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31 May 2021
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austria

Austria: New wind power system blows onto renewable energy scene

Introduction

On 17 March 2021 the eagerly awaited federal law on the expansion of energy from renewable sources, the Renewable Expansion Act (EAG), was passed in the Council of Ministers (for further details please see "Sparking change: Renewable Energy Expansion Act published for evaluation"). The draft law provides for new regulations for the promotion of electricity from wind power.

There are no big surprises when it comes to the EAG's objective – namely, that 100% of electricity generated come from renewable energy sources by 2030. To this end, the annual electricity generation from renewable sources is to be increased by 27 terrawatt hours (TWh) by 2030. According to the draft EAG, wind will account for 10TWh of this electricity generation. By comparison, in the Green Electricity Act (ÖSG) 2012, a quantitative expansion target of only 4TWh was planned for 2010 to 2020. The draft EAG also contains a larger expansion target for photovoltaic systems. Market premiums and investment grants are intended to help achieve these goals.

Market premium instead of feed-in tariff

Instead of the previously granted fixed feed-in tariffs, the EAG relies on market premiums, which are intended to lead to greater market integration of plants producing renewable energy. The market premiums aim to compensate the difference between the production costs of electricity from renewable sources and the average market price for electricity. They will be granted as a subsidy for the electricity from renewable sources directly marketed and fed into the public electricity network. Unlike in the past, the Clearing House for Clean Electricity AG (OeMAG) is not obliged to purchase the electricity; the producer will market the electricity directly. On other hand, operators of small systems for generating electricity from renewable sources with a bottleneck output below 500kW will have the option of concluding a contract with an electricity trader assigned through the balance group coordinator. If assigned by the balance group coordinator, electricity traders must conclude a contract.

Administrative market premium

For wind turbines, market premiums will be granted upon application until at least 2024. Thus, in contrast to other technologies, they are not subject to public tenders. This is remarkable because according to Article 4 of the EU Renewable Energy Directive (2018/2001/EU), EU member states should promote renewable electricity in an open, transparent, competitive, non-discriminatory and cost-efficient manner. The tendering principle should be abandoned only in exceptional cases – for example, if tendering procedures do not lead to efficient pricing funding regulations that are compatible with the internal market or European state aid law. However, this aspect of the act is still under discussion.

Which wind turbines are eligible for a market premium?

Newly built wind turbines and extensions to existing wind turbines are eligible for funding through market premiums. There are no restrictions on the performance of the systems.

In the case of plant extensions, only the electricity generated from the bottleneck performance of the plant extension agreed in the subsidy contract is funded. If there is a valid contract for the contracting of green electricity with OeMAG according to the ÖSG, the plant expansion is eligible for market premium funding only if the generated electricity can be separately measured. Therefore, system extensions must have their own virtual metering point so that a balance group membership can be implemented that is separate from the existing system.

Further funding requirements for wind turbines include:

  • connection to the public electricity network;
  • controllability via remote control; and
  • equipment with a load profile equal to or below the limit set out in Section 17(2) of the Electricity Industry and Organisation Act 2010 with an intelligent measuring device.

When using an intelligent measuring device, the energy values ​​must be measured, read and used every 15 minutes.

Calculation of market premium for wind turbines

The market premium for wind turbines is granted according to the amount of electricity fed into the public electricity network in one month. The market premium is calculated in cents per kWh and is based on the difference between the value determined by regulation (applicable value) and the reference market value (RMW). The applicable value minus the RMW equals the market premium. This means that the lower the applicable value, the lower the market premium.

Applicable value

The applicable value in cents per kWh is determined by ordinance of the federal minister for climate protection, environment, energy, mobility, innovation and technology (BMK) in agreement with the federal minister for digital and economic affairs. The applicable value will be determined separately for each technology on the basis of one or more expert opinions. The applicable value will be measured according to the following principles:

  • The applicable value must be based on the costs that are necessary for the operation of a cost-efficient, state-of-the-art system.
  • The costs must include depreciation and an appropriate return on equity and debt for the investment. A financing cost rate should be used, which is determined from a weighted average cost of capital for equity and debt capital based on a standard capital structure and income tax. A risk premium in line with the market for equity and debt capital, the framework conditions of the capital market and a risk-free interest rate must be considered.
  • For wind power plants, a differentiation according to the location-dependent different electricity yields is permissible.

The applicable value must be determined separately for each calendar year, with adjustments during the year permitted. The ordinance defining the applicable value will be decisive for the rate of expansion. If the maximum price or the applicable value is set too low, the interest of investors will probably be limited.

RMW

The RMW is determined on a national scale. In principle, the trading result for the hourly price of the uniform day-ahead market coupling for the bidding zone relevant for Austria must be used for the determination. The nation-wide market value calculation is intended to promote the optimisation of the entire electricity system.

In contrast to the reference market price, the RMW is calculated separately for each technology (technology-specific market value). The reason for using the RMW is that when generating from volatile (ie, weather-dependent) sources, the (sometimes) high supply leads to falling prices and subsequently falling revenues. Using the RMW should lead to a reduction in financing costs because technology-related revenue uncertainties are largely eliminated.

E-Control – Austria's national regulatory authority – must calculate and publish the RMW for the previous quarter at the beginning of each month. The draft EAG provides a mechanism to avoid overcompensation. If the calculation of the market premium results in a value less than zero, the market premium for wind turbines with a bottleneck output of less than 20MW is set at zero. If the RMW exceeds the applicable value by more than 40%, wind turbines with a bottleneck capacity of 20MW or more must repay 66% of the excess to the EAG funding processing office.

Application process

Applications for funding through market premiums will be submitted to the EAG funding processing office via the electronic application system which will be set up by said office. Applications must contain:

  • information on:
    • the funding applicant;
    • the installed capacity;
    • the expected annual production volume; and
    • the location;
  • a project description; and
  • a cost, time and financing plan.

In addition, the application must contain evidence that all necessary permits and permits for the new construction or expansion of the facility have been issued or are deemed to have been granted by the relevant competent authority. If the project intended for funding requires only notification, the approval is deemed to have been granted as long as the competent authority has not prohibited the project within the specified period or has expressly consented to the implementation of the project before the deadline has expired. Therefore, all first-instance permits must have been issued before filing the application. Incomplete applications will not be considered and the applicant must be informed of this in writing.

Applications are to be dealt with according to when they are received. The 'first come, first served' principle, as outlined in the ÖSG, will apply. Market bonuses are granted in accordance with the annual volume available. The annual award volume for wind turbines is at least 400,000kW. Applications that cannot be covered will not be considered and must be submitted again the following year. There are no waiting lists. If the wind turbine is not put into operation within 24 months of acceptance of the funding application, the application for funding through a market premium is deemed to be withdrawn and the funding contract is deemed to be terminated. The EAG funding processing office can extend the period for commissioning twice by up to 12 months if the applicant can plausibly demonstrate that the causes for the failure to commission the system in due time are beyond its control. The allocation volume freed up by the termination of the contract will be added to the allocation volume of the current calendar year.

Tenders from 2024?

From the 2024 calendar year, the recipients of a market premium and the applicable value for the calculation of the market premium will be determined by tendering if a tender, considering the evaluation report, allows more efficient results to be expected than granting funding through the application system. Therefore, it is not yet possible to say with certainty whether market premiums for wind turbines will be awarded through tenders from 2024. According to the EAG draft, the general funding requirements and the tender volume would not change if the process was switched to a tendering system.

Investment subsidies for small systems

The construction of new wind turbines which have a bottleneck capacity of 20kW to 1MW and are connected to the public grid and equipped with the necessary measuring device can be funded by investment grants. Investment subsidies for plant expansions are not provided for in Section 57(1) of the EAG. However, in Section 57(6) of the EAG (maximum investment subsidy limit), reference is made to extensions. Therefore, it is questionable whether expansion can be funded through investment grants. The annual funding for investment grants is at least €1 million. Wind turbine operators must decide whether they prefer investment grants or market premiums as parallel funding is excluded. Due to the restriction of investment subsidies to bottleneck outputs of 20kW to 1MW, investment subsidies for the wind power industry will be of little relevance overall.

The maximum permissible funding rates per kW are determined by ordinance of the BMK in agreement with the federal minister for digital and economic affairs. The amount of the investment subsidy for wind turbines is determined by the funding requirement specified in the application, with consideration for the maximum limit. The grant is limited to a maximum of 30% of the investment volume directly required for the construction or expansion (excluding property costs) and may not exceed 45% of the environmentally relevant additional costs.

Applications for investment grants must be submitted electronically to the EAG funding processing office before the 'start of works', according to the meaning in the guidelines on State aid for environmental protection and energy 2014-2020 by the European Commission, begins. The investment is granted and paid in accordance with the respective ranking, provided that the funding is available. If the funding amount is the same, the first come, first served principle applies. If the wind turbine is not put into operation within 12 months, the application for an investment grant is deemed to be withdrawn and the subsidy contract to be terminated.

Comment

The EAG contains numerous regulations relevant to state aid and must therefore first be approved by the European Commission before it comes into force. However, their approval is not guaranteed and so the last word has not yet been spoken.

The market premium is aimed at compensating for the difference between the production costs of electricity and the average market price for electricity. The market premium results from the difference between the applicable value and the technology-specific RMW.

This calculation system could bring significant financing advantages because technology-specific lower revenues are considered when calculating the RMW.

In contrast to other technologies, the applicable value for wind turbines should be determined administratively by regulation and not competitively through tenders until at least 2024. For the applicable value, a differentiation according to the location-dependent different electricity yields is permissible.

Feed-in quantities that exceed the agreed bottleneck performance cannot be subsidised by market premiums. Therefore, exceedances are generally not to be considered when calculating the market premium. Billing is based on the difference between the measured 15-minute values and the bottleneck service. It would seem that performance overruns cannot be balanced out by underruns.

This article was first published on International Law Office, 31.05.2021.
authors: Arian Farahmand, Bernd Rajal and Benjamin Schlatter

Arian Paul
Farahmand

Associate

austria vienna

co-authors