Wind energy is a key building block for the energy transition in Germany. However, the construction of new plants is proceeding slowly, and numerous barriers to permits are delaying the construction of new plants. In addition, the first wind turbines have been excluded from the fixed feed-in tariff for wind power under the Renewable Energy Sources Act (EEG) since the beginning of 2021, and the follow-up subsidy in the EEG 2021 initiated by the German government at short notice will only last until the end of the year due to EU state aid concerns.
In 2021, the Renewable Energy Act celebrates its 20th anniversary. Birthday. For the operators of wind turbines, however, this is no reason to celebrate. This is because since January 1, 2021, the first wind turbines will no longer receive EEG subsidies – in the first year alone, generation capacity will amount to around 3,500 megawatts (MW), according to the German Federal Ministry of Economics. In the following years, an average of 2,400 MW of wind energy will be removed annually from EEG funding.
In order to keep old wind turbines in operation for a longer period, the Bundestag still anchored several years of follow-up funding in the EEG 2021 shortly before the turn of the year. For the wind energy sector, the adopted EEG reform provided for a new variant of the feed-in remuneration in the context of tenders for old wind turbines. In April 2021, the European Commission put a stop to this aid scheme because of the subsidies from the EEG support that had already been granted in advance. What remains so far is only a surcharge of one cent per kWh approved by Brussels on the basis of the Corona pandemic, which will drop to 0.25 cents per kWh by the end of the year and then expire.
How has the market for wind energy developed since the end of EEG funding in view of the old installations? As the Federal Ministry of Economics announced in the course of the EU Commission decision, less than 30 percent of the operators of old wind turbines had used the possible follow-up funding this year in the first months after the elimination of the feed-in remuneration. On the other hand, around 70 percent took advantage of the possibilities of direct marketing due to the increase in wholesale prices for electricity, while the actual decommissioning of wind turbines that had been removed from service was in the lower single-digit percentage range.
The German Wind Energy Association, on the other hand, sees considerable risks in the current development – especially if the revenue situation should deteriorate again – and, despite the small amount of dismantling of old wind turbines in the first quarter, warns that more generation capacity could fall out of the market than could be compensated by new constructions.
In view of the expiring eligibility and the temporary surcharges, plant owners are faced with the question of how they would like to deal with their wind farm. You have the choice between:
There are new opportunities, but also new risks that need to be examined carefully. However, given the urgent need for renewable energy to meet climate targets and the specific role of wind power in the energy transition, plant operators should make every effort to ensure that their plants remain available for energy production – regardless of whether they continue to produce wind energy or transfer it to third parties.
The lifetime of wind turbines is usually well over 20 years, so most wind turbines can continue to operate even after EEG funding has expired. However, some technical prerequisites are necessary for this. Among other things, the plant operator must have a continued operation report drawn up after 20 years and set up the plant accordingly. In addition, it is important to ascertain whether there are sufficient economic incentives for the continued operation of the old wind turbines. Not only the running operating and maintenance costs, but also possible further operating investments must be factored in.
The free marketing of wind power requires very good knowledge of the wind power market and entails some challenges, in particular the market price and volume risk, the balancing energy risk as well as the handling of negative prices and the risk of failure of old installations.
For wind farm owners, long-term power purchase agreements (PPAs) are therefore an interesting option. The same applies to power consumers. On the one hand, it concerns financing for wind farms that no longer receive EEG funding, on the other hand it concerns the possibility of structuring a sustainable energy supply with domestic wind energy.
This enables plant operators to continue operating their wind farm with calculable revenues. In turn, electricity consumers are protected against fluctuating market price developments by supplying energy from renewable plants. In addition, PPAs and certificates of origin can improve their CO2 balance.
Power purchase agreements can be concluded bilaterally between the wind turbine operator and a customer. The customer may be an end user (‘corporate PPA’) or an energy service provider with experience in the management of the physical electricity market. It makes sense to transfer the physical processing of the electricity to an energy service provider.
Important: Since the customer represents the sole payment flow for the operator, care must be taken to ensure that the buyer has a high degree of financial strength, which can cushion market price risks in particular.
Before replacing existing wind turbines with more modern and more efficient systems, the called repowering for wind power, it is necessary to examine both structural and economic aspects carefully. The planning process is almost as complex and lengthy as a new building on a greenfield site. From the start of the approval process, the preparation of the required expert reports, the financial planning and the selection of the appropriate type of plant to communication with the residents.
Since new wind turbines are usually larger than the existing ones, distance regulations and landscape and nature conservation interests must be reconsidered. Repowering requires a thorough knowledge of the right of approval and experience in dealing with conflicts, weather radar, air traffic control or the protection of species. The choice of an experienced and competent partner is therefore crucial for successful project implementation.
Anyone who does not want to bear the risk and complexity for continued operation should think about a sale of decommissioned wind turbines. This eliminates the need to worry about technical upgrades, approvals and expert opinions and passes on all risks. The plant operator realizes its profit and is relieved of all obligations, including for the subsequent dismantling. Nevertheless, the wind farm remains an active part of the energy transition for climate protection.
The direction of the wind energy market in terms of the rebuilding and installation of wind turbines is still completely open. Despite the end of EEG support for old wind turbines, sales, power purchase agreements or repowering measures may create attractive prospects for plant operators, who ensure a regulated continued operation and keeping valuable generation capacities on the market. As Europe's fourth largest developer of renewable power and largest supplier of green PPAs, ENGIE is actively driving the path towards climate neutrality and opening up new opportunities for plant operators to avoid decommissioning.
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