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Renewable Energy Market Focus, Part II: Spotlight on Germany


In the follow-up to her feature on the state of the renewable energy market in Germany, Rachel Parkes talks to several industry experts about their outlook for clean-tech.

The solar industry’s trade association, BSW-Solar, has warned of catastrophic consequences for Germany’s PV industry, which has only just begun to recover from an economic crisis caused by plummeting unit prices on the back of a market oversupply. The EEG 2014 reforms, it said, would push Germany’s solar industry even further behind PV industries in China and the US, which are experiencing rapid growth.

PV demand fell by 60% in Germany in 2013, and in the spring of 2014, BSW-Solar claimed it had fallen by 45% so far that year, warning that the industry would struggle to meet development targets of 2.5 GW per year.
According to BSW-Solar, cost prices are now so low that curbing expansion would not actually curb energy prices. In June 2014, Carsten Körnig, chief executive officer of BSW-Solar, warned that the EEG 2014 reforms would determine “whether Germany will go forward with the expansion of solar energy, or whether it will fall behind and fail to reach its own expansion targets.”
“Prices for solar power systems have fallen to such a degree that the throttling of expansion would not lead to cost savings for the consumer,” Körnig said. “We need more solar power systems in the electricity and heating sector for a cost-effective and successful Energiewende.”
Marianne Boust, France-based power analyst at energy consultancy IHS, agrees that despite the headline-grabbing feats of renewables in the power mix, 2014 was a disastrous year for PV, because the EEG 2014 reforms made some commercial sector projects almost impossible to finance.
“Once the law was implemented, a lot of the projects that were borderline and had low profitability, suddenly they couldn’t finance,” she tells Renewable Energy Focus. “What we are seeing right now, and the real concern for 2015, is that the banks are shy of the PV sector at the moment. They are waiting to see if the business case gets clarified, and to get a really good business case we would need a little bit more cost reduction on the commercial and industrial PV side.”
Furthermore, with the tenders set to be introduced in April as part of the PV pilot scheme, Boust does not believe that Germany’s PV sector will begin to pick up until 2016 and 2017, when the self-consumption tax has been tried and tested — and the banks are confident in the PV business case.
Other sectors impacted
Meanwhile, the solar industry is not the only sector to be anxious about the EEG 2014. The reforms — and the introductions of the tendering process in particular — are also vexing the wind industry. Indeed the current boom in wind installations is largely due to operators rushing to commission their developments ahead of the 2017 deadline for the tenders to begin.
“Since the overhaul of the Renewable Energy Sources Act in 2014, the renewables industry [in Germany] is facing political uncertainty and changes in political conditions,” notes Sabine Schmedding, political advisor for Germany’s wind industry trade association, Bundesverband WindEnergie (BWE). “Fixed feed-in tariffs have proven to provide the most reliable framework conditions, and the wind industry needs reliable political framework conditions.”
Like the solar industry, the wind industry is also warning that the reforms could affect its ability to meet its development targets of 2.5 GW per year, and it is claiming that they will also not bring down costs. Schmedding also warns that the tendering process would be unworkable in Germany.
There is further anxiety about the impact on community-owned wind farms, which form the backbone of the Energiewende itself. During the legislation’s development, the government indicated that it may consider exempting sub-20 MW community or cooperative-owned wind farms from the reforms – yet no exemption was included in the final draft.
As BSW-Solar warns, there is a very real risk that the reforms could cut out borderline or smaller players out the market – a concern echoed by the Ministry of Economy, in a study looking at the impact of the tendering process on the PV market.
For community wind farms, the EEG 2014 represents a real problem. Mostly, the projects are of low or borderline profitability, and rely on citizens being prepared to accept low investor returns (usually around 2.5%) in return for the chance to take part in a local project. The tendering process will introduce uncertainty as to whether or not a project will be accepted for support, as well as uncertainty as to what the returns will be. 
For the institutional investors or utilities that own the rest of Germany’s wind farms, this is less of an issue — because failure at an auction can be absorbed by success somewhere else in their portfolios. But for local projects, with limited local portfolios, this is not possible. Moreover, the increased uncertainty could very well increase the risk profile, putting up financing costs and potentially making some projects economically unviable. In addition, the extra complication and uncertainty is likely to put potential citizen investors off investing in the first place.
Coupled with the requirement that all power generated from the plant is directly marketed — which further increases the risk profile, as well as changes to the capital investment law that require all cooperatives to go through a complex registration process in order to be eligible — experts believe that Germany’s Burgerwindpark boom could be at an end.
Indeed, there is already evidence that this market is shrinking already. According to the German cooperative organisation, Deutschen Genossenschafts-und Raiffeisenverbands (DGRV), a third of all energy co-operatives opted not to invest further in 2014, compared to just 8% the year before.
However, there is some hope that the extent of these issues will be flagged up during the PV pilot tenders during 2015, ahead of the roll-out for other renewables in 2015.
“There is a risk that the smaller players will get squeezed out, but at the same time the German government is very much aware that the competitive landscape is dominated by communities, local developers and cooperatives,” IHS’ Boust explains. “That’s why we think that the tender conditions will somehow take into account the nature of these players.”
Boust believes that German wind developers will rush for grid connections in the next two years, after which installations will drop off significantly as operators adjust to new market conditions. “These players are likely to be looking for marketing outlets via traders, aggregators, large IPPs and utilities, as they won’t be able to cope with the marketing costs,” she explained.
Additionally, Germany’s ability to fast-track the construction of new transmission lines will be absolutely critical to the development of its wind industry, especially as more offshore wind pipeline comes online. The offshore wind industry has been hampered in the past by poor grid planning, but the government has gone to great lengths in recent years to clarify the planning rules.
As for biomass, the boom in installations in Germany appears to over, especially now the EEG 2014 has capped new installations at 100 MW a year, down significantly from the 700 MW per year of installations that the industry saw four years ago.
It seems certain that Germany’s renewable energy industry will continue to dominate its power market, even if the rate of expansion slows over the coming years. What is less certain, however, is the future make-up of the industry, and whether smaller players can survive the new market conditions. The expansion of the renewable heat and transport sectors is even more of an unknown quantity. But as the German renewables powerhouse eyes its first renewable energy targets, the question seems to be not if, but when.
Rachel Parkes is a freelance journalist and copywriter, with expertise in the Energy and Environment fields. She is a long-time contributor to Renewable Energy Focus magazine. Read Part I of this feature online.

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Bioenergy  •  Energy efficiency  •  Energy infrastructure  •  Green building  •  Photovoltaics (PV)  •  Policy, investment and markets  •  Solar electricity  •  Wind power




19 April 2015
German Renewable Energy Progress is a role model for other countries in policy matters.
Dr.A.Jagadeesh Nellore(AP),India

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