Intent of the Law
The Renewable Energy Sources Act of 2014 [abbreviated to REA in English] was a milestone in German energy law and policy. It was a major update to the original REA, which was approved in 2000 and revised in 2004, 2009, and 2012 (“Timeline: The past, present and future of Germany’s Energiewende,” 2016). These previous revisions kept the fundamentals of the law intact, but this had increasingly become untenable over time. As renewables became a larger part of the energy mix, consumers paid higher prices for electricity and utility companies faced costly upgrades to their infrastructure (Brunn & Sprenger, 2014). The 2014 version of the REA was intended to reduce costs all around while still encouraging the use of renewables- all other goals were secondary.
Content of the Law
The REA as amended in 2014 was different in terms of what was left out just as much as what was introduced. Historically, the three major components of the REA were the feed-in tariff, the preference for renewable energy, and the surcharge (Appunn, 2014). The preference requires utilities to utilize renewable energy, the tariff is paid to renewable energy producers, and the surcharge is paid by consumers to finance the tariff (Appunn, 2014). The 2014 Act introduced direct marketing of electricity by producers coupled with a market premium, tendering to set government payment levels, and limits on new capacity (Brunn & Sprenger, 2014). Electricity producers must sell power on the open market, with future capacity to increase in a controlled manner and payments dependent on cost-effectiveness. With guaranteed returns a thing of the past, some renewable energy producers may not survive. Policymakers look upon the subsidy-fueled growth of the past as unsustainable, and want the sector to adapt to market forces. How well the this adaptation is managed will vary according to resources and human capital- and both are distributed unevenly across the sector.
History of the Law
The REA of 2014 is part of a series of legislation and policies that seek to bring about the Energiewende [‘energy transition’], the ongoing effort of Germany to replace fossil fuels and nuclear power with renewable energy. Although the concept has been championed by environmental and anti-nuclear activists since the 1980s -especially with growing public concern over manmade climate change- it was only in the wake of the 2011 Fukushima nuclear disaster that the Energiewende became official policy (“Timeline: The past, present and future of Germany’s Energiewende,” 2016). Fukushima was a highly visible event with high costs in terms of money, the environment, and human lives (Schneider et al., 2018). With nuclear power discredited, renewables had to take on a greater role in the energy mix moving forward. The 2014 REA sought to carry on the imperative of the Energiewende without burdening those who would have to shoulder the costs of the transition.
Proponents and Opponents of the Law
There is a complex interplay of interest groups that affects German energy law and policy, as seen with the 2014 law. The economic coalition -utilities, fossil fuel sector, and heavy industry- prioritizes economic sustainability and the environmental coalition -renewable energy sector, local governments, and activist groups- prioritizes environmental sustainability (Gründinger, 2015). Both coalitions see renewable energy as important, but have competing visions of the sector as either investor-owned or community-owned (Gründinger, 2015). The 2014 revision best reflected the interests of the economic coalition. The interests of the environmental coalition -and community-owned renewable energy- were an afterthought.
Implementation of the Law and Procedures of Enforcement
Implementing the 2014 Act is a federal responsibility as the Act is federal legislation. The federal government, through its ministries and agencies, has great latitude in determining how the 2014 act will look ‘in action’. The task falls to the Federal Ministry of Economic Affairs and Energy, which oversees the relevant agencies (Gründinger, 2015). The Federal Network Agency [Bundesnetzagentur or BNetzA in German] is responsible for the tendering/auctioning process (Renewable Energy Sources Act of 2014). Getting to set nationwide standards means that BNetzA’s decisions can and will shape the future of the renewable energy sector.
The Bundesnetzagentur has clearly defined powers under the 2014 RESA. Even though the law only specifies auctions on a pilot basis, and only for solar projects, the agency’s experience with these auctions would be important moving forward. Section 85 lays out general tasks, including those needed for auctions, which the agency must carry out under the law (Renewable Energy Sources Act of 2014). Section 88 grants the federal government the authority to issue ordinances determining how the auction process will look like (Renewable Energy Sources Act of 2014). Finally, Section 55 sets out the procedures and standards by which the agency will conduct the auctions, referring to Section 88 in doing so (Renewable Energy Sources Act of 2014). Together, these three sections form the legal framework through which auctions are to be conducted. They are vague in wording, giving the federal government a wide deal of latitude in creating specific policy.
As envisioned under the law, the federal government followed up the legislation with an ordinance that specified how auctions were to be carried out. Auctions are to be held three times a year with capacity up for auction that can carry over from previous years (Lang & Lang, 2015). These two provisions put together reflected an expectation that there will be high participation in the auctions. A variety of entities can participate, from everyday people to partnerships and legal persons- read: corporations, etc., all of whom must put up security and ready documents detailing the design of their facility and zoning considerations (Lang & Lang, 2015). The setup of the auctions and the criteria used for determining participation reflected a desire for economic efficiency.
Court and Other Decisions that Affect Implementation
There are two major decisions that affect how the 2014 REA is implemented. In SA.38632, the European Commission found the legislation compliant with the Environmental and Energy Aid Guidelines (EEAG); one requirement was that competitive bidding be phased in through 2015-2016 before becoming mandatory in 2017 (European Commission, Spokesperson’s Service, 2014; Almunia, 2014, p. 61). In Mitteldeutsche Braunkohlengesellschaft and Others v Commission (2016), the Court of Justice of the European Union (CJEU) upheld the Commission’s decision, presumably looking to precedent that parties cannot challenge an E.U. decision that requires member states to take “implementing measures” and is not directly addressed to them (Limante, 2015). The parties to the case -two coal companies and a utility- lost in court but even so the law still benefited them by cementing the status of investor-owned renewable energy (Mitteldeutsche Braunkohlengesellschaft and Others v Commission, 2016; “MIBRAG”, 2015; Gründinger, 2015). SA.38632 and the Mitteldeutsche case reveal the crucial yet limited role of the E.U. in German energy law.
Pattern of Enforcement
The pattern of enforcement of the law and associated regulatory decisions shows a focus on economic efficiency, to the detriment of smaller producers, including community-owned ones. The Bundesnetzagentur enforced the requirements as laid out by the 2014 legislation in an even-handed manner- but the auction results did not concern them. “Even if the majority of the bids were submitted by limited liability companies, it was still possible for some of the bids that were submitted by cooperatives and private persons to be accepted” (Bongartz, Eul, Reifenberg & Wulff, 2016). This sentence speaks volumes of not just the 2015 auctions, but of the auction process as a whole. For-profit companies are more likely to thrive under a auction system than community-owned entities because they are more able to meet the bidding requirements (Tews, 2018). Even though the pattern of enforcement was not selective, there was a disproportionate impact on community-owned operators.
Evaluation of Effectiveness
The 2014 REA can be described as effective or ineffective depending on what factors are used to judge its effectiveness. If only looking at economic efficiency, the law was a clear success: there were more bidders than available capacity for auctions conducted in 2015 and 2016 (Monitoring Report 2015, 2015; Monitoring Report 2016, 2016). This is not the only factor that should be used though. Even with auctions, “…the diversity of players involved in generating electricity from renewable energy sources is to be retained”, and so the Federal Network Agency took this as another objective (Renewable Energy Sources Act of 2014; Bongartz, Eul, Reifenberg & Wulff, 2016). This emphasis on diversity clearly meant preserving a mix of small and large operators, and community-owned actors would definitely fall under the former category.
Community-owned renewable energy has a robust presence in the industry, with no one organization as dominant. Cooperatives, limited liability companies and/or LLC/limited partnerships hybrids are the most common structures for community ownership, with cooperatives being used for solar projects and the other structures being used for wind projects (Borchert & Wettengel, 2018; Holstenkamp & Kahla, 2016). Cooperatives are the most common form of community-ownership, and hew closest to the ideal envisioned by the environmental coalition (Borchert & Wettengel, 2018; Gründinger, 2015). With their relatively open structure and democratic management, they are well-positioned for citizen involvement. Citizen involvement is still true to a lesser extent- of LLCs and LLC/LPs, which are more profit-minded (Borchert & Wettengel, 2018; Holstenkamp & Kahla, 2016). Thus the fundamental divide in community-owned renewable energy is between cooperatives on the one hand and LLCs or LLC/LPs on the other.
All forms of community-owned renewable energy are vulnerable to legislative changes outside of their control, but some are more adaptable than others. There was a decline in the number of new cooperatives following the 2014 revision to the REA, as with the 2012 revision, and existing cooperatives slowly shrank or stabilized their membership and assets (Wierling et al., 2018). This development is tied to an uptick in new wind projects and a dip in new solar projects, but this also raises the question of what it means for a project to be community-owned (Borchert & Wettengel, 2018; Holstenkamp & Kahla, 2016). Did the dip in new solar projects precede the decline in new cooperatives, or vice versa? If the latter, then the 2014 REA may be causing an irreversible shift in the renewable energy sector in which community-owned organizations closely resemble more traditional market participants, at the expense of the values which make them unique.
Ideas for Reform
The 2014 law did not explicitly mention community-owned renewable energy, but that changed in the most recent revision- for better and worse. The 2017 REA expanded upon the 2014 legislation by providing a definition for “citizen’s energy”, and providing benefits to bidders that met this definition (Renewable Energy Sources Act of 2017). There were also provisions promoting transparency and disqualifying bidders that collude or provide false information (Renewable Energy Sources Act of 2017). Unfortunately, the initial auctions were overwhelmingly won by professional developers which used “citizen’s energy” companies as fronts, and the German parliament immediately suspended benefits (Tews, 2018). If the 2014 legislation did little to help community-owned renewable energy, the 2017 legislation overcompensated. Perks like submitting bids without a construction permit attracted unscrupulous actors (Tews, 2018). The rise of large developers in the renewable energy sector shows that future legislation must consider the interests of both large and small bidders.
Legislators assumed they knew what community-owned renewable energy needed- which has been the problem all along. When crafting the next revision, they ought to hear from these groups to learn what they actually need. The benefits granted in the 2017 legislation were no doubt well-intentioned and well-received, but opened the door to fraud and abuse. Policymakers can best improve the REA through strengthening the definition of “citizen’s energy” by requiring organizations to be certified as such, with groups like the Federal Renewable Energy Association as certifiers. The Bundesnetzagentur can then use pre-existing provisions in the much-revised law to punish malicious actors and assist genuine participants in the tendering/auctioning process.
References
Erneuerbare-Energien-Gesetz [EEG] [Renewable Energy Sources Act], 1 BGBl. § 13 (2000), as amended by 1 BGBl. § 35 (2014). Last amended by 1 BGBl. § 49 (2016) [The law was approved in 2016, but came into effect starting 2017, thus the name]. [Unofficial English translations of the 2014 and 2017 laws- only the German version is official.] https://www.bmwi.de/Redaktion/EN/Downloads/renewable-energy-sources-act-eeg-2014.pdf?__blob=publicationFile&v=1 and https://www.bmwi.de/Redaktion/EN/Downloads/renewable-energy-sources-act-2017.pdf?__blob=publicationFile&v=3
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foundations of law and society 