Germany: Tender Design To Determine By Auction Feed-In Tariffs For Ground-Mounted Photovoltaic Plants

Last Updated: 28 August 2014
Article by Hermann Hinderer

Executive Summary

  • The act on the fundamental reform of the German Renewable Energy Act (EEG 2014) was approved by the German Federal Parliament and the Federal Council. The new EEG will come into force on 1 August 2014.
  • The EEG 2014 paves the way for the shift from statutory feed-in tariffs to determining feed-in tariffs by competitive tenders.
  • As a first step, feed-in tariffs for ground-mounted photovoltaic plants shall be determined by pilot tenders. The transfer of the tendering model to other renewable energies is scheduled for 2017, at the latest.
  • Therefore, the German Federal Government plans to draw up a legislative decree before the end of this year and to organize first tenders during 2015. Key points relating to the tender design have been published by the Federal Ministry of Economic Affairs and Energy ("BMWi") and put to discussion in a consultation process. The deadline for consultation is set for 22 August 2014.

Introduction

On 11 July 2014, the Federal Council (Bundesrat has approved the reform of the German Renewable Energy Act (EEG 2014). This act, which will come into force on 1 August 2014, provides for a shift in the promotion of renewable energies from statutory feed- in tariffs to determination of such feed-in tariffs by competitive tenders.

As a first step, the feed-in tariffs for electricity from ground-mounted photovoltaic ("PV") plants shall be determined by competitive tenders in pilot projects. According to the presented framework paper it is planned to conduct tenders with a volume of 600 MW per annum in projects sizes of up to 25 MW until 2017. At the latest 2017 the feed-in tariffs for other renewable energies shall also be determined by tenders.

The Federal Ministry of Economic Affairs and Energy has published key points for a tender design and started a process of consultation, which will end 22 August 2014

Goals and fundamental Requirements of the Tenders

The system shift shall achieve the expansion targets for renewable energies in a more cost-efficient way without sacrificing the high level of acceptance and the diversity of participants. In addition, the pilot tenders shall be used to gain experience for the transfer of the tender design to other renewable energies.

The goal of the consultation process is the creation of a tender design, which is transparent, simple and comprehensible, which anticipates bidder strategies and bidder risks, but which avoids strategic biddings and collusion.

Subject and Volume of Tenders

Subject of the tenders are installed capacities of ground-mounted PV plants. The tender procedure shall only determine the amount of subsidies, but not the further parameters of the subsidies. These will remain subject to the EEG 2014. The capacities, which will be granted by tender, will be credited to the an- nual target corridor for PV plants.

If market participants wish to participate in a tender procedure, they have to indicate the amount of the installed capacities for which they want to obtain subsidies and the feed-in tariff in terms of Sect. 23 Para. 1 Sentence 1 EEG 2014, which is used as basis to calculate the floating market premium. If the demand exceeds the amount of installed capacity being tendered, the participants who bid for the lowest feed-in tariff will be awarded installed capacities.

The BMWi puts up for discussion the limitation of the project sizes at 25 MW.

Which type of land areas shall be used for ground- mounted PV plants in the future is another topic of the consultation process.

As far as zoning plans have been drawn up after 1 January 2010, the approval of ground-mounted PV plants is limited to three categories of land areas. Furthermore they are not promoted unless there exists a zoning plan or a plan approval procedure has been completed. In future either these limitations on usable land areas will be abolished completely, the limitations will be maintained or extended or addition- al limitations will be introduced. Especially scientific market analysis and environmental and agricultural concerns will be considered for this decision.

It will play an important role that an adequate competitive situation depends significantly on the availability of land.

In order to respond to the possibility of a low implementation ratio of the projects, for which to date experience is lacking, the tendered volume shall amount to 600 MW per annum instead of 400 MW which were contemplated initially.

Tendering Procedure

The suggestion put up for discussion by the BMWi provides for a static "pay-as-bid"-auction. This means that every participant may submit one sealed bid per tender round. If the installed capacities for which bids were received exceed the tendered capacities, the participants who submitted the lowest bid will be awarded the requested capacity. The award is granted based on the price submitted in each case.

According to the BMWi this technique is simple and comprehensible and requires only little administrative effort.

Consequently, the award is granted exclusively on the basis of the bid amount. It is open for discussion, whether the award will be related to a person or to a project. To avoid the formation of a secondary market, trading awarded subsidy grants shall be prohibited. These aspects of the procedure were put up for discussion by the BMWi as well.

According to the framework paper the German Federal Network Agency, as the adjudicating body, will issue at least two calls for tenders per annum, so that a steady project pipeline can be ensured. Per tender 200 MW – 300 MW will be auctioned.

For each auction, an ambitious maximum price shall be published, to exclude inflated bids and to limit the costs for electricity consumers.

The first tender in 2015 shall be announced 3 months in advance and the bids shall be reviewed within only 2 weeks.

Ensuring a High Implementation Ratio

To ensure a high implementation ratio, qualification requirements and contractual penalties are planned. These shall exclude lack of seriousness of bids and so- called "underbidding" (submission of low bids, so that projects cannot be financed anymore based on these conditions).

There will be asked qualifications related to the development status of the project and financial qualifications, as the existence of a resolution of a municipality to set up a zoning plan and a grid operator's preliminary consent to connect the project to the grid as well as financial security ("bid-bond"). The BMWi proposes to design the qualifications flexible by giving participants the choice between certain financial and project status related requirements to maintain the diversity of participants. From the point of view of the BMWi it will be easier for smaller participants to meet stricter requirements in terms of planning security. In return these participants may be subject to less strict financial requirements.

In case of delay and failure to implement projects for more than 18 months, contractual penalties shall become due in two stages.

Next Steps

In 2015 first tenders for ground-mounted PV plants shall take place. As of 2017, the feed-in tariffs for other renewable energies shall be determined by tenders as well. However, the success of a tender depends significantly on the competitive conditions of each market. For that reason, the BMWi expects that the results of the PV-pilot projects can only be transferred within certain limitations to other renewable energy technologies.

Conclusion

The presentation of the framework paper and the consultation process are to be welcomed, as the auction model is the real innovation of the EEG 2014. It is recommendable for interested market participants to take part in the consultation process.

The success of the auction model requires in particular that the developers and the financing banks obtain security whether the project is awarded with a feed-in tariff as soon as possible during the development process. This is inevitable in order to ensure the competitive conditions that are necessary for a tender. Against this background, the recommendations of the framework paper are going mainly in the right direction. Particularly it is positive that participants may provide proof of having secured land by presenting the resolution of a municipality to set up a zoning plan.

To secure the diversity of participants, it will be important to find the right balance between instruments securing the implementation of projects and a protection of smaller bidders from unreasonable high development costs. At the same time, at least a few lot sizes should be increased to 50 MW minimum in order to benefit from economies of scale. This would help improve the attractiveness of ground-mounted PV plants for investors.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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