Regulatory and policy options to encourage development of ...

SUSTAINABLE ENERGY REGULATION AND POLICYMAKING TRAINING MANUALpage 9.60of turbines to sites further from the coast. Regardless of when the higherpayments cease, the turbines should, at least in theory, continue to be paid ata rate of €0.059/kWh for a minimum period of twenty years. Whilst the lowerrate is below that paid under the old EFL mechanism, which had dropped toaround €0.08/kWh by early 2000, the initial higher rate exceeds it significantly.This approach should act to provide more of a return during the early stages ofturbine operation, thus aiding in obtaining capital. Turbines already in operationwill also switch to the new tariff scheme, though with an amendment to reflecttheir status as already having received some subsidy.The EEG also draws offshore wind projects into the payment mechanism specifically,placing support for offshore installations alongside onshore projects, butwith the initial rate of €0.088/kWh available for the first nine years of operation.It would appear that the nearest distribution network owners to offshore installationswill be compelled to provide connection to the national grid, as withonshore installations (German Federal Environment Ministry, 2000). As withonshore wind, the network operators will be reimbursed for costs under theequalization provision of the EEG. The EEG is estimated to add €0.001/kWh toGerman electricity prices.The results of the new law were positive and expansion of German wind energycapacity has continued up to 2004. However, the mechanism has been subjectto a much-delayed review since January 2003. The result is likely to see furtherchanges in the level of tariff paid across the board for renewably generated electricity.Current proposals would see a slight drop in onshore payments, from€0.088/kWh to €0.087/kWh guaranteed for the first five years, with €0.055thereafter instead of €0.059. Offshore wind would receive a slightly higher tariffof €0.091/kWh with a guaranteed availability of twelve years instead of nineprovided turbines are in place by 2010. Turbines already installed are subjectto the tariff in place when they were first brought online. Such guarantees areimportant for ensuring the security of income and to avoid discouraging newinvestment.Those technologies which are currently less mature receive different rates thanwind. The highest rate is currently that paid to photovoltaic generation of electricity,which currently attracts compensation of €0.434/kWh. Other technologiescurrently attract similar rates to onshore wind energy. Lindenberger andSchulz estimate that the overall costs of the EEG will rise as shown in table 1.It should be noted that these figures do not take into account the implicit costsavings relating to electricity purchase from sources which are displaced bythe RE sources. Nor do they take into account any system costs and benefitsassociated with the operation of increased distributed generation on electricitynetworks.