What is the Renewable Energy Sources Act (EEG)?

What is the Renewable Energy Sources Act (EEG)?

Launched in 2000, the EEG, also known as the Renewable Energy Sources Act (RES), was designed to increase the amount of renewables being used in Germany. This needed to be executed in a way that made renewables a reliable source of energy and appropriate for the energy market. 

The evolution of the EEG over the years

When it was first introduced, the EEG was known as the Electricity Feed-in Act. In 2000 it was renamed as the Renewable Energy Sources Act (2000) or the EEG. In 2004, 2009, 2012, 2014 and 2017 it evolved alongside the renewable energy sector.

Key objectives of the EEG

The EEG is a directive with renewable energy at its core - we look at some of the key renewable energy objectives that make the EEG successful. 

1. Promoting renewable energy growth

The purpose of the EEG is to promote and bolster the renewable energy sector, which includes many different types of renewable energy. This includes sources from a wide range of different sectors, such as wind, solar, gas (such as landfill, mine, and sewage), hydropower, biomass, and geothermal. 

2. Ensuring grid stability and integration

For the EEG to successfully ensure grid stability, the directive must ensure that renewable energy development scales at the same pace as the grid. It must also be designed to cope with the load of delivering renewable energy over long distances due to the locations in which renewable energy plants are often built. To avoid certain areas getting congested with energy, certain types of renewal energy connected to the grid are not allowed to be increased in particular areas - for example offshore wind in the north of the country. 

3. Reducing greenhouse gas emissions

By boosting the renewable energy sector and making it easier for renewable energy to flourish, the EEG is actively trying to reduce our reliance on fossil fuels. As more energy producers make the switch from fossil fuels to renewable energy, this will reduce greenhouse gas emissions into the environment. 

Main provisions of the EEG

The main provisions of the EEG are to secure a reliable connection of renewable energy to the grid and to make renewable energy an attractive, viable option. We look at how the EEG has done this over the last 25 years. 

1. Feed-in tariffs

Introduced in 2000, the German Feed-in Tariff has existed in numerous forms, but its success has seen renewable sources in Germany increase to 23.7% in 2014 from 6.2% in 2000. The Feed-in Tariff has been considered so successful—with the potential for Germany to be 100% renewable energy-powered by 2030—that it has become a transferable model for other countries, including China. 

2. Priority grid access for renewable energy

The key aim of the EEG is to reduce reliance on fossil fuels in favour of switching to renewable energy. The EEG achieves this by offering renewable energy priority access to the grid over fossil fuels. This allows renewable energy to close the gap in competitive pricing with fossil fuels, as renewable energy has priority access to the power grid.

3. Cost and the EEG levy

One of the benefits of renewable energy pricing when procuring renewable energy is that in recent years, fixed pricing in the form of PPAs has seen growing popularity. As part of the EEG, fixed cost pricing has been integrated, for example, one model pricing may include each kilowatt hour of renewable energy being fixed for 20 years. The reason for this method is that the price is fixed at a rate that the power plant will receive a return on investment, and the extra costs associated with this are spread across all EEG energy users. This extra cost is called an EEG surcharge. 

Impact of the EEG on Germany's energy sector

The benefits of the EEG are obvious—they improve environmental conditions by prioritising green and ocean energy generation over fossil fuels—but what other benefits has Germany seen from its implementation?

Growth of renewable energy capacity

Funding is a crucial component of renewable energy sector growth, and the EEG ensured financial support for a broad spectrum of renewable energy types. The second is security – the prioritisation of providing a secure network for renewable energy distribution has also meant the EEG has seen a huge increase in energy consumers opting for renewable energy over fossil fuels.

Economic benefits

With secure financing, renewable energy pricing can become more competitive with fossil fuels, making it an even more attractive option for energy procurers. To support this, the EEG is agile enough to decrease the fixed tariffs covered by the EEG. These reductions are implemented by the German government and are based on the behaviour of the energy market. 

Revisions and future of the EEG

Over the last 25 years, the EEG has undergone several different iterations. But how has it changed, and how may it change in the future?

Recent amendments and policy updates

From its introduction in 2000, the EEG was originally known as The Electricity Feed-in Act, introduced to help improve the uptake and development of renewable energy. As carbon reduction efforts became more prevalent throughout Europe, The Electricity Feed-in Act adapted to incorporate growing carbon reduction targets. Now known as the Renewable Energy Sources Act (EEG), the EEG has set ambitious goals for Germany’s renewable future. This includes a target of 80% of all energy in Germany to be generated from renewable sources by 2030. Setting out policy favouring a decentralised approach has meant that people, communities and SMEs have the opportunity to invest in renewable energy. Community-level projects have resulted in a large proportion of renewable energy infrastructure being financed and owned by cooperatives and small-scale private investors. 

Reforms to the EEG system

One of the key elements to the EEG system’s success is incorporating many different types of renewable energy. Providing access, investment and priority for many types of renewable energy has allowed innovation and growth within the sector, making renewable energy a more attractive proposition for energy buyers. Part of this process was the competition-based auction scheme proposed in 2016, which focused on improving the diversity of energy sources for stakeholders in the EEG, including onshore wind energy. Reforms to the EEG include consultation with key bodies associated with the act to ensure balanced reforms and change that benefit the sector. The type of bodies and organisations consulted as part of the competition-based auction scheme included businesses and companies as well as the German Länder. External experts are also consulted as part of EEG reforms; for example, in the case of the competition-based auction scheme, the Centre for Solar Energy and Hydrogen Research Baden-Württemberg (ZSW), Ecofys, Takon, Fraunhofer ISI and the Consentec were consulted, as well as law firms BBG und Partner and Görg.

How are businesses and consumers affected by the EEG?

The success of the EEG is in part due to its focus on its impact on businesses and consumers:

Benefits for renewable energy investors and impacts on electricity prices

The EEG focuses not only on improving the amount and quality of renewable energy projects connected to the grid but also on controlling costs. The EEG ushered in a new way of financing renewable energy projects, which came in the form of the competition-based auction scheme mentioned above, which was introduced once the renewable energy sector was stable and mature enough to become competitive in the energy market. The auction-based pricing method opened up renewable energy investment to a broad spectrum of potential investors, from small-scale community level to large corporate investors. 

Opportunities for self-consumption and subsidies

As the EEG opened renewables to the wider energy market, it also allowed small-scale energy producers to take advantage of and promote the use of self-consumption. One such scheme was the landlord-to-tenant electricity scheme, which allowed landlords to install solar panels on their property and pass on the energy generated to their tenants. These energy transfers are not connected to the wider grid, which avoids costs like concession fees, grid charges, surcharges and electricity tax. A bonus scheme also allowed a premium to landlords who installed arrays on the date the 2017 Renewable Energy Sources Act was enforced, or subsequently. 

Ultimately, the EEG has been key in driving Germany’s energy transition, making renewable power more accessible and economically sustainable.