Renewable Energy Sources Act (Erneuerbare-Energien-Gesetz EEG)

This Act aims to double the share of electricity produced from renewable energy by 2010. The Act replaces the Electricity Feed-In Law of 1991. The obligation to give grid access to renewable energy plants and purchase the electricity at premium prices is shifted from the utilities to the grid operators. The tariffs are set for each individual technology, based on its actual generation cost. For an individual plant, the remuneration level stays fixed over twenty years, with the exception of wind power. A high remuneration is paid for a fixed total production of wind electricity. After reaching the limit the remuneration is decreased. The lower remuneration will be paid up to twenty 20 years after commissioning the plant. The remuneration paid for wind power on an average site is ? 0.084/kWh over a twenty-year lifetime. Since the remuneration for an individual plant is not adjusted for the inflation rate this means a decrease of remuneration in real terms. From 2002 on, the remuneration paid for newly commissioned plants has been reduced annually to provide stronger incentives for cost reductions. This factor is 5% for photovoltaic installations, 1.5% for wind power plants and 1% for biomass-fuelled plants. Since inflation is not considered, the real price decrease is higher than depicted by these rates. The Act also stipulates obligations concerning costs of grid connection and reinforcement. Plant operators have to pay for the grid connection, but the grid operator has to bear the cost of grid reinforcement if necessary. No public budgets are involved. The Act solves the problem of unequal distribution of burdens (as in the EFL) by requiring all electricity suppliers to have the same share of electricity from renewable energy in their fuel mix. For this purpose, grid operators need to balance amounts of electricity remunerated according to the Act in such a way that the share of the EEG electricity is equal on all grids on a three-month basis. Then all electricity suppliers using the public electricity grid are obliged to purchase an equal share of EEG electricity at a price equal to the average remuneration paid for all EEG electricity. This system has the effect that, not only the costs, but also the benefits, in the form of the generated electricity, are shared equally. This distribution mechanism can be characterised as an ex-post quota, where electricity suppliers know only ex-post the share of renewable energy electricity they are obliged to purchase. With this design, there is no need to calculate the "real" value of the electricity fed-in. On the other hand, the physical distribution of the renewable energy electricity among all suppliers gives rise to additional costs. The extra costs of regulation are not explicitly known. An additional ordice issued in 2001 specifies which biogenic substances and which technical processes are eligible for remuneration according to the Renewable Energy Sources Act. Originally, the remuneration to photovoltaic plants was limited to total capacity of 350 MW. In 2002, this cap was increased to 1000 MW. In November 2003, remuneration for photovoltaic installations was further differentiated depending on site specifics. A larger amendment came into force on 1 August 2004. Every two years, the parliament re-evaluates the Act on the basis of a report that is prepared by the Ministries of Economics and Technology, in close consultation with the Ministry of Environment and the Ministry of Agriculture. Please see the following table for details on the tariffs: www.iea.org/Textbase/pamsdb/renewable_table/table4.pdf