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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.
MODULE 9: RENEWABLE ENERGY: REGULATORY AND POLICY OPTIONSpage 9.61Table 1.Projected annual subsidy within the EEGHydropower Windpower Biomass PV TotalYear Mio € Mio € Mio € Mio € Mio €2000 348 692 67 17 11252001 426 952 132 30 15402002 443 1565 170 54 22322003 460 1993 201 76 27312004 476 2331 232 98 31372005 493 2598 263 118 34722006 510 2822 293 137 37622007 527 3040 323 155 40452008 544 3263 353 172 43312009 560 3502 382 189 46332010 577 3764 412 205 4957Source: Lindenberger and Schulz, 2003.5. OTHER MECHANISMS TO SUPPORTRENEWABLES IN GERMANYInitial efforts in German RE policy were also aided with the application of capitalgrants in the period 1990-1996. Efforts are currently being assisted with theuse of two tax-related instruments: Income tax relief: the Income Tax Enforcement Decree allows a deductionto be made against production costs resulting from investment in RES inbuildings. Ecological tax reform: this increases taxes on various motor fuels and on electricity.This benefits biofuel production, though adds costs to electricity fromrenewable energy sources, due to the difficulty in differentiating such electricityonce it is in the system. To compensate for this, the German Governmenthas introduced the Market Incentive Programme, which acts to provide investmentsubsidies and additional low-rate loans to various renewable sources.(Bechberger and Reiche 2004).The central mechanisms for the support of renewable energy in Germany are furtherbolstered by various other mechanisms at the regional level. Since the 1990sthese have included additional low-rate loans and other investment subsidiesavailable within specific regions.
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