Germany is the fourth largest European Union country with the largest economy in the continent, making it also the top electricity consumer. As of 2020, Germany was recognized as the leading renewable energy market in Europe based on total capacity.
These high renewable energy indicators are the result of a long-term Energiewende – a national energy concept meaning transition to an energy sector dominated by renewables with energy efficiency and nuclear phaseout. By 2022, the country is planning to completely phase out nuclear, with coal power plants scheduled for phaseout by 2038.
Germany has very ambitious renewable energy targets: By 2030 the government plans to have 20 GW of offshore wind, 71 GW of onshore wind, and 100 GW of solar PV installed. This should result in 65% of renewables in the total power mix by 2030, with the government aiming to have a net-zero power mix by 2050.
The primary support mechanism for renewable energy in Germany are tenders, with a feed-in premium awarded to projects with the lowest bids. This premium comes from a special levy paid by all energy consumers. The current auction target is to install 32 GW of onshore wind and 20 GW of solar PV. Offshore wind projects are excluded from this support mechanism and instead are placed into special offshore wind auctions.
Renewable Energy Tender Volumes 2021-2030
The 2021 offshore wind auction, held in September, resulted in a zero subsidy. Under this tender, the winners get a sleeved connection fee. The main reasons for zero bids include decreased offshore wind costs, increased wholesale energy prices, and the large size of the projects. It is expected that more zero-subsidy offshore wind projects will be developed in Germany in the future.
Additionally, there are separate auctions for projects that are using a combination of technologies like onshore wind and solar, or so-called “Innovation” auctions. These were introduced in 2020 and aim to have 500-850 MW installed annually.
State of Renewable Energy PPAs in Germany
Corporate renewable energy purchases through power purchase agreements (PPAs) have just started to gain popularity. Over the last decade, developers were actively taking advantage of government support mechanisms. In 2020, however, capacity auctioned for governmental support was reduced, leading to a substantial rise in volumes signed as part of corporate PPAs. Currently, renewables make up as much as 33.3% of the total electricity mix, with wind energy leading, followed by biomass and solar PV.
German Corporate PPA Volumes (MW)
Source: BNEF 2021 as of October 2021
Main drivers of growth for corporate procurement of renewable energy include:
- Ambitious renewable energy targets;
- Germany runs competitive tenders to fund less than half of the targeted renewable generation by 2030. The rest will have to be financially supported by other means, such as corporate PPAs;
- Looking ahead, electricity prices and decreased or zero-subsidy bids will have a significant influence on project development and implementation, as well as bringing new challenges in contract design for offshore wind and other renewable project financing.
Policy Change: “Climate Elections” 2021
On September 26th, German citizens voted for a new federal parliament and government for the next four years. These were dubbed the “climate elections,” as all the major parties made climate action and renewable energy a primary focus of their political agenda.
Currently, election results have deemed the Social Democratic Party (SDP) the winner, although the party must have at least 50% of the seats in Parliament to establish a ruling government, and so must form a coalition with other political parties. The coalition that is expected to be formed between the SDP and the Green and Free Democrats—the so-called “Traffic Light Coalition” — together would take 416 of 735 seats. All three of Germany’s political parties have given their consent to enter negotiations, aiming to form a new government by December of this year.
Renewable Energy Agenda of the “Traffic Light Coalition”
Source: Clean Energy Wire 2021
Opportunities for Buyers
All three political parties that are now negotiating a new government have placed a major focus on a climate agenda, including renewable energy. All of them are calling for more aggressive decarbonization goals, with the expectation that renewable energy will be further prioritized through both governmental support mechanisms and PPAs. For large energy buyers, this will mean even more projects in the pipeline and potentially a streamlined permitting and connection process, reducing buyer risk.
Additionally, the conversation is still ongoing around reducing or completely abolishing the energy tax and EEG levy, which is collected to fund premiums for renewable energy projects winning governmental tenders. For large energy buyers, this is a positive sign, as it will mean decreased energy costs, making the German renewable energy market more attractive.
Other topics being discussed between parties include mandatory rooftop solar for new commercial buildings, earlier coal phaseout by 2030, and the creation of a new power market design.
While it is difficult to say exactly how this will impact energy buyers, one thing is clear — renewable energy generation will be promoted in all possible ways, with consumers playing a key role in that initiative. More details will be forthcoming once the coalition is officially set in December 2021.
Contact us to learn more about how this can affect your business and your renewable energy strategy.