Market Analysis

Market Analysis September 2020 - EEG 2021: The destruction of the Renewables

Just how dire the consequences are of the unambitious draft bill of the Renewable Energies Act (EEG) recently proposed by the German federal government cannot be overstated - both for the future of the solar industry in Germany and for our civilization as a whole. This bill must be met with loud protest so as not to jeopardize the development urgently needed to attain our climate targets, however modest. Otherwise, over the coming decade we will face the threat not only of the universally dreaded electricity shortage, but also completely different catastrophes that will make the current Covid-19 crisis look like a walk in the park.

Renewables, and in particular wind power and photovoltaics, are the essential building blocks of the energy transition - this is now internationally recognized and reflected in the EU commission’s Green Deal. PV is widely considered the most important technology for power generation. With a record growth in new installations of 118 GW worldwide last year, PV outstripped all other sources of power generation. Thus, wind and photovoltaics represent more than 60% of all new renewables capacity and should in no way be slowed down by continuing the wholesale waste of already dwindling investment incentives for private grid-connected PV plants. And we’re not talking here merely about a decline in new installations, which is a real danger if the proposals of the German economics ministry are followed, but also about the loss of existing capacity - namely, that of PV plants set to drop out of the government incentives program successively starting next year and thus be ineligible for adequate feed-in tariffs. Nobody in their right mind would want to take responsibility for that!

In the years ahead, we will not see a significant drop in prices for PV installations like those of the past decades. For small to medium-sized systems at least, prices have now reached a level that will be difficult to undercut. Also, the module prices themselves have stabilized across nearly all different technologies over the past few weeks. Some manufacturers of both PV panels and inverters are even attempting to push through slightly higher prices, which they justify with production-capacity bottlenecks or swelling demand from Asia, of which there was scant evidence in September. Nevertheless, the nosedive in prices over the past few months has levelled out. However, the module classes were adjusted slightly upward since the trend toward ever-higher panel capacity has continued without any appreciable change in the absolute cost of the individual modules.

Points of criticism in the draft EEG

Firstly, its expansion targets are still too low - only about 5 GW of photovoltaics and 3.7 GW of wind per year, despite the fact that respected studies have come to the conclusion that if we want to achieve the 1.5 degree target from the Paris Agreement we will need much more ambitious expansion of capacity. Although there is some evidence of concepts for sector coupling and integration of generation-consumption systems in power grids and markets, these are not yet mature. Fixed levies and overly complicated measurement and control requirements, among them the broadening of the requirement to install smart metering on systems with generation capacities over 1 kW, are another handicap. That requirement even violates the regulations of the EU Renewable Energy Directive, which prohibits the imposition of fees and levies on self-consumption of solar power from PV plants up to 30 kW. In fact, the German federal government has until mid-2021 to transpose this into German law.

Furthermore, the government wants to keep the pressure on PV-system costs by extending the requirement for public tenders. Up to now, PV plants larger than 750 kW could only be built and receive a fixed feed-in tariff if they were awarded a contract through a public call for tenders, and the winners of such contracts have usually been ground-mounted systems. The plan for the future is to have separate auctions for rooftop systems and then for all projects larger than 500 kW with a gradual reduction of the limit to 100 kW. The Bundesverband Solarwirtschaft (BSW) and others see this plan as the biggest obstacle for the market since this segment accounts for up to half of annual PV expansion. In France, such tenders have already failed.

Finally, I want to address the topic of the over-20 crowd - that is, the post-EEG PV plants and what the future holds for them once they are dropped from the EEG incentives. Once the 20-year period expires network operators are no longer obliged to purchase or even accept power from these plants, many of which are still in good working order. Although the new draft bill does contain some proposals for the continued operation of these facilities, they could be characterized as "immature" at best. For operators of small plants, who will initially be affected most, all of the proposed schemes - grid feed-in at market value minus a marketing fee of €0.004/kWh or self-consumption subject to additional taxes and fees - are nonstarters economically. Unless these proposals are improved, many old PV plants are likely to be taken offline and dismantled.

It is utterly incomprehensible that it has taken so long - far too long - to deal with this matter since the government had to have known when they passed the initial versions of the EEG starting in 2001 that by the end of 2020 the first 10,000 PV plants would no longer be eligible for government incentives and that by 2025 that figure would jump to 130,000 plants. Whoever wants to avoid the loss of already existing generation capacities should also join - like nearly 50,000 other supporters - the petition started recently by the German engineer Manfred Weinhöpl. He is calling for the waiver of the EEG levy on self-consumption for systems below 30 kW, compensation for electricity fed into the grid from aging PV systems at the respective market price without deductions, and a support program for retrofitting plants with storage. This is the only way to ensure the continued economic operation of many PV systems past the 20-year mark and prevent their premature decommissioning.

It is absolutely essential that the Federal Minister of Economics, Peter Altmaier, summon the courage for a meaningful, forward-looking EEG reform and does not once again cave in to the wing of his party driven by business interests, which apparently would prefer not to bear any of the costs of the energy transition. The hydrogen strategy - indeed, the entire energy policy of the federal government is not yet a sustainable climate protection policy. Yet without a dramatic increase in the pace of renewables expansion, which is also increasingly being demanded by the EU, it will no longer be possible to change course.

Overview of the price points by technology in September 2020 including the changes over the previous month (as of September 21, 2020):

pvXchange Solar Price Index September 2020