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Renewable energy attractiveness indices - August 2012 - Germany - EY - Global

Renewable energy attractiveness indices: August 2012

Germany

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Germany recently proposed resolutions on key areas of uncertainty that have plagued the renewable energy sector in recent months.

Policy

Q2 saw Germany reinforce its withdrawal from nuclear power, with proposed resolutions on key areas of uncertainty that have plagued the renewable energy sector in recent months. Specifically, confirmation of subsidy changes for PV and the introduction of compensation rules for offshore wind grid connection. However, the replacement in May of pro-renewables Environment Minister, Norbert Rottgen by less well-known Peter Altmaier, has possibly re-introduced some mixed signals for the sector.

While fully supporting the shift away from nuclear, Altmaier has, in recent interviews, cast doubt on whether the country’s 2020 targets are achievable and said his priority is to make sure that electricity prices do not rise too much. Notwithstanding, in the first six months of the year, Germany sourced a record 25% of power from renewable sources.


Solar FIT cuts confirmed and offshore grid compensation given some certainty


Ranking Issue 34 Issue 33
All renewables index 2 3
Wind Index 2 2
Solar Index 4 4

Source: EY analysis

Solar

Following the release of our last CAI, which set out the solar PV FIT amendments proposed by Chancellor Merkel’s Government, the German Parliament’s upper house voted to suspend the FIT cuts and send the proposed bill to arbitration. Following negotiations with federal state representatives, the Government won agreement on the cuts in June and, while the majority of the original bill survived unchanged, there were some revisions that were welcomed by the sector.

  • A new category of higher than expected subsidies for mid-size rooftop systems of 10kW–40kW has been introduced at a rate of €18.5/MWh, higher than would otherwise have been received. All other sized systems will be subject to the previously announced cuts from 1 April 2012.
  • Previous plans to introduce a 90% limit on subsidies for plants larger than 10kW have been suspended, and will now come into effect in 2014.
  • Incentives will decline in smaller monthly steps rather than in large annual or semi-annual chunks as previously.
  • A total solar PV capacity cap of 52GW has been set, after which no subsidies will be paid. Given Germany’s current installed capacity of approximately 28GW, analysts predict the upper limit could be reached in as little as five years.
  • A “growth corridor” of 2.5GW–3.5GW per annum up to 2020 will be applied.

The federal regulator revealed that 2.3GW of capacity was installed in the first four months of the year, more than three times the 812MW in the same period last year. This is likely to be mainly be driven by developers seeking to avoid the subsidy cuts in April. At the same time, First Solar has announced that it will delay the close of a German plant until the end of this year to meet unexpected strong demand in Europe. The company still intends to scale back production in the fourth quarter.

This positive solar news was partially offset by a series of bankruptcy filings in the quarter, most notably Q-Cells. While the company is attempting to continue trading, it is a stark reminder that industry giants are not immune to the sectors’ woes.

Offshore wind

The Government has started to address TenneT’s current challenges in complying with its obligations to build the German offshore grid by agreeing on key pieces of legislation, including:

  • Coordination between construction and grid connection by means of a binding offshore grid development plan, which will officially stipulate the time of completion, the location and capacity of future grid connection points to allow for better coordination with the onshore grid expansion.
  • A liability regime to compensate for losses caused by grid connection delays. Key elements include 90% compensation of lost FITS and a liability cap (€100m per case of damage) on the grid operator for unintentional material damage, whereupon the Government will step in.

The draft law is expected to come into force within 2012. While these provisions will not completely resolve the challenges faced in respect of the offshore grid, they should go some way toward whetting infrastructure investors’ appetite for co-investments in the offshore grid. However, the sector still faces significant challenges. Despite a host of projects in the planning and construction stages, operational capacity remains low and, to reach the stated target of 25GW by 2030, will require an increase of more than 12,000% on 2011 levels.

Grid

In other grid news, Germany and Norway have agreed plans for a 1.4GW subsea cable linking the renewable energy assets of both countries. A cooperation agreement is expected to be signed in September 2012 and it is hoped the infrastructure project will help mitigate lost power potential from lack of RES storage capacity. This is particularly important for Germany, where wind power can often not be shipped to customers in the south, resulting in turbines being shut down in times of surplus production.



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