Still top of the class? Germany's renewables boom could falter if feed-in luxury ends

The growth in onshore wind and solar that Germany has achieved over the last two years has won plaudits, but some developers are warning that regulatory anomalies, an uneven permitting performance and the phasing out of feed-in tariffs may soon blot this record.

Germany was heavily dependent on cheap Russian gas before the outbreak of the Ukraine war triggered a strategic rethink that put renewables at the heart of the country's energy security strategy.

Aiming to give renewable energy an 80% share of the national electricity mix by 2030 Germany has targeted 115GW of onshore wind capacity and 215GW of installed solar capacity by 2030, plus 30GW of offshore wind.

The onshore wind target alone means adding capacity at a rate of 10GW per year.

To do this, the country has tackled permitting delays and is introducing a federal requirement for 2% of each region's landmass to be reserved for the development of onshore wind.

Projects within these designated areas will be deemed to be of "overriding public interest" and are given a prioritised status for fast track approvals.

These changes are still being implemented at regional level but enough red tape has been cut to make a difference.

Can do better?

But Vinagre admitted that there are aspects to developing projects in Germany that could still be improved.

“Efforts made over the last two years have clearly moved Germany in the right direction, but projects can still take too long to develop," he said, claiming that the timeline can still stretch to between seven and 12 years for wind projects.

“We still stumble on barriers before we get that final green light, and we think this is a case of making sure that improvements are pushed right down to local behaviour and things like simplifying and digitalising processes."

“Germany has been pushing hard on wind, but things were at a real standstill before the improvements of the last two or three years,” he said.

Even with the improvements, Vinagre does not believe that Germany will meet its ambitious capacity targets because clean energy projects are still not being installed fast enough.

Farewell feed-in?

German growth in renewable energy capacity has been underpinned by feed-in tariffs (FITs) that offer guaranteed fixed prices, adjusted periodically.

The FITs, which usually run to 20 years, have provided producers with price support and priority access to the power grid, making investment in renewables more attractive.

This scheme of periodically adjusted FITs is still in place for small-scale solar, while the level of FITs for wind power is determined at competitive tenders, sometimes resulting in zero-subsidy or negative bidding outcomes in offshore wind.

But feed-in tariffs are gradually being phased out in line with European competition rules, and while the current framework in solar is not expected to last beyond 2026, it is unclear what will happen to the onshore wind support scheme.

Thilo Busse, head of wind for Germany with renewables developer BayWa re, argued that the country should think twice about ending feed-in tariffs if it wants to hit its clean energy targets.

"This was a situation that offered a lot of visibility and a secure framework," he said, admitting it would be hard to find another country in the world offering such an attractive system at present.

While accepting that PPAs will become more common in the onshore wind sector, Busse warned that the higher risk assessment among lenders will leave less scope for smaller developers who, until now, have been able to move forward underpinned by a stable offtake mechanism.

"Utilities, with more of their own capital will continue to find the German market very attractive for investing," he said.

"But (smaller) developers will feel less secure about whether their projects are good enough to finance, and they will need much more risk capital."

"We are already seeing prices coming under pressure, and it will increasingly be the case that not every project that is developed will go into operation because the risk is too high," he added.

Chink of light for China?

The pressures exerted by a more competitive market will also be felt along the supply chain, Busse argued.

"With downward pressure on prices, the scope a financially feasible project decreases, which may lead to a slowdown in the German market, with some companies shedding development resources, including personnel, next year," he warned.

Busse asked whether this kind of shift is consistent with wider European objectives of building resilience in the supply chain.

The backdrop to this is German reluctance to open the door to imports of cheaper Chinese wind turbines, but growing pressure on developers to do so.

Hybrid projects

Both EDPR and BayWa re are keen on developing hybrid projects to provide a more sophisticated response to the challenges of intermittency and grid constraints.

Vinagre says EDPR is keen on bringing its experience of hybrid projects in other countries to bear in Germany and is keen on combining wind, solar and storage as much as possible.

But he argues that uneven regulations and a lag in developing an effective framework for grid-scale battery storage are a matter of concern in this field too.

“If you look at solar growth in the last couple of years, you would think targets will be met, but what we are witnessing today suggests to us that the growth rate for solar will decrease," he said.

Vinagre worries that access to offtake through the EEG auction is limited to smaller solar projects only, along with added restrictions, such as the requirement to be close to highways or railways.

Vinagre also wondered why the EEG system does not offer the same revenue boost to solar as for wind when it comes to investment in regions that are less well-endowed with resource, but closer to the centres of consumption.

In recent months the solar sector has seen a heavy fall in market prices for PPAs and faltering appetite for pay-as-produced energy contracts, he noted.

This links back to the fact that Germany is seen as a relatively latecomer in terms of regulating grid-connected battery energy storage systems.

It is only in the last year or two that Germany has started having like a concrete discussion around storage.

"This was simply not on the agenda even though it has a clear role to play in getting the PPA market up and running." Vinagre said.

"I think it's a market frustration that what we are seeing PPA prices going down significantly, probably 20% to 30%, with persistent negative values."

Busse predicts that there will be an increase in hybrid storage projects in Germany and says BayWa re is building up its own storage team in readiness for this shift.

"Germany is moving away from feed-in tariffs and storage is getting cheaper so it will become more attractive to build, but we think it is still two or three years away for wind farms," he noted.

What framework?

The doubts about how far Germany will support grid-scale storage projects, reflects wider uncertainty on the framework that will emerge from Reiche's 10-point plan

"I am a bit worried about this," Busse admitted. "Are we going to get the framework we need for after 2026? It is still not clear if there will be any kind of feed-in tariff or, for example, whether renewables will be given priority access to the grid."

"Germany has lost some clarity on its objectives for renewables," said Busse.