close to mothballing Irsching 5 – hailed as one of the world’s most efficient CCGT plants – as a result of weak electricity demand. And since 2012, on particularly windy, weekend days especially, the European Power Exchange (EPEX) in Germany is increasingly exposed to negative electricity prices on the wholesale market.
What happens now?
Things have to change. And now it looks like they are about to. On the 8th April 2014, Angela Merkel’s cabinet approved a revised package of EEG reforms which are due to come into effect from August this year. While the latest revisions have been watered down since earlier proposals in January, they are nevertheless set to have a significant impact on Germany’s CHP industry.
- Currently, highly efficient CHP operators are exempt from paying the EEG surcharge for electricity that is generated, and consumed, on-site. Today, the EEG surcharge stands at 6.24 €c / kWh. This exemption is a significant driver for the uptake of decentralised, CHP systems which generate heat and electricity for onsite consumption.
- Since 2007, we have seen natural gas-fuelled systems increase 6-fold on the back of this exemption, and support via the CHP Law. - From 1st of August, all newly installed CHP systems will be subject to payment of 50% of the EEG surcharge for all electricity consumed onsite. Some industrial sectors – including the food and drink industry – will be subjected to a lower surcharge rate of 15%. This development has been hailed by CHP players as a major setback for the industry, and a fatal blow to Germany’s ‘binding’ target of generating 25% of electricity from CHP by 2020.
What is the reality?
While Germany’s CHP industry has understandably been very vocal in denouncing these proposals and calling for a re-think (and there is still a small chance that the latest proposals could be revised once more), at Delta-ee, we have taken a more rational view of the impact these changes will have on future sales. There is no doubt that this development is unwelcome for the CHP industry; an increase in tax is never going to improve the financial viability of new developments. But when the dust settles, we are likely to see that 2015 will once again have Germany as the leading European market for decentralised, small-scale CHP installations.
The German CHP light bulb is flickering but certainly not about to go out.
Delta-ee’s latest report as part of the Distributed Power Service looks at the current and future prospects for Germany’s gas engine industry in the 400 kWe to 10 MWe size range. Our projections out to 2020 take account of the very latest EEG developments and inform readers of the future opportunities across all applications.
For more info on Delta-ee’s Distributed Power Service, please contact John Murray, Service Manager at email@example.com.