Climate Change and Sustainability Alert
20 September 2010
Authors:
Dr. Christian Hullmann
christian.hullmann@klgates.com
+49.30.22.00.29.140
German Government Releases Draft Energy
Concept – New Funds to Help Develop
Renewable Energy Sources
Mirko Zorn
mirko.zorn@klgates.com
+49.30.22.00.29.116
K&L Gates includes lawyers practicing out
of 36 offices located in North America,
Europe, Asia and the Middle East, and
represents numerous GLOBAL 500,
FORTUNE 100, and FTSE 100
corporations, in addition to growth and
middle market companies, entrepreneurs,
capital market participants and public
sector entities. For more information,
visit www.klgates.com.
The Federal Ministry for the Environment together with the Federal Ministry of
Economics and Technology have released a paper summarizing a long-term
strategy for energy supply in Germany. According to this Energy Concept, the
Federal Government plans to extend the life spans of Germany's 17 nuclear power
plants. Plant operators agreed to make payments into a renewable energy fund. If
transformed into law, the provisions of the Energy Concept will have a huge
impact on the German economy.
Introduction
The Energy Concept sets out the principles for securing an environmentally
friendly, reliable and affordable energy supply. The Federal Government is
developing a long-term energy strategy from 2010–2050, in which renewable
energy should play a central role. Nuclear energy is considered to be a “bridge
technology”, although the life spans of Germany's 17 nuclear plants will be
extended by an average of 12 years.
According to the Federal Government, transforming the energy supply in Germany
into the “age of renewables” is possible, though investments of approximately €20
billion per year will be needed. The Government emphasizes the importance of
energy efficiency, the development of the electricity grid and the production of
new energy storage facilities.
Greenhouse gas emissions are to be reduced by 40% by 2020 and by at least 80%
by 2050 (compared to 1990). By 2020, 18% of energy is to be produced from
renewables, 30% by 2030, 45% by 2040, and 60% by 2050. 35% of electricity is to
be produced from renewables by 2020, 50% by 2030, 65% by 2040 and 80% by
2050.
If transformed into law the provisions in the Energy Concept would affect virtually
the whole German economy: grid operators will face huge challenges such as the
upgrade of the existing grid or the construction of new overlay power lines. The
wind industry may expect further subsidies, in particular for offshore projects, as
wind capacities are to be extended. Massive investments are to be made to
refurbish all existing buildings in Germany to make them carbon neutral by 2050.
Energy management systems are to be introduced by many companies. The
automotive industry will have to adopt to the Government's plans to make mobility
more sustainable.
The Energy Concept is still in draft form and is now tabled for debate by the
parliamentary groups of the ruling parties CDU, CSU and FDP.
Climate Change and Sustainability Alert
1. Renewable Energy
2. Energy efficiency
The Federal Government emphasizes the
importance of the German Renewable Energy
Act as being the basis for the successful introduction of renewables in the German market.
The main challenge in the future will be the costefficient development of renewable energy in
Germany. In this context, the Federal Government highlights the recent reduction of tariffs for
electricity produced from photovoltaics.
There is considered to be huge potential in
Germany for reducing consumption of energy
and electricity, and economic incentives are to be
put in place to stimulate the market. The Federal
Government is to set up an energy efficiency
fund of €500 million per year for the
introduction of efficiency measures in private
households and in industry. In addition, from
2013 exemptions from energy and electricity tax
will be granted to companies only if they apply
energy management systems (EN 16001, ISO
50001).
The Federal Government sees a need for
accelerating the construction of offshore wind
farms. In order to increase capacity in offshore
wind by 2030 to 25 GW, approximately €75
billion will need to be invested. In order to
manage the technical risks of the construction of
offshore wind parks, the first ten will receive
additional subsidies. The German publicly-held
bank Kreditanstalt für Wiederaufbau (KfW) will
introduce a special program (“Offshore Wind
Energy”) in 2011 with a credit volume of €5
billion. Interest rates will meet respective market
rates. The Government is also currently looking
into providing additional guarantees for projects
related to the development of offshore wind
farms.
Planning permits for the development of offshore
wind farms will be prolonged only if investors
can prove actual progress in realization. If they
fail to do so, the respective sites will be passed
over to other market participants with the
condition that they realize the project within a
certain period of time. Furthermore, the Federal
Government intends to amend planning law so
that only one permit is necessary for the erection
and operation of offshore wind farms, as opposed
to many.
Capacities for onshore wind energy are also to be
increased. Planning must be improved and
regulations to secure the repowering of existing
wind farms are to be put in place.
Biomass is considered to be an important
component of the future energy mix due to its
storability. Electricity produced from biomass
may balance the peaks produced by wind or solar
facilities.
3. Nuclear power and fossil energy
The Federal Government has decided to extend
the life spans of Germany's 17 nuclear power
plants by an average of 12 years. Plants that
started operating in or before 1980 will get an
additional 8 years, newer plants will benefit from
a 14-year extension. Under a law passed by a
previous government in 2002, the last nuclear
power plant was due to be closed by 2022.
Opposition parties have announced that they will
challenge the decision in court should the
Federal Council be bypassed. As the ruling
coalition parties do not have a majority in the
Federal Council, it has been heavily debated in
the recent past whether the Federal Council must
be involved in a decision to extend the life spans
of power plants.
On 10 September, the Federal Government
published the term sheet for an agreement with
energy providers on a “promotion fund”
(Förderfondsvertrag). The document stipulates
payments to be made by energy suppliers into a
renewable energy fund in connection with the
extension of nuclear power plant life spans.
The Federal Government has agreed with energy
suppliers that from 2017, they will share extra
profits from increased power prices. Proceeds
from the levy will go into a special government
fund for investment in energy efficiency and
renewable energy. The term sheet provides for
“contributions” of €9/MWh from the operators
of nuclear power plants to fund promotional
measures under the Energy Concept. The
operators are to make non-refundable prepayments on contributions of €300 million in
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Climate Change and Sustainability Alert
2011 and 2012, and €200 million from 2013 to
2016. If the nuclear fuel elements tax exceeds
€2.3 billion per year, the pre-payments are to be
adjusted accordingly. The contributions are to be
reduced if (i) for the relevant power plant the
permitted remaining generation volume is lower
than the agreed level (i.e. the plus 8/plus 14 year
levels), or (ii) backfitting and security requirements exceed €500 million, or (iii) the planned
nuclear fuel rod tax is higher than €145 per gram
plutonium / uranium. The clause is to provide for
protection against political changes, in particular
a reversal of nuclear power policy by a new
government.
The term sheet provides for signing of the
agreement after completion of the parliamentary
process.
Information has also been released about the
Federal Government's plans for a separate nuclear
fuel rod tax intended to raise €2.3 billion a year,
and due to run for six years. However, nuclear
energy providers reserve the right to legally
challenge the tax. In the document, nuclear plant
operators said they had considerable doubt over
the legitimacy of this levy on fuel rods, and felt
they had the right to challenge it.
With regard to conventional power plants, such
as coal-fired plants, the Federal Government
plans to enact the draft law on carbon capture and
storage (CCS). Two CCS research facilities are to
be put into operation by 2020. A decision on the
commercial use of the CCS technology is to be
made in 2017, and an analysis of the storage
capacities for CO2 in Germany ("storage
register") is to be made available by 2012.
4. Integrating renewable energy
into the grid
The infrastructure of the electricity grid and the
storage of energy is considered to be of
paramount importance for future energy supply.
Without a modern and “smart” grid, a steadily
increasing amount of renewable energy will not
be manageable. Developing the grid by 2050
must comprise the upgrade of the existing grid, a
new overlay grid for possible pilot routes, a North
Sea grid for offshore wind farms and the
integration of the German grid into the European
grid infrastructure. Grid operators will have to
present a ten-year development plan, on which
the Federal Government will develop a federal
grid plan.
The Federal Government also plans to expedite
planning and permit proceedings for the
construction of power lines. Financial incentives
shall be provided to encourage grid operators and
other investors to invest in the modernization and
extension of the German grid.
For the construction of smart grids, the Federal
Government will enact a legal framework
allowing the introduction of smart meters as well
as the connection and steering of energy
producers, storages, and consumers. With the
amendment of the Renewable Energy Act due
in 2012, the regulations concerning the direct
consumption of renewable energy will be
improved and extended. Furthermore, operators
of facilities producing energy from renewable
sources will have the choice between the existing
feed-in tariff and a market premium for selling
electricity directly at the electricity stock
exchange.
The Federal Government is aware of the need for
additional storage capacities, and will therefore
review erecting new storage hydro power
stations in Germany. However, these capacities
are unlikely to be sufficient, making the use of
foreign storage hydro power stations of
paramount importance. Potential sites are being
identified in Norway and the Alps.
5. Green buildings
The real estate sector accounts for 40% of
German energy consumption and approximately
one third of CO2 emissions. Three quarters of
buildings in Germany were erected prior to 1979
and have not been refurbished in an energy
efficient way. The Federal Government aims to
have a carbon neutral real estate market by 2050,
though financial incentives will be necessary to
encourage refurbishment works.
6. Mobility
This chapter of the Energy Concept outlines a
strategy to get 1 million electric cars on German
roads by 2020, and five million by 2030. Other
technologies such as gas or hydrogen shall be
promoted as well and the proportion of biofuel in
car fuels shall be increased. Another important
aspect of this section is the announcement to
increase investments in railroad infrastructure.
The tolls charged on trucks may be extended to
main roads.
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Climate Change and Sustainability Alert
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20 September 2010
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