Citizens Blow Away Corporate Investors in the 1st German Onshore Wind Energy Auction

June 6, 2017

Source:  Gale Photography

 

The reform of the German Renewable Energy Act (EEG) has been deemed as the “end of new energy cooperative projects”. The switch from Feed in Tariffs to Market Premiums and auctioning seemed to cause uncertainty amongst citizen investors, leading to a drop of 75% in new energy cooperatives from 2011 to 2014. Corporate investors were thought to have larger economies of scale and expertise to deliver smaller bids and win in auctions. 

 

However the latest round of onshore wind energy auctions proves this wrong, since 96% of the auctioned volume has been awarded precisely to citizen energy projects.

 

 

Energiewende: a citizen movement
 

The Energiewende has been a success in developing renewable electricity. This is mainly due to Feed in Tariffs (FIT), which is a support instrument where renewable electricity producers receive a fixed payment for the electricity their plants generate. Thanks to FIT’s Germany managed to increase the shares of renewables in its electricity mix from about 10% in 2010 to 31% in 2016.

 

However the main backbone behind this have been thousands of small installations, owned by private individuals, farmers and energy cooperatives. It’s estimated that in 2012 citizen energy projects amounted to 46% of total installed renewable energy capacity. In Germany renewable energy is associated not just with less greenhouse gas emissions, but also with greater democracy and freedom from big power utilities.

 

Yet the Feed in Tariff system has been flawed, because it was too expensive and was funded mainly by private individuals through a levy. Due to growing support costs this levy has been increased in Germany several times, and is currently one of the highest in Europe. But its fundamental flaw was reliance on government officials to determine the support prices. Irrespective of the government’s skills and help from the smartest consultants, it’s always going to be impossible to predict the movement of technology costs and other factors that influence investors decision to build solar PV, wind, biomass and other technologies. Henceforth the German government decided to introduce a market based support system.

 

 

EEG reforms and market principles - only for the big players?

 

The reforms of the so-called Erneuerbare-Energien-Gesetz (EEG) in 2014 revamped the FIT and introduced competitive auctions and market premiums. Under such support mechanisms the government issues tenders for certain amounts of renewable power and invites investors to provide bids for chunks of that tender round. The bids are the power purchase prices under which the investor is willing to sell the produced electricity. As the tender is limited to a certain amount of MW, the investors tend to compete for what is on offer and bid prices that are smaller.

 

Under such competitive conditions it’s hard to imagine a small rural cooperative made up of “maze farmers, the local priest and schoolteacher”, to actually have the required knowledge and courage to invest into new renewable energy projects. As the graph shows there have been fewer new energy cooperatives in Germany, reflecting the uncertainty surrounding the new EEG reforms.

 

Surprisingly enough, citizen energy has made a comeback, as the results of the newest onshore wind auction have shown.

 

Auction results: an unexpected turnaround

 

In the newest onshore wind energy auction, which took place in May 2017, citizen energy projects made 96% of the total awarded volume. The tendered 807 MW have been awarded under an average bid of 5.71 cEUR/kWh, which is much smaller than what these projects would get under the previous FIT system.

 

It’s fair to conclude that good policymaking deserves some of the credits for this result. Namely under the current auctioning rules, citizen energy projects receive many exemptions that give them an advantage over other market players and these are:

 

easier licensing procedures

 

bid bonds of 15 EUR/kW, instead of

30 EUR/kW, that is required from other investors

 

project development time of 54 months,

instead of the usual 30 months

 

they receive the highest bid in the auctioning round, even if their

individual bid was lower

 

The easier licencing procedures include an exemption from submitting an approval under the Immission Act, which regulates harmful effects from installations. Instead investors are only required to provide a certified wind study and proof that their selected construction site is available.

 

Also such projects must consist of at least 10 private individuals, with the majority of voting rights in hands of local residents. In addition no shareholder can hold more than 10% of the voting rights, while municipalities are allowed to contribute to 10% of the investment. Finally such projects can have a maximum of 6 turbines and a total installed capacity of 18 MW.

 

 

Why citizen energy matters?

 

It’s still early to make any conclusions about these results, because this is just the first out of three onshore wind auctioning rounds in 2017 (01.08.2017, 01.11.2017 - 1000 MW each), and also because we still have to wait and see how many of the winning projects will actually get built. However this latest round offers several interesting lessons and speculations:

 

Policies that decrease the upfront investment risks are required to stimulate participation from small players. This includes lowering the project development costs as much as possible, while still requiring an adequate level of commitment

 

Citizen energy initiatives are willing to invest into onshore wind power even under much lower power purchase prices than under the FIT scheme

 

Citizens are simply less greedy than professional market players and operate under lower profit margins; hence they have been able to accept lower prices

 

Citizen participation in energy projects is important because it creates local acceptance. Instead of rioting against new wind energy farms etc. locals see such new technologies as an improvement in their lives if they own them. Therefore as other countries prepare their auctions, they should stimulate the participation of smaller local players.

 

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Mak Dukan is the founder of Starfish Energy, a consultancy company for energy and climate policies and low carbon development in South East Europe. He is a Croatian from Zagreb who is living in Berlin, where he is active in the renewable energy and energy policy fields. 

 

 

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