Wind Watch

It is 100 years to the day since England declared war on Germany. Thankfully, World War I is long behind us and the emphasis is on collaboration, not combat.

One area where Germany has long led the world is green energy legislation.

Its Electricity Feed Act of 1991 introduced renewable energy feed-in tariffs; and this was followed by its Renewable Energy Sources Act of 2000, which boosted green energy and helped Germany to become a leader in wind and solar.

There has understandably been much trepidation from investors and developers in recent months worried about reforms to the Act. The German government, led by Angela Merkel, is seeking to drive down the cost of feed-in tariffs to curb energy bill rises for consumers; and to reduce the pain for traditional utilities.

On Friday, changes to the Renewable Energy Sources Act finally came into force. These changes do impose tougher regulations on wind, but the industry’s muted reaction shows that it largely approves. This is a marked difference from the walkouts and protests at German factories in March at the threat of changes.

Here are some of the key changes in the revised Act:

Feed-in tariffs: Most new green energy projects will not receive fixed feed-in tariffs. Rather, owners will be obliged to directly market energy to potential customers, and would only receive subsidies to cover the gap in what they sell energy for and what they receive in feed-in tariffs.

Growth caps: The changes caps growth in offshore wind to 6.5GW in 2020 and 15GW by 2030; and sets an annual growth target in onshore wind to 2.5GW. New renewable schemes will be registered with the Federal Network Agency so it can track growth. Feed-in tariffs for schemes will be partly set based on how those targets are being met; and German states will also have more say over how many turbines can be built where.

Long-term targets: The revisions set a target that 45% of German energy must come from renewable sources by 2025; over 55% by 2035; and 80% by 2050. In the first half of 2014 this figure stood at 28.5%.

Priority access: Renewable energy and mine gas projects will continue to have priority access to the grid, ahead of energy produced by traditional ‘dirty’ sources.

Uncertainty over the nature of these regulatory changes meant developers pushed through schemes totalling 1.7GW during the first half of 2014 so they wouldn’t be affected, which is an increase of 66% year-on-year.

Despite this, we don’t see much reason to worry.

Yes, any cuts to feed-in tariffs make it tougher for investors and developers to make their projects work financially. And yes, that means a greater focus placed on early-stage financial modeling before any projects gets the green light. For some, that might even mean that the numbers no longer stack up.

However, while this may be bad news for certain projects, in the medium to long term, it’s good news for the industry, since there’s greater certainty for profitably-performing sites. To date, the German government has resisted any urge to follow Spain in re-evaluating existing schemes, which is good for investor confidence.

Policy makers are listening, and they’re learning too. And we must remember that, even though the rules may be tougher, the support for green energy remains.