20 years of EEG subsidies - What happens to the wind power plants?
From the beginning of 2021, the first EEG plants will lose their state subsidies. But what will happen to the plants, and what options do the operators have?
What are Post-EEG plants?
Power plants that are no longer eligible for subsidies by the German state under Section 19 EEG 2017 (Erneuerbaren-Energien-Gesetz). Post-EEG refers to the period in which plants lose their entitlement to EEG compensation after 20 years. The first renewable energy plants have lost their subsidies on January 1st, 2021. They are no longer entitled to feed-in tariffs and market premiums.
What happens to Post-EEG plants after the end of the subsidy?
The EEG creates the general framework for a sustainable energy supply, which is why post-EEG plants do not fall entirely outside the scope of the law after the end of the subsidy period. That means that the power plant is still prioritized for grid access and compensated if necessary to shut down. With the end of the EEG subsidy, the plant operator has various options from which to choose which are suitable for the continued operation of his plant.
What options do Post-EEG plants have after the subsidy expires?
Another possibility for a succession solution is direct marketing. In this case, the plant operator must independently find a direct marketer. The direct marketer then takes over the commercial sale of electricity in the power wholesales markets. In addition, the plant operator must ensure that his plant is equipped with the right measurement technology depending on the installed capacity.
Power Purchase Agreement
One option is a Power Purchase Agreement (PPAs) between the renewable plant operator and an offtaker. The advantage of these long-term supply contracts is that they are often concluded based on a fixed price for the entire contract period. The plant operator receives marketing revenues without risk of market price fluctuations. In the case of debt financing banks, the stable cash flow is mandatory to get better conditions (e.g., lower debt service coverage ratio, DSCR) and, therefore, lower levelized cost of energy (LCOE).
There are two types of Power Purchase Agreements:
- Corporate Power Purchase Agreements are contracts between an end-consuming party (corporate)and the wind or solar plant. Corporates are seeking long-term solutions for fulfilling their decarbonization goals. In most cases, the contracted strike price is higher as with a Utility PPA.
- Utility Power Purchase Agreements are contracts with classical power traders acting as the middleman between power seller and buyer.
In countries without statutory compensation, such as the USA, PPAs are already established.
The existing plant will be completely dismantled and rebuilt. Afterward, the plant operator can apply again for funding through the EEG or PowerPurchase Agreements to fix the power sales over time. In the past years, subsidies rose again due to low competition in the market as permitting of new wind farms was strongly limited. This has changed in 2020 and led to lower auction results and make PPAs an attractive offtake alternative.
The last of the options mentioned above is the dismantling of the powerplant. In this case, the plant is wholly dismantled and broken down. This option is only used for old plants whose continued operation is completely suspended or the lease contract is canceled.
What Think RE can do for you?
At Think RE, we help operators remarket their post-EEG plant. Our extensive network of corporate buyers and utilities enables us to find your suitable partner for a PPA. We will support structuring your project's optimal volume and pricing mechanism, whether it is a corporate or utility PPA. In the case of debt financing, we are experienced with financial engineering and benefit of our partners for implementing additional hedging strategies (e.g., weather insurances).