Developments in German Energy Law
Meisenheim, 24 August 2012
Dörte Fouquet, Jan Ole Voß, Stefan Missling
Lawyers BBH
About us
 BBH has been operating as a law firm since 1991.
 We are a partnership of lawyers, auditors and tax consultants – with
engineers and further experts in our BBH Consulting.
 A staff of over 400 employees, including more than 200 professionals, are
at your service.
 We provide advice to more than 3,000 clients.
 We are the leading law firm for the energy and infrastructure industry.
 BBH is known as „the“ law firm of public utilities, which we really are. But
we are far more than that, in Germany and in Europe.
 The decentralized utilities, the industry, investors, intermediaries and
political bodies, like the European Commission, the Federal Government,
the Federal States and public corporations and many more appreciate BBH’s
work.
 Your success is our success. This is something we are proud of.
24.08.2012
AEEC Summer Camp
00833-05/188147.
2
Content
 Renewable Energy Law
 Capacity Mechanisms for Conventional Power Plants
 Financing and Regulating the Grids of the Future
24.08.2012
AEEC Summer Camp
00833-05/188147.
3
Energy Concept 2010 / „Energiewende“ 2011
 GHG reductions: Aim of minus 40 % until 2020, 55 %
until 2030 and minus 80 – 95 % until 2050 (base year
1990)
 Renewable Energies: Until 2020 18 %, until 2050 60 %
(gross energy consumption). For electricity generation:
35 % by 2020 and 80 % by 2050
 Market and Network Integration of Renewable Energies
 Energy Efficiency (including Energy-efficient restoration
of buildings and use of renewable energy sources)
 Nuclear Energy: After Fukushima: phasing out until 2022
 Mobility
24.08.2012
AEEC Summer Camp
00833-05/188147.
4
Renewable Energy Sources Act (EEG)
Central pillars of the EEG:
 Priority grid connection
 Duty of grid operators to expand grid (and pay the costs)
 Feed-in tariffs
 EEG creates statutory obligations between installation
operator and grid operator; binding law
 Equalization scheme
 Market and system integration of renewable energies
 Technical requirements
 Feed-in Management
 System Services of Wind turbines
 Market premium and flexibility premium (EEG 2012)

24.08.2012
AEEC Summer Camp
00833-05/188147.
5
EEG support mechanism
Third party
(Stock
exchange)
3
(TGO) 1
(TGO) 2
4
“EEG-Account”
2
Final supplier
5
1
24.08.2012
Distribution
grid
operator
5
CUSTOMERS
AEEC Summer Camp
00833-05/188147.
6
Feed-in tariffs





Feed-in tariff depend on energy source and the capacity of installation
 Wind: Higher initial tariff for a certain period depending on wind
harvest, afterwards basic tariff. Different for onshore, offshore,
repowering
 Solar: Different for building and open area panels. Heavy reductions
in 2010 and 2011.
 Biomass: Complex system on different tariffs depending on used
biomass
Tariffs for 20 years and year of commissioning
Principle of Exclusivity (no co-firing of biomass and fossil fuels)
Constitutional protection of the reliance in tariffs for 20 years; retroactive
reduction is generally impermissible
Reduction of tarrifs for new installations must be decided by Parliament
24.08.2012
AEEC Summer Camp
00833-05/188147.
7
Market premium
Grid
operator
Registration
Market premium
Electricity supply
agreement
Trader
Customer
Renewable
energy source
24.08.2012
AEEC Summer Camp
00833-05/188147.
8
Outlook – PV-Novelle 2012
 Aims:
 Bringing an end to high installations (7,5 GW in 2011)
 Reduce the costs for the energy consumers who pay the costs for the
EEG
 Changes for photovoltaic installations
 Sharp cut in the EEG tariffs for new installations: Between 20 and 31 %
 New tariffs for installation, starting operation 1st of April 2012
 Extensive political discussion in Germany
 Law had passed the parliament (Bundestag), but the federal states
blocked the law in the second chamber (Bundesrat)
 Compromise has to be found
24.08.2012
AEEC Summer Camp
00833-05/188147.
9
Content
 Renewable Energy Law
 Capacity Mechanisms for Conventional Power Plants
 Financing and Regulating the Grids of the Future
24.08.2012
AEEC Summer Camp
00833-05/188147.
10
Investment Dilemma on German Power Generation
Market
24.08.2012
AEEC Summer Camp
00833-05/188147.
11
Need for new power plants & Missing-MoneyProblem
 Currently: Overcapacities on power generation market
 But: In the long run – considerable capacity losses through
 shut down of nuclear power plants (20 GW)
 closure of conventional plants (ca. 20 GW)
 Required max capacity remains stable + highly efficient plants
necessary for „Energiewende“ as back-up
 Missing-Money-Problem
 low electricity prices and thus no price signals
 in future: diminishing operation time for conventionals
 price effects of renewable energies
24.08.2012
AEEC Summer Camp
00833-05/188147.
12
Capacities according to Ethical Committe
Guaranteed
Capacity
Maximum
2010
capacity
90 GW
80 GW
New until 2020
Loss until 2013
11,5 GW
20 GW
Nuclear
24.08.2012
3 GW
lifetime
8,5 GW
Nuclear
AEEC Summer Camp
21,5 GW
7 GW
2,5 GW
12 GW
00833-05/188147.
13
Capacity Mechanisms as Solution?
24.08.2012
AEEC Summer Camp
00833-05/188147.
14
What are capacity mechanisms?
new payment
model
obligation for power
producers
strategic reserve
payment for
capacities
and not only
for energy
new design of
balancing energy
markets
24.08.2012
AEEC Summer Camp
central determination
of capacity
needs
governmental
payments
00833-05/188147.
15
Current Status of Discussion
 Economists still split on necessity of mechanisms
 But: German Government is working on proposal
 BNetzA: situation in electricity grid in the winter of
2011/2012 was severely strained
 BMWi: assignment of institute to examine necessity of
capacity mechanisms
 EWI-proposal for new market design:
 Versorgungssicherheitsverträge (security of supply
contracts)
24.08.2012
AEEC Summer Camp
00833-05/188147.
16
Legal Issues concerning Capacity
Mechanisms
 Legal questions arise on three levels
 EU Law
 Directive 2009/72/EC (design of capacity tender)
 state aid law (design of capacity payments,
governmental payments or cost roll-over)
 German constitutional law – esp. Art. 14, Art. 12 and
Art. 3 GG, e.g.,
 existing plants or new projects?
 also renewables or only conventionals?
 German energy law and environmental law
 Further need to resolve political and legal questions
24.08.2012
AEEC Summer Camp
00833-05/188147.
17
Content
 Renewable Energy Law
 Capacity Mechanisms for Conventional Power Plants
 Financing and Regulating the Grids of the Future
24.08.2012
AEEC Summer Camp
00833-05/188147.
18
Framework until 2009: Cost-based Grid Fee
Approval

„Cost-plus-regulation“




Refund of the operating and capital costs required for
the reliable grid operation plus return on equity
Grid fees are based on company‘s individual costs
Advantage: reliable investment potentials
Disadvantage: no incentive for the increase of
productivity („Averch-Johnson-Effect”)
24.08.2012
AEEC Summer Camp
00833-05/188147.
19
Framework since 2009: Regulated Revenue Caps

„Incentive regulation“





Revenue caps are set for five years („regulation period“)
Hybrid system: revenue caps based on individual costs (plus
efficiency parameter)
Principle: no adjustment of revenues to change in costs
Advantage: incentive for cost reduction (additional cost
reductions cause extraordinary margin)
Disadvantage: risk of missing investments in the grid
infrastructure for financial reasons
24.08.2012
AEEC Summer Camp
00833-05/188147.
20
Revenue Caps of the Second Regulation Period
Revenue cap at the end
of the
2nd regulation period
Revenue cap at the
beginning of the
2nd regulation period
inefficient
costs
efficient
costs
controllable
cost
components
temporarily
noncontrollable
cost
components
permanently
noncontrollable
cost
components
reduction of
inefficiencies
reduction by the sectoral
productivity growth (Xgen):
1.5 % p. a.
no reduction
permanently
noncontrollable
cost
components
2017/2018
2013/2014
24.08.2012
temporarily
noncontrollable
cost
components
AEEC Summer Camp
00833-05/188147.
21
Return on Equity – Incentive for
Investments?
 Return on equity = margin for operating the
network
 Determined by the BNetzA (= competent authority)
for each regulation period
„New Assets“
1st regulation 9.29%
period
2nd
9.05% (-0.24%)
regulation
period
24.08.2012
AEEC Summer Camp
„Old Assets“
(before 2006)
7.56%
7.14% (-0.42%)
00833-05/188147.
22
Necessary Investments (in short and long
term!)
 Assumptions of the German „Energy Concept“
 Considerable increase of electricity generation in offshore
and in coastal regions;
 Many decentralised generation plants producing
electricity from e.g. PV and biomass will feed into the grids
of DSOs;
 Based on the geographical position, Germany will
increasingly take part in the exchange of electricity within
Europe.
 Assumed necessary investments for the integration of
renewable energies in Germany: up to € 27 billion!
 Additional investments relating to „smart grids”?
24.08.2012
AEEC Summer Camp
00833-05/188147.
23
How to improve the investment climate?
 Expanding the catalogue of permanently non-controllable costs in § 11
Abs. 2 ARegV:
 investments for the integration of renewable energies
 investments for the implementation of smart grids
 Adjustment of the German efficiency benchmark („Effizienzvergleich“):
 costs concerning investments in renewable energies or smart grids
should no longer be „inefficient“
 Investment budget: equal treatment of TSOs and DSOs
 Further development of the „quality regulation“
 Additional „output factors“ for the determination of revenue caps
 Extension of the regulation periods
 Implementation of “CAPEX regulation”
24.08.2012
AEEC Summer Camp
00833-05/188147.
24
Capex Regulation = „Smarter“ Regulation?
„operating costs”
OPEX (with efficiency
parameter)
basic and operational costs
„capital costs“
imputed depreciation
CAPEX (without e.p.)
return on equity
cost of debt capital
imputed trade tax
24.08.2012
AEEC Summer Camp
00833-05/188147.
25
Thank you for your attention!
Contacts: Dörte Fouquet, Jan Ole Voß, Stefan Missling
Lawyers BBH
BBH Berlin
Magazinstraße 15-16
10179 Berlin
Tel.: 030 611 28 40 0
Fax: 030 611 28 40 99
berlin@bbh-online.de
BBH Brüssel
Avenue Marnix 28
1000 Brüssel/Belgien
Tel.: +32 2 204 44 00
Fax.: +32 2 204 44 99
bruessel@bbh-online.be
BBH Köln
KAP am Südkai
Agrippinawerft 30
50678 Köln
Tel.: 0221 6 50 25 0
Fax: 0221 6 50 25 299
koeln@bbh-online.de
BBH München
Pfeuferstraße 7
81373 München
Tel.: 089 23 11 64 0
Fax: 089 23 11 64 570
muenchen@bbh-online.de
www.bbh-online.de
www.DerEnergieblog.de
BBH Stuttgart
Industriestraße 3
70565 Stuttgart
Tel.: 0711 722 47 0
Fax: 0711 722 47 499
stuttgart@bbh-online.de