Merkel amendments send mixed messages

Change the changes.

That’s the demand from German wind companies after Chancellor Angela Merkel’s government last week finally ratified changes to the Renewable Energy Sources Act (EEG). These changes increase the country’s long-term renewables targets, with the goal of unlocking further investment, and seek to position wind for future growth.

But critics have said the amendments to the important act send wrong signals to utilities and investors and will not do enough to reverse the struggles that wind has experienced in recent years.

The new EEG amendments are intended to help Germany increase renewable electricity capacity from 50% of total production now to 65% by 2030.

The EEG sets a goal to increase installed offshore wind capacity from 7.7GW now to 20GW in 2030, and onshore wind from 55GW to 71GW over the same timeframe. But that latter target means only a net 1.6GW of new onshore wind would be added each year. It’s hardly the panacea that the German wind manufacturing sector has been looking for.

The government plans to achieve this by awarding support for 27.3GW of new onshore capacity between 2021 and 2028, with an initial ceiling price of €62/MWh. These rules are due to come into force on 1st January 2021.

Mixed messages

It’s good to see the German government giving long-term clarity to investors over the direction of the market. The last three years have been punishing for companies after the move from centrally set feed-in tariffs to competitive auctions in 2017, with under 1GW of net additions to German onshore wind capacity in 2019. Clarity is good.

However, Merkel and her government are also facing criticism from many stakeholders about the mixed messages it sends to the wind sector.

In a bid to boost local appetite for renewables, the EEG lays out several measures to give financial support to local municipalities in the south of the country who have previously kicked up a fuss about turbines. For example, the new regulations now offer them a slice of the pie, with 0.2ct/kWh to be paid to local councils by plant operators.

Moreover, in 2021-23, 15% of projects awarded support in these tenders will be for projects in southern Germany. We have seen positive responses to these measures, with the Association of Municipal Companies commenting that the proposals are a “solid basis” for reaching German green targets.

But critics have taken aim at Merkel for a perceived lack of green ambition and plausibility. They highlighted that the onshore wind auctions only begin in 2023, which loses years of potential market repair. The German Green Party described the proposals as “merely cosmetic” and said “three to four times” more expansion was necessary to hit Germany’s targets.

Critics also highlighted a lack of support for projects with older turbines, as projects with turbines of more than 20 years old would still have no access to EEG funding. This could make a quarter of the wind industry unprofitable by 2025. And the measures do little for smaller utilities that have been less able to compete in auctions against their largest rivals, although there’s only so far that policy should pick winners and losers.

The bottom line is that the changes to the EEG appear to lack a clear-cut strategy to improve wind investment and development.

Rather, the measures seek to grow solar in favour of wind, from 52GW today to 83GW in 2027 and 100GW in 2030. While we can understand the quick win that installing large roof-mounted solar arrays offers, it is strange that Germany isn’t doing more to support home-grown wind companies.

The instability of recent years makes the changes to the EEG a potential make-or-break for Germany’s wind industry. With the lack of ambitious targets and positive changes that count as tweaks rather than anything substantive, it appears more break than make.

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