Germany: Is The Renewable Energy Sources Act Undergoing A Fundamental Change?

Last Updated: 26 February 2015
Article by Peter Mayer, Boris Strauch and Maria Brakalova

The Ordinance for Requests for Proposals for Financial Support of Ground Mounted PV Power Plants (FFAV) has come into effect

Background information concerning EEG 2014 and its history

On 28 January 2015, the German Federal Cabinet adopted an ordinance called "Ordinance for the Introduction of Requests for Proposals for Financial Support of Ground Mounted PV Power Plants and for the Amendment of other Ordinances for the Promotion of Renewable Energies" (Verordnung zur Einführung von Ausschreibungen der finanziellen Förderung für Freiflächenanlagen sowie zur Änderung weiterer Verordnungen zur Förderung der erneuerbaren Energien). The ordinance, including the explanatory memorandum, comprises more than 100 pages and has come into force on 12 February 2015 – one day after promulgation in the Federal Law Gazette (with exception of Article 4, the amendment of the ordinance on a register for installations. This ordinance will enter into force on 1 March 2015).

The centerpiece of the ordinance is Article 1, the Ordinance for Competitive Bidding Requests for Proposals for Financial Support of Ground Mounted PV Power Plants (Verordnung zur Ausschreibung der finanziellen Förderung für Freiflächenanlagen, FFAV). It is materially based on Section 88 para. 1 and 4 of the Renewable Energies Act 2014 (Erneuerbare-Energien-Gesetz, EEG 2014). These provisions are directly related to Section 2 para. 5 and Section 55 EEG 2014. Section 2 para. 5 EEG 2014 stipulates the following: "The financial support and the funding amount for electricity generated from renewable energy sources and mine gas shall be determined by a bidding process by 2017 at the latest. For this purpose, experience will be first gained with determining the amount of the financial support for electricity generated from ground mounted PV power plants through competitive bidding processes. The diversity of participants involved in the generation of electricity from renewable energies shall be maintained in the transition to the competitive bidding system." Section 55 para. 1 EEG 2014 stipulates that the Federal Network Agency (Bundesnetzagentur, BNetzA) is the authority inviting the bids, and para. 2 cumulatively lays down the conditions for an auction-based entitlement to funding. The provisions refer to the ordinance now put into effect. A detailed description of the provisions follows below.

The mentioned provisions of the EEG 2014 are based on European law. In the course of the amendment of the EEG last year, the European Commission played a fundamental role, not least due to the Commission's launched investigation procedure on state aid against Germany regarding the funding mechanism of the EEG and the special compensation scheme. Further, in its guidelines on state aid for environmental protection and energy aid 2014-2020 (2014/C 200/01), the European Commission set out that the promotion of electricity generated from renewable energy sources is to be considered as state aids. As of 1 January 2017, such state aids must be granted, in principle, "by way of a bidding process based on clear, transparent and non-discriminatory criteria" (clause 3.3.2), in order not to be regarded as contrary to European law.

Other EU countries already started earlier to implement these stipulations. France, for example, launched a first competitive bidding process in the field of PV in Autumn 2014.

Legislative content of the ordinance

The fundamental idea behind the ordinance is to improve market integration of electricity generated from renewable energy sources by using a bidding process to "competitively determine the funding amount" (explanatory memorandum to the ordinance, page 1 in the reprint) and thus shift away from statutory tariffs based on more or less static calculations.

Based on the expansion corridor targets for PV installations pursuant to Section 3 No. 3 EEG 2014 of 2,500 MW/a (gross), bids will be invited for projects totalling an average of 400 MW/a, Section 1 FFAV. Section 3 para. 1 FFAV scales this auction volume and determines the bid dates (first date: 15 April 2015). The partial volumes of this grading are subject to adjustment pursuant to Section 4 FFAV.

Bidders will be able to submit concrete bids. Their projects will be defined primarily based on the capacity they wish to install (at least 100 kW, and not more than 10 MW per project) and the funding amount. The funding amount indicated by bidders in their bids represent the price to be paid to them by which they are sufficiently incentivized to realize the respective projects. During the pilot phase, the federal government wants to test both bidding procedures, the "pay as bid" and the "uniform pricing" procedure.

Sections 5 et seqq. FFAV regulate the details of the bidding process, such as details regarding announcement, requirements placed on bidders and bids, including securities, acceptance of bid etc. Section 21 et seqq. FFAV revolves around the institute in charge of the entitlements to funding. The institute manages the reconnection of the bidding model to the compensation system of the EEG. The main idea is to establish direct marketing with flexible market premium. Section 29 regulates the withdrawal or the revocation of the funding entitlement, which reminds of Section 19 FFAV, the provision setting out how to withdraw an accepted bid in a bidding process. Section 30 et seq. regulate the sanction mechanism of penalty payments. Its aim is to increase the probability of realisation of projects submitted by successful bidders.

This is followed by Section 32 et seqq. FFAV, which regulate the tasks incumbent on the Federal Network Agency. Apart from the conditions regulated therein, Section 35 FFAV also regulates the deviation from certain requirements of FFAV. Section 37 and 38 FFAV contain provisions regarding data transmission.

Section 39 FFAV contains information regarding legal remedies in connection with the bidding process in question. The legislator takes a remarkable step: In para.1, the legislator expressly declares judicial remedy with application for injunctions against the Federal Network Agency to be admissible upon accepting the bid. If successful, the injunctions can result in the adjustment of the auction volume. In return, para. 2 decouples the legal fate of the accepted bid and the funding entitlement from the legal protection of a successful bidder in a bidding process pursuant to para. 1. This aims to prevent a third-party situation so as not to give rise to conventional competition complaints.

Appraisal

From a legal point of view, a first consideration of the ordinance leads to the following observation:

  • There are constitutional concerns levelled against the legal protection provision in Section 39 FFAV. It raises the question of equal treatment of bidders taking part in conventional bidding processes who have to anticipate that the decision favoring them might yet still be suspended in an appeal procedure. Further, it is justified to ask whether such an absolute weighting of the planning security of the successful bidder is really justified under constitutional law, especially if this is meant to coincide with an exclusion of legal review of the successful bidder's bid on lawfulness conducted by a judge upon a competitor's action.
  • There are still uncertainties with regard to integrating FFAV and its instruments regulated therein into the general administrative law and the administrative procedural law and/or integrating it into the regulatory energy law framework. Some certainties might exist for regulations within the meaning of Section 35 FFAV. Section 88 para. 4 No. 2 EEG 2014 and Section 29 para. 1, 75 EnWG pave the legal way to the Higher Regional Court Düsseldorf. However, it remains unclear whether the provision in Section 19 FFAV refers to the general administrative law and the administrative procedural law (including the question regarding the necessity of a preliminary procedure within the meaning of Section 68 of the Administrative Procedure Code – Verwaltungsgerichtsordnung, VwGO). When attempts are made to answer this question, the explanation provided by the ordinance is of little help as it argues that it is a reference to the legal grounds (and not only to the consequences).
  • Just as in other previous legal matters, the legislator decided to create a special bidding system and not rely on existing regulations. Some conformity with existing regulations of public procurement law are indeed noticeable such as, for example, dividing the bidding process in two parts, the "qualification test" (Section 6 FFAV) and award procedure (Section 12 FFAV). However, all in all the differences outweigh the conformations. Nevertheless, due to the matter at hand, the chosen form is in principle appropriate. Judging from previous experience, in cases of doubt, a dispute might arise in relation to the question as to what extent it will be possible to rely on general bidding principles and their interpretation found in other legislations in the event of regulatory gaps.

Below are some interesting critical opinions from a more economic point of view:

  • The solar industry is unhappy about the fact that instead of the previously considered auction volume of 600 MW/a, only a mere 400 MW/a remained as was already foreseen in the explanation to the EEG 2014 draft. From their perspective, this is not enough to revive the market.
  • The fact that the limit introduced by the PV amendment 2010 for available areas for freestanding PV installations will more or less remain the same gives rise to disappointment and doubt about a considerable number of suitable real estate for projects. This is also partially tied in with the fear of rising property prices, which in return cause project costs to rise and thus could harm their profitability.
  • Due to the complexity of the ordinance, some voices believe that the presumably intended diversification of actors on the market cannot be maintained and a concentration on large providers is bound to happen, because they are the ones who can easier shoulder the administrative costs (including the procedure fee introduced by the ordinance) and also can better manage the bidding risks. Greenpeace energy even assumes that the real intention of the legislator is to have a market concentration. However, on the other hand, BDEW welcomes that the federal government has not introduced any special rules for market participants of a certain size or organizational form (e.g. energy cooperatives).
  • Given the experiences made abroad with bidding models for some, it seems questionable whether the reduction of the support level and the increase of the cost efficiency will be reached, in particular, if the efficiency assessment also includes, for example, grid connection costs. They are not an award criterion and thus can make a seemingly favourable project for all become more expensive "through the back door."
  • Many criticize the wide scope of authority the ordinance bestows upon the Federal Network Agency.

Outlook

For the on-going year it is expected that in the light of Section 55 para. 3 EEG 2014, all project holders will do their best to finish any on-going projects by the end of August 2015 in order not to go away empty-handed.

According to the express will of the legislator, the auction of freestanding PV installations shall have a pilot character. In the pilot projects the legislator shall gain experience with this instrument. Thus Section 99 EEG 2014 stipulates that the federal government submits a progress report with recommendations on FFAV.

In view of the European legal framework that was explained above, it is not surprising that the auctioning model shall be expanded to other technologies that generate electricity from renewable energy sources (in particular wind power and biomass) by 2017. This is not only going to be a mere "change of system" (explanation Section 53 in the government's draft – Regierungsentwurf – of EEG 2014, S. 228 of the reprint). However, the government parties are already now fighting about whether this change necessarily needs to happen by way of automatism or not.

At the end of the day, only once the ordinance is applied in practice will it be seen whether the criticism voiced in public discussions is justified or not and whether FFAV gives rise to disincentives. However, we can already say now that it is wise to make use of legal advice when participating in a bidding process. This is due to the undeniable complexity of the matter. This remains true though the criticism surrounding the textual scope of the ordinance is partially unfounded given that the ordinance text itself is approx. a mere 20 pages long and not more than 100 pages as it is with the explanation.

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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