According to International Energy Agency (IEA) website publication on Renewables 2022 Analysis and forecast to 2027 report:
Germany’s swift policy and regulatory response to the energy crisis doubles the pace of renewable energy expansion
Between 2022 and 2027, Germany’s renewable power capacity is expected to expand 67% (97 GW), more than twice as much as during the previous five-year period owing to ambitious new renewable energy targets designed to decrease reliance on imported Russian gas and achieve climate goals. This year’s forecast has been revised upwards 52% from last year’s to reflect the passing of policy reforms and support schemes to meet these new targets.
In July 2022, Germany revised its Renewable Energy Sources Act (EEG 2023) just two years after the previous revision (EEG 2021) to raise the share of renewables in electricity generation from 65% to 80% by 2030. The government also increased the 2030 capacity targets for solar PV and wind substantially. Accompanying the target revisions are support policies, including higher auction volumes, increased remuneration for distributed solar PV, and regulations to reduce permitting times for onshore wind. Renewable energy technologies were also legally established as a matter of overriding public interest in the EEG 2023, giving them priority in approval and permitting decisions when evaluated against competing interests.
Solar PV accounts for 70% of total forecast growth, led by distributed PV, which is also responsible for half of the upwards revision to this year’s forecast. This year’s forecast for distributed PV is more optimistic than last year’s because the new EEG 2023 offers greater support. For the first time since 2014, feed-in tariffs (FITs) and feed-in premiums (FIPs) will rise in 2023, monthly degressions have been halted until 2025, and the size limit for systems to qualify for the FIP was raised from 750 kW to 1 MW. In addition, a premium on top of remuneration received through the FIP or FIT was introduced for systems of less than 1 MW that do not self-consume and instead feed all their electricity into the grid. With this extra benefit, designed to encourage installations on unused roof space, total support would return to levels not seen since 2013 for residential systems and 2018 for commercial ones.
This year’s distributed PV forecast is also more optimistic owing to prospects of a more attractive business case for self-consumption with removal of the EEG surcharge and anticipation of higher retail electricity prices. Utility-scale solar PV growth has also been revised upwards because of greater capacity allocated to auctions under the EEG 2023 and an increase in the amount of land available for development near motorways and agricultural sites.
Nonetheless, two main challenges threaten solar PV growth, and resolving them results in near 30% greater expansion in the accelerated case. The first is undersubscribed bid auctions and higher bid prices because of supply chain challenges. For instance, utility-scale auctions in June 2022 were undersubscribed for the first time since the scheme was launched in 2017. Only 62% of the 1.1 GW on offer were awarded, and bid prices increased 6% to 55 EUR/MWh for the first time since 2019. Contract prices for the first two large commercial rooftop auctions in 2022 were also higher, and only 26% of offered capacity was awarded.
The second challenge is labour shortages, which are slowing the pace of distributed PV installation. Naturally, high demand for systems coupled with a shortage of skilled labour raises the forecast’s downside potential. Thus, in the accelerated case, more equipment, fewer delays, an adequate work force and an attractive business case for corporate PPAs boost growth in annual additions to 19 GW by 2027, in line with the new 2030 target.
For onshore wind, the forecast has also been revised upwards 30% to reflect increased auction volumes, new regulations to make more land available for development, accelerated permitting and less decommissioning. From 2024, the government will double auction volumes to 10 GW per year. However, permitting has been the major challenge for onshore wind development in Germany, with long project approval wait times resulting from social opposition, land development restrictions and nature conservancy requirements. Because of permitting challenges, 14 out of 25 onshore wind auctions have been undersubscribed since 2017, resulting in 5 GW of unawarded capacity.
To address these hindrances, the government passed the Onshore Wind Act (Wind-an-Land-Gesetz) in summer 2022, mandating that each of the federal states dedicate an average 2% of their land to onshore wind development by 2032. Until these targets are reached, rules on minimum distances from residential homes are being suspended and turbines can be permitted in landscape protection areas.
The Species Protection Act was also revised to reduce litigation and facilitate compliance with nature conservancy laws. Species protection assessments have been standardised at the national level, permitting times for species compliance have been reduced from three to two years, and a finite list of endangered bird species has been compiled.
Under the main case, we expect these reforms to make more land available for project development, shorten permitting wait times, and subsequently allow more projects to bid into auctions and be awarded. Although annual additions from auctions in the main case are forecast to reach 5.5 GW by 2027, up from an average of 1.5 GW during 2019-2022, this still falls below the 10 GW on offer annually in the new auction schedule.
The forecast is cautious about full subscriptions, given the rapid increase in auction volumes and the time needed for industry to adjust to the new rules. A lack of available grid capacity is another impediment to rapid deployment of onshore additions, and the pace of grid infrastructure expansion remains a forecast uncertainty. Since 2008, a high-voltage line has been planned to connect wind sites in the north to demand centres in the south, but it has yet to be commissioned. Complications involving permitting across multiple jurisdictions and a shortage of skilled labourers with experience are further barriers to faster grid expansion.
The second reason the onshore wind forecast has been revised upwards is that decommissioning estimates have been lowered: it is now expected that turbines for which support is expiring will gain sufficient revenue from the spot market or corporate off-takers. In the first half of 2022, only 100 MW out of 5.6 GW were decommissioned because their FITs expired; the remaining continued to operate thanks to high market prices.
In the accelerated case, onshore wind growth could increase 38% to 32 GW over 2022-2027 if several conditions are met. Permitting reforms would have to be implemented more quickly to shorten lead times and raise auction subscription rates, and network updates would have to be undertaken sooner to reduce congestion and allow for more capacity to be built. Furthermore, the business case for onshore wind systems would have to be made more attractive through corporate PPAs, and there would also have to be less decommissioning of older plants.
For offshore wind, the forecast remains unchanged from last year even though Germany has raised its 2030 target from 10 GW to 20 GW. Because of long project lead times and transmission capacity constraints, the main case does not expect higher 2030 targets to result in stronger growth before 2027. The forecast therefore reflects only the current project development pipeline, which is on track to be commissioned as previously anticipated.
Regarding bioenergy, this year’s forecast is more optimistic due higher expectations for biomethane capacity. Compared with biomass auctions, which have been consistently undersubscribed since 2017, Germany’s first two biomethane auctions have been fully subscribed and we expect this trend to continue under the new EEG 2023 emphasis on increased auctions.
