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01 February 2021
roadmap
austria

The Renewable Energy Expansion Act

The eagerly awaited draft of the Renewable Energy Expansion Act (Erneuerbaren-Ausbau-Gesetz) ("EAG") was published for evaluation on 16 September 2020. To achieve the goals of the Paris Climate Agreement 2015, the draft creates new framework conditions for the expansion of renewable energy in Austria. This article provides a first overview.

The draft of the EAG contains numerous provisions relevant to state aid law and must therefore be approved by the European Commission before it can enter into force. The draft may be substantially amended before it will be submitted for parliamentary vote.

Cross-technology tenders for new plant capacities (i.e. all or several technologies are tendered together) are currently not foreseen in the EAG draft. The technology-specific tenders are limited to photovoltaics and biomass. Wind and hydropower as well as small-scale biomass plants and biogas are to be subsidised by means of an administrative market premium.

There are also technology-specific differences in the so-called "applicable value", i.e. the value that is set in relation to the respective market value or market price in order to calculate the market premium (reference market price for biomass and biogas vs. reference market value for other technologies).

If the reference market price or reference market value is greater than the applicable value, whether the plant operator is obliged to partially repay the market premium depends on the size of the plant, the type of plant and the actual extent of the surplus amount.

Interesting questions will also result from the process described in the EAG draft for the administrative determination of the "applicable value". Although the EAG contains general principles for determining the applicable value, these by their very nature provide a margin of discretion, which is evident from the fact that the competent minister can obtain "one or more" expert opinions to determine the applicable value. The same applies to the setting of maximum prices for competitive tendering procedures.

The promotion of renewable gas (e.g. hydrogen) has not been included in the draft law and, according to the legislative materials, will be part of a later legislative package.

In contrast to other countries, all first-instance project permits must be obtained in order to participate in the tendering procedure. Although this increases the probability of project implementation in the event of an award, it could also make it more difficult to find financing for the project because it is not possible to predict whether, when and at what price the project will be awarded and thus receive funding.

The applicable value discount of 30 % for ground-mounted photovoltaics could provide an advantage for roof-mounted PV systems. This is in line with the general objective of the EAG: "one million roofs".

"In view of the high level of funding, the EAG leaves no doubt that the expansion of renewable energies is one of the main objectives for the next ten years."

In addition, the reduced network tariff (local tariff) and the reduction of the Renewable Energy Subsidy Fee for Renewable Energy Communities raise questions regarding the principle of cost-causation-based tariffing. Other market participants could be required to pay for the planned reductions.

The EAG is scheduled to come into force in the first quarter of 2021. The implementation of tenders, specific tender dates and maximum prices must still be determined by the competent ministry.

The European Union's legislative package "Clean Energy for all Europeans" provides the framework for the now planned changes to Austrian energy law. Among other things, the EAG will implement Directive 2018/2001 on the promotion of the use of energy from renewable sources ("RED II"). The measures of the EAG serve to comply with the indicative trajectory of the Union described in Regulation 2018/1999 on the Governance of the Energy Union and Climate ("Governance Regulation"), which sets binding targets for the Member States. Austria intends to cover 100 % of its total electricity consumption with renewable energy sources from 2030 onwards. In order to achieve this target, it is planned to increase annual electricity generation from renewable sources by 27 TWh by 2030. Of this amount, 11 TWh are to come from photovoltaic, 10 TWh from wind, 5 TWh from hydropower and 1 TWh from biomass. By comparison, in 2018 around 54 TWh of electricity were generated from renewable sources.

In this context, the EAG sets out the conditions for the promotion of electricity generation from renewable sources. It also implements the Renewable Energy Communities as set out in Art 22 RED II and lays down rules on guarantees of origin, green certificates and an integrated Austrian network infrastructure plan.

Under the previous renewables support system, green electricity producers were able to receive compensation in the form of feed-in tariffs for green electricity fed into the public grid based on a contract with the Green Electricity Settlement Agency ("OeMAG"). These feed-in tariffs were generally higher than the market price for electricity and were intended to compensate for the higher production costs. In contrast, the EAG will introduce market premiums, which are supposed to lead to greater market integration of plants producing renewable electricity. The market premium is aimed at compensating the difference between the production costs of electricity from renewable sources and the average market price for electricity. It is granted as a subsidy for electricity (directly) marketed and fed into the public electricity grid. In principle, market premiums can be granted for a period of 20 years from the commissioning of the plant (exception: existing biomass plants can receive market premiums up to the 30th year of operation and biogas plants only for a period of 12 months from the conclusion of the contract. According to the legal materials, a legal basis for the promotion of the conversion of biogas electricity plants to plants producing and processing renewable gas is to be created).

Market premiums are granted either competitively (PV and biomass) or administratively upon application (wind power, hydropower, small biomass plants and biogas). As under the ÖSG 2012 system for feed-in tariffs, the first come first served principle applies to the administrative market premium.

The EAG Funding Agency which is to be newly established must conclude contracts with successful bidders or with applicants whose application for funding has been accepted.

Eligible for a market premium is the generation of electricity from:

  • newly constructed hydropower plants and extensions of hydropower plants with a bottleneck capacity up to 20 MW and the first 25 MW for newly constructed and extended hydropower plants with a bottleneck capacity above 20 MW;
  • newly constructed wind power plants and extensions of wind power plants;
  • newly constructed PV plants with a bottleneck capacity of more than 20 kWp as well as extensions of more than 20 kWp;
  • newly constructed plants based on biomass in the amount of 5 MW;
  • newly constructed plants based on biogas with a bottleneck capacity of up to 150 kWel;
  • existing plants based on biomass; and
  • existing plants based on biogas.

The general requirements for funding vary depending on the technology.

There are no general funding requirements for wind power plants. All newly constructed plants and plant extensions are eligible.

New photovoltaic plants and extensions are eligible if they have a bottleneck capacity of more than 20 kWp and are installed on or adjacent to a building, on a railroad system, a landfill or ground mounted. There is, however, one major restriction for ground-mounted installations: the construction or extension on agricultural land or on grassland areas is not subsidised, unless the area is specifically designated for the construction of photovoltaic plants. In addition, a discount of up to 30 % applies to the "applicable value" of ground-mounted installations (see below).

In general, newly constructed and existing biomass plants are only eligible for funding if they achieve a fuel efficiency of at least 60 %. However, this requirement does not apply to existing plants if more than 50 % damaged wood is used due to exceptional natural events. The 60 % fuel efficiency requirement also does not apply to wood-fired power plants that were approved in the first instance by 31 December 2004 and meet certain technical requirements. Biomass plants also must have state-of-the-art measures for avoiding fine particles and a state-of-the-art heat meter. And a concept for the supply of biomass resources for at least five years must be submitted.

Biogas plants are eligible if they achieve a fuel efficiency of more than 70 % (existing plants more than 60 %), are more than 15 km away from the nearest gas connection point (not applicable to existing plants), have a state-of-the-art heat meter, and if certain requirements regarding the type of fuel are met. In addition, a concept for the supply of resources for at least five years must be submitted.

Hydropower plants (new constructions and extensions) with a bottleneck capacity of up to 20 MW as well as the first 25 MW for plants with a bottleneck capacity of more than 20 MW are eligible, except if (i) they are located in ecologically valuable stretches of water with a very good ecological status, (ii) they are located in ecologically valuable water stretches which have a very good hydromorphological status over a continuous length of at least one kilometre, or (iii) they adversely affect the conservation status of protected assets under the Habitats Directive or the Birds Directive and are located in protected areas (Natura 2000, National Park).

The Federal Minister for Climate Protection, Environment, Energy, Mobility, Innovation and Technology ("BMK"), in agreement with the Federal Minister for Agriculture, Regions and Tourism ("BMLRT"), will determine by ordinance the maximum prices in cents per kWh for each technology, up to which offers in calls for tenders will be considered. The BMK will also determine the applicable value for administrative market premiums. The maximum prices and applicable values will be determined separately for each calendar year. These BMK ordinances will be decisive for the expansion speed of renewables.

The amount of the market premium is the difference between the "applicable value" determined in the course of a tender or fixed by ordinance of the BMK (in case of administrative allocation of funding) and the reference market value or reference market price in cents per kWh. 

For wind, hydropower and PV plants, the market premium will be granted based on the reference market value ("RMW"), and for biomass and biogas plants based on the reference market price ("RMP"). In principle, the trading result of the uniform day-ahead market coupling for the bidding zone relevant for Austria is to be used for both types of determinations. The RMP (biomass and biogas) is calculated from the mean value of all hourly prices of the last calendar year. The RMW (wind, hydro and PV), on the other hand, is calculated quarterly and separately for each technology ("technology-specific market value"). The use of RMW should lead to a reduction of financing costs, because technology-related revenue uncertainties are largely eliminated, whereas the technology-specific profile value is not taken into account when the reference market price is used, so that the investor would have to take the risk of a difference between the technology-specific market value and market price (spot price) into account when calculating the bid price.

Tendering is envisaged for photovoltaic plants, plants based on biomass and from 2024 for wind power plants. However, the tendering procedures for wind power plants will only be introduced from 2024 onwards if it is expected that they will lead to more efficient funding than administrative market premiums.

Tenders will be published on the website of the EAG Funding Agency at least two months before the respective bidding date.

The EAG Funding Processing Agency must rank the bids received according to the bid value (in cents per kWh) and will award all admissible bids until the tender volume is exhausted. At the time of bidding, all permits and approvals required for the construction or expansion of the plant must be obtained (e.g. building permit, permit under electricity law, environmental impact assessment permit). This refers to the permits and authorisations of the first instance; no final legal effect is required. Participation in a tender with permits that can still be subject to appeal entails risks (albeit manageable ones). If the permit is lost as a result of a successful appeal after the contract has been awarded, the plant may not be commissioned at all or not in time. In such cases, the applicant is obliged to pay a penalty by way of forfeiture of security deposits.

Bids will be excluded from the award procedure if the formal bidding requirements are not met, bids are not submitted on time, the general funding requirements are not met, the initial security has not been provided in time or in full, or the bid contains impermissible provisions or collateral agreements. A rejection is also imminent if several bids have been submitted for the same plant or if the plant has already been awarded a contract.

Market premiums are to be awarded within the framework of an application system (administrative market premiums) for wind power plants, hydropower plants, plants based on biogas and small plants based on biomass.

Applications for market premium funding must be submitted to the EAG Funding Agency via the electronic application system. The applications will be processed based on the date of their receipt. Market premium subsidies are granted in accordance with the available annual volume. Applications that cannot be covered are not to be considered and must be submitted again in the following year. Unlike under the current funding system, no waiting lists will be created.

The EAG is based on the idea of direct marketing. Unlike in the past, there is no central body that guarantees the purchase of the electricity generated. The plant operator or investor must therefore take care of the sale of the generated electricity. However, small plant operators (under 500 kW) are exempt from the obligation of self-marketing – by means of an allocation procedure – because it would constitute an undue burden. According to the wording of the EAG draft, this exemption exists regardless of whether the plant is subsidised under the EAG or not, as long as it is a plant producing electricity from renewable sources.

In addition, the EAG draft provides for an allocation procedure for "failed" direct marketing regardless of the size of the plant. Producers of electricity who can prove that three electricity traders have refused to conclude a purchase contract for electricity from a plant subsidised under the EAG scheme, have the right to be allocated an electricity trader by the balance group coordinator ("BKO"). The balance group coordinator will select the electricity traders within one week on the basis of objective, non-discriminatory and transparent criteria.

The electricity trader assigned to the plant operator is obliged to conclude a purchase contract at the reference market price for the respective plant (contracting obligation). The RMP is calculated from the mean value of all hourly prices of the last calendar year, whereby in principle the trading result of the uniform day-ahead market coupling for the bidding zone relevant for Austria is to be used (see above). This provision helps producers to market their renewable electricity and prevents difficulties in sales. Producers would otherwise have to bear the full cost of production because market premiums are only granted for electricity that is marketed and fed into the public electricity grid.

Upon application, photovoltaic plants and electricity storage facilities, hydropower plants as well as wind power plants connected to the public electricity grid or railroad power grid can be subsidised by means of an investment grant.

The applications must be submitted to the EAG Funding Agency before the "start of work" within a limited time period (call for applications). The term "start of work" is defined in Art 2 (23) Regulation (EU) No. 651/2014, and means the earlier of either the start of construction works or the first legally binding commitment to order equipment or any other commitment that makes the investment irreversible. Investment grants are subject to the availability of funds and are paid out after receipt of the application. No waiting lists are created. A simultaneous promotion of plants by means of market premiums and investment grants is not admissible.

The EAG provides for annual investment grants of at least the following amounts, these being limited to a maximum of 30 % of the required investment volume:

 

Technology

Annual subsidies

Photovoltaic plants and electricity storage

EUR 60m

Hydropower plants

EUR 30m

Small wind power plant

EUR 1m

The market premiums and investment grants to be awarded under the EAG are mainly financed by the Renewable Energy Flat-Rate and the Renewable Energy Subsidy Fee, which are to be collected together with the electricity network usage fee. All end consumers connected to the public electricity grid, except for pumped storage power plants, must pay the Renewable Energy Flat-Rate and the Renewable Energy Subsidy Fee. Every three years, the BMK must set the Renewable Energy Flat-Rate applicable to the individual grid levels by ordinance.

The Renewable Energy Subsidy Fee is to be paid in proportion to the respective network usage and network loss charges by the network user. It is worth noting that Renewable Energy Communities and their members do not have to pay the Renewable Energy Subsidy Fee to the extent of the energy purchased within the community.

RED II introduced new actors to the energy market. One of these new market actors is the Renewable Energy Community (EEG), which will be implemented in Austria with the EAG.

An EEG can produce electricity from renewable energy sources and consume, store or sell this electricity. It can also act as an aggregator, which generally means the bundling of several customer loads or generated electricity for purchase, sale or auction. The rights and obligations of the participating network users of an EEG, especially the free choice of supplier, must not be affected by the EEG.

Members or shareholders of an EEG are natural persons, municipalities or small and medium-sized enterprises. An EEG is to be organised as a registered association (Verein), cooperative (Genossenschaft), partnership (Personengesellschaft) or corporation (Kapitalgesellschaft), property community (Wohnungseigentümergemeinschaft) or a similar association with legal personality.

The members or shareholders of the EEG must also be located in the "proximity of the project". This proximity is defined by the use of network levels 5 – 7 or busbar in the transformer station and is thus relatively wide. Accordingly, the consumption facilities of an EEG must be connected to the generation facilities either locally via a low-voltage distribution network and the low-voltage part of the transformer station or regionally via the medium-voltage network and the medium-voltage busbar in the transformer station in the concession area of a network operator. It is debatable whether in the latter case the term "proximity" can still be used. In any case, consumption and transport of self-generated energy via grid levels 1 to 4 is not permitted. Transmission across network operators is also not admissible.

The main purpose of the EEG must not be financial profits, but primarily to provide environmental, economic or social benefits to its members or the area in which it operates. Participation in a Renewable Energy Community is voluntary and open. In the case of private companies' participation, it must not be their main commercial or professional activity.

In view of the high level of funding, the EAG leaves no doubt that the expansion of renewable energies is one of the main objectives for the next ten years. However, a look at other countries clearly shows that funding alone will not be enough. The public law framework for (rapid) project approvals must also be established. Above all, it must be ensured at the federal level that enough project sites are made available and that public acceptance is fostered. In Germany, for example, the volume of tenders is regularly not fully utilised due to a lack of projects.

 

authors: Bernd Rajal, Arian Paul Farahmand

 

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