Sparking change: Renewable Energy Expansion Act published for evaluation

19 October 2020 | newsletters

Introduction

On 16 September 2020 the eagerly awaited draft Renewable Energy Expansion Act (EAG) was published for evaluation. To help achieve the goals of the Paris Climate Agreement 2015, the draft creates new framework conditions for the expansion of renewable energy in Austria.

The European Union's Clean Energy for all Europeans legislative package provides the framework for the planned changes to Austrian energy law. Austria intends for 100% of its total electricity consumption to come from renewable energy sources from 2030 onwards. To achieve this target, it plans to increase its annual electricity generation from renewable sources by 27 terrawatt hours (TWh) by 2030. In comparison, in 2018 around 54TWh of electricity was generated from renewable sources.

Among other things, the EAG sets out the conditions for the promotion of electricity generation from renewable sources and implements the renewable energy communities, as set out in Article 22 of the EU Renewable Energy Directive (2018/2001/EU).

Market premium instead of feed-in tariffs

Under the previous renewables support system, green electricity producers could 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. 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 should lead to greater market integration of plants producing renewable electricity. 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 electricity directly marketed and fed into the public electricity grid.

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

The EAG funding agency must conclude contracts with successful bidders or with applicants whose application for funding has been accepted.

The sources of electricity generation which are eligible for a market premium are:

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

Calculation of market premium

The federal minister for climate protection, environment, energy, mobility, innovation and technology (BMK), in agreement with the federal minister for agriculture, regions and tourism will determine by ordinance the maximum prices in cents per kilowatt hour (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 power, hydropower and PV plants, the market premium will be granted based on the reference market value (RMW). For biomass and biogas plants, it will be 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 determination. The RMP (biomass and biogas) is calculated from the mean value of all hourly prices of the previous calendar year. On the other hand, the RMW (wind, hydro and PV) is calculated quarterly and separately for each technology (technology-specific market value). The use of the RMW should lead to a reduction in 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 investors must factor in the risk of a difference between the technology-specific market value and the market price when calculating the bid price.

How does the tendering procedure work?

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

The EAG funding 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 (eg, building permit, permit under electricity law and 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 in time or at all. In such cases, the applicant must pay a penalty by way of forfeiture of security deposits.

Administrative market premium

Market premiums will 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 will be granted in accordance with the available annual volume. Applications that cannot be covered will not be considered and must be resubmitted the following year. Unlike under the current funding system, there will be no waiting lists.

Electricity traders' purchase obligation

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. Therefore, the plant operator or investor must take care of the sale of the generated electricity. However, small plant operators (under 500kW) are exempt from the obligation of self-marketing – by means of an allocation procedure – because it would constitute an undue burden.

In addition, the draft EAG provides for an allocation procedure for failed direct marketing, regardless of the plant's size. Electricity producers which 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.

Investment grants

Upon application, small PV plants and electricity storage facilities, small hydropower plants and small 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 and within a limited period (call for applications).

Renewable energy communities

Article 22 of the EU Renewable Energy Directive introduced new actors to the energy market, including the renewable energy communities, which will be implemented in Austria through the EAG.

Renewable energy communities can produce electricity from renewable energy sources which they can then consume, store or sell. They can also act as an aggregator, which generally means bundling several customer loads or generated electricity for purchase, sale or auction. The rights and obligations of the participating network users of a renewable energy community, especially the free choice of suppliers, must not be affected by the renewable energy community.

A renewable energy community's main purpose cannot be financial profit, but rather the provision of 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.

Comment

In view of the high level of funding, the EAG leaves no doubt that the expansion of renewable energies is one of Austria's main objectives for the next 10 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.

The draft EAG contains numerous provisions relevant to state aid law and must therefore be approved by the European Commission before it can enter into force. It may also be subject to amendments before it is submitted for parliamentary vote.

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

The promotion of renewable gas (eg, 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.

Bernd Rajal

Partner

T: +43 1 534 37 50203
b.rajal@schoenherr.eu

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