Comparison between the Energy Policies of Sweden and German

REAP Module “Legal and Economic Instruments of Environmental Policy”

Winter Term 2014/2015

Prof. Dr. Martin Wickel, LL.M. / Dr. Cathrin Zengerling, LL.M.

Comparison between the Swedish and German Energy Policy

By: Troutman, Heather (60 28 60 1) and Adcock, Benedict (60 28 56 3)

Date submitted: 03.04.2015

II

Contents

1 Introduction ................................................................................................................................. - 1 -

2 Electrical Energy in Sweden ......................................................................................................... - 2 -

2.1 Green Electricity Certificate System .................................................................................... - 4 -

2.1.1 How the electricity certificate market works .............................................................. - 4 -

2.1.2 Advantages of a large certificate market compared to a small one ........................... - 5 -

2.1.3 Electrical power producers .......................................................................................... - 6 -

2.1.4 Quotas and market participation ................................................................................ - 6 -

2.1.5 Trading ......................................................................................................................... - 7 -

2.1.6 Quota obligation and cancellation .............................................................................. - 7 -

2.1.7 Financing the electricity market .................................................................................. - 8 -

2.1.8 Energy market inspectorates ...................................................................................... - 8 -

2.2 Achievement of the electricity certificate market .............................................................. - 8 -

2.2.1 Distribution of electricity certificates .......................................................................... - 8 -

2.2.2 Cancellation of electricity certificates ......................................................................... - 9 -

2.2.3 Achievement of quota obligation ................................................................................ - 9 -

2.2.4 Surplus ......................................................................................................................... - 9 -

2.2.5 Trading on the electricity certificate market ............................................................. - 10 -

2.3 Summary of recommendations ......................................................................................... - 10 -

2.3.1 Adjustment of quota curve ....................................................................................... - 10 -

2.3.2 Access to projects and risk factors ............................................................................ - 11 -

2.3.3 Market improvement measures................................................................................ - 11 -

2.4 The Program for Improving Energy Efficiency in Energy Intensive Industries (PFE) ......... - 11 -

2.4.1 Report after two years and five years in the program .............................................. - 11 -

2.4.2 Target of PFE.............................................................................................................. - 12 -

2.4.3 Energy management systems and procedures for purchasing and planning ........... - 12 -

2.4.4 Energy review – in more detail .................................................................................. - 12 -

2.4.5 Results of the first five years in PFE .......................................................................... - 13 -

3 Electrical Energy in Germany (Facts and Figures) ..................................................................... - 14 -

3.1 EEG .................................................................................................................................... - 15 -

3.1.1 Fixed Tariffs ............................................................................................................... - 15 -

3.1.2 Priority Feed-In .......................................................................................................... - 16 -

3.1.3 EEG Surcharge ........................................................................................................... - 16 -

3.1.4 Monitoring Performance ........................................................................................... - 17 -

III

3.2 Outcomes .......................................................................................................................... - 18 -

3.2.1 Increase in Renewables ............................................................................................. - 19 -

3.2.2 EEG Surcharge ........................................................................................................... - 19 -

3.3 EEG Reform........................................................................................................................ - 20 -

3.3.1 EEG Reform in the European Context ....................................................................... - 21 -

3.3.2 Special Equalization Scheme ..................................................................................... - 21 -

3.3.3 Self-Supply ................................................................................................................. - 21 -

3.3.4 Continued Expansion ................................................................................................. - 22 -

3.3.5 Direct Marketing of Renewable Energy .................................................................... - 23 -

3.3.6 Pilot Auction .............................................................................................................. - 23 -

3.4 Summary of Recommendations ........................................................................................ - 24 -

3.4.1 Emissions Trading ...................................................................................................... - 24 -

3.4.2 Grid Expansion ........................................................................................................... - 25 -

3.4.3 Load Flexibility and Storage Capacity ........................................................................ - 26 -

3.4.4 Energy Efficiency ....................................................................................................... - 26 -

4 Analysis of Sweden’s and Germany’s Different Instruments .................................................... - 27 -

5 Summary of Result and Outlook ............................................................................................... - 27 -

6 References ................................................................................................................................. - 29 -

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1 Introduction

Germany and Sweden are both members of the European Union (EU). Several policy measures of

both countries are based on EU directives. The directive 2009/28/EC affects the renewable energy

development in both countries. Germany’s target for the share of energy from renewable sources in

gross final consumption of energy is about 18% by 2020 (Official Journal of the European Union,

2009). By 2020 Sweden is required to reach a renewable energy share of 49% (Swedish Energy

Agency, 2013).

In Sweden and Germany different instruments are used to reach the mandated goal for share of

renewables in the energy mix by 2020.

This document focuses on the electricity sector, analyzing the different approaches of both countries

to increase the share of renewable energy in their respective electricity sector. The German

Renewable Energy Act (Erneuerbare-Energien-Gesetz – EEG) is the main instrument to increase

renewables in Germany and is based on a government subsidy system (Germany, 2010, p. 6).

Sweden uses a market-based instrument (Green Electricity Certificate System), to increase the share

of renewable energy.

The development of electricity prices for households in Germany is very different compared to

Sweden. Could this be related to the different approaches of both countries to increase their share

of renewables?

According to the Energy Transformation Index (ETI), designed by the Frauenhofer Institut, Sweden is

top ranked (Frauenhofer ISE, 2013). Germany is in fourth place. Can this also be explained by the

use of the different instruments?

This report offers analysis of the above questions in reference to the chosen instruments of both

countries to increase the share of renewable energy, and to make each country more sustainable.

First, the Swedish electricity sector is explained, followed by a detailed description of the Swedish

Green Electricity Certificate System and a description of the program for Improving Energy Efficiency

in Energy Intensive Industries (PFE). Next, the German electricity sector and the EEG are explained.

Subsequently, both instruments are analyzed and evaluated. Finally, the obtained results will be

summarized and an outlook will be given.

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2 Electrical Energy in Sweden

Since the oil crisis of the 1970s, Sweden has invested in the search for alternative energy sources. In

1970, more than 75% of Swedish primary energy supplies came from oil; by 2012, the amount had

decreased to 21.5% (Government of Sweden, 2015).

Figure 1 Source: Energy Balances of OECD Countries, IEA/OECD Paris, 2012; submission by the Swedish government to

the IEA.

Sweden’s current electricity production is mainly divided into hydropower (48%, 2012) and nuclear

power (38%, 2012). Combined heat and power plants and wind power collectively generate about

14% of Sweden’s total electricity production in 2012 (see Figure 2).

Figure 2 Source: Energimyndigheten, Energiläget 2014

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Sweden defined its energy policy in 1997. The government wanted to stimulate “efficient and

sustainable energy use and a cost-effective energy supply” that would “facilitate the transition to an

ecologically sustainable society” (Government of Sweden, 2015).

In 2003, the Electricity Certificate System was introduced. Norway joined the Swedish Market for

Electricity Certificates in 2012. (Energimyndigheten, 2013)

In 2005, a program, Improving Energy Efficiency Act (2004: 1196) (PFE), designed to increase energy

efficiency in energy intensive industries, based on an EU directive, came into force (Swedish Energy

Agency 1, 2011).

The joint success of the Electricity Certificate System and the Program for Improving Energy

Efficiency in Energy Intensive Industries (PFE) were leading factors contributing to Sweden receiving

the top ranking of the Energy Transformation Index (Frauenhofer ISE, 2013).

Also, in reference to the IEA Indicator “Energy related CO2 emission per GDP,” Sweden is more

efficient than all the other countries considered by the IEA (see Figure 3). Therefore, a closer look

into both instruments, the Electricity Certificate System and the PFE, is necessary.

Figure 3 Source: CO 2 Emissions from Fuel Combustion, IEA/OECD Paris, 2012.

Compared to other countries in the EU, the Swedish development for electricity prices for

households is moderate. This is particularly noteworthy as Sweden was top ranked in reference to

energy transformation and for the low related CO2 emission per GDP, which is normaly associated

with high energy costs.

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Electricity prices for houshold consumers, first half 2013 (Euro per kWh)

Figure 4 Source: Eurostat (online data code: nrg_pc_204)

2.1 Green Electricity Certificate System

The Green Electricity Certificate System, introduced in 2003, is the major political measure to

increase the share of renewable energy technologies in Sweden (Government of Sweden, 2015).

Since January 1st

, 2012, Norway is also part of the electricity certificate system (Energimyndigheten,

2013, p. 5).

2.1.1 How the electricity certificate market works

The system is market based. Electricity traders have to buy a proportion of “green electricity” as part

of their normal supply, while power producers are granted certificates proportionate to the amount

of renewable electricity they generate. The aim is to increase renewable electricity generation by 25

TWh from 2002 to 2020 (Government of Sweden, 2015).

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Figure 5 Source: The Norwegian-Swedish Electricity Certificate Market, Annual Report 2013

1. Electricity generators receive one certificate for each megawatt hour (MWh) of renewable

electricity produced, over a maximum 15 years.

2. The certificates are sold in a market where supply and demand regulates the price. With the

certificates, the producers have extra income additionally to the electricity price.

3. Demand for certificates arises because power suppliers and defined power customers are

obliged by law to buy certificates corresponding to a defined quota of their electricity trades

or usage.

4. The electricity end users – or rather, household consumers – pay for the renewable

electricity development because the price of the electricity certificates is included in the

electricity bill.

5. Market participants with quota commitments must annul electricity certificates with the

purpose of fulfilling their quota obligation every year (Energimyndigheten, 2013, p. 7).

2.1.2 Advantages of a large certificate market compared to a small one

In 2012, Norway connected itself to the Swedish electricity certificate market leading to a market

with greater size and more members than a national market would have had. The aim to boost

renewable electricity production can thereby be reached in a more cost-effective manner, because

investment will be focused to where conditions are most suitable for new renewable power plants

(Energimyndigheten, 2013, p. 8).

The common market approach is also defined in the EU2009/28/EC directive. The directive permits

cooperation on measures through so-called collaboration mechanisms. The Swedish - Norwegian

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certificate system is a model of a joint support system and is the first example within the EU in order

to reach the national goals in 2020 (Energimyndigheten, 2013, p. 8).

2.1.3 Electrical power producers

The electricity certificates market is managed by two agencies, also known as directorates, one in

Sweden and one in Norway. The power producers have to apply to their respective agency to take

part in the market. After the application is approved the electricity producer receives an electricity

certificate for each megawatt hour (MWh) they produce with renewable technology, over a

maximum of 15 years. The certificates are then sold for supplemental income on top of the sold

electricity. Electricity generated by the following sources is eligible for electricity certificates:

• Biofuel (combined heat and power plants in Sweden)

• Geothermal energy

• Solar energy

• Hydropower

• Wind power

• Wave power

(Energimyndigheten, 2013, p. 9)

2.1.4 Quotas and market participation

Electricity certificate market members with quota commitments are mostly power traders. There are

also a few electricity customers. Each year the electrical power traders and customers must buy

certificates equivalent to a certain share of their electricity deliveries or consumption. This is called

the “quota obligation.” The market participants with quota obligations must buy electricity

certificates according to the quota curve. The quota curve states the percentage of certificates

needed based on total electricity consumption (Energimyndigheten, 2013, p. 10).

The countries’ quotas are defined in legislation. An increase of quotas causes an increase demand of

electricity certificates. The Swedish and Norwegian quotas are defined until 2035, when the

electricity certificate system expires (see Figure 6).

The two countries intend to cancel 198 million electricity certificates each (corresponding to 198

TWh) by 2035. Each country finances 13.2 TWh of renewable power generation a year for 15 years

(15 years x 13.2 TWh = 198 TWh). According to this the quota curve was designed.

(Energimyndigheten, 2013, p. 10)

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Figure 6 Source: Act (2011:1200) regarding electricity certificates; Act 24.06.2011 no. 39: Act regarding electricity

certificates.

The quota curves of Norway and Sweden are calculated and set based on assumptions of future

calculation-relevant electricity consumption. The end target of both countries is fixed (13.2 TWh

each year of renewable electrical energy) but each year the quota curve has to be adjusted, because

the electrical energy consumption is not 100 % predictable. (Energimyndigheten, 2013, p. 10)

Norwegian market members with quota obligations bought about 3 times less electricity certificates

of their calculation-relevant electricity consumption compared to Swedish members in 2013 (see

Figure 6). The main reason for this difference was that plants in the transition system had to be

financed. Another reason was that the calculation-relevant electricity consumption was higher in

Sweden compared to Norway (Energimyndigheten, 2013, p. 11).

2.1.5 Trading

The electricity certificates are traded on the electricity certificate market. The price changes

dependent on supply and demand. The trading occurs between power producers and market

participants with quota obligations, and brokers. Electricity certificates, when traded, are transferred

from the sellers to the buyers (Energimyndigheten, 2013, p. 11).

2.1.6 Quota obligation and cancellation

Once a year, market members with quota obligations must inform their respective directorate of the

amount of certificates they need to achieve their quota obligation. To fulfill the quota obligation, the

market members with quota obligations must have certificates equivalent to the proportion, in

percentage, of their calculation-relevant electricity consumptions. All existing certificates are

annulled on the 1st

of April and cannot be used again. This means that market members with quota

obligations must buy new electricity certificates to fulfill next year’s quota obligation. This ensures

that a constant demand for electricity certificates is created (Energimyndigheten, 2013, p. 12).

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2.1.7 Financing the electricity market

The costs of electricity certificates are included in the customer’s electricity bill when the power

producer is a member of the market with a quota obligation. Electricity-intensive industries have an

electricity certificate cost connected to their electricity consumption that is not used in production

processes (Energimyndigheten, 2013, p. 13).

2.1.8 Energy market inspectorates

It is checked by the Energy Markets Inspectorate that energy companies follow the regulations. The

energy market inspectorate’s website provides analysis information and observations of the power

market, including power suppliers and electricity prices. The energy market inspectorate frequently

tests the market functions (Energimyndigheten, 2013, p. 16).

2.2 Achievement of the electricity certificate market

From 2012 on, a new renewable production capacity from 6.2 TWh has contributed to the electricity

supply due to the Norwegian-Swedish electricity certificate system. This fits exactly in the planned

extension of renewable energies with the target to have 26.4 TWh of new renewable power

production by the end of 2020 (see Figure 7) (Energimyndigheten, 2013, p. 16).

An average increase of 2.93 TWh of renewable power production must come into operation each

year, with the aim of 26.4 TWh by the end of 2020. However, there are no fixed targets for each

individual year. It is the market members, who invest and build plants, which decide how many

renewable power production plants are built each year (Energimyndigheten, 2013, p. 16).

Figure 7 Source: Swedish Energy Agency, NVE

2.2.1 Distribution of electricity certificates

16.3 million electricity certificates were given to power producer in 2013. The share of Sweden and

Norway and the dispersal between different energy sources in reference to the electricity certificates

market is shown in Figure 8 (Energimyndigheten, 2013, p. 20).

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Figure 8 Source: Cesar, NECS

2.2.2 Cancellation of electricity certificates

16.2 million electricity certificates were annulled in 2013 (Energimyndigheten, 2013, p. 22).

The quota of electricity certificates is set by law, see Chapter 2.1.4 “Quotas and market

participation.” However, the calculation-relevant electricity consumption differs with temperature

and economic phases. For instance, hydropower electricity production changes from year to year,

because the amount of yearly rain has an influence on the amount of energy that can be generated

by a hydropower plant. Therefore, the number of annulled electricity certificates corresponds not

always with the annulment that is essential to reach the yearly goal. The quota curve is being

adjusted as part of the electricity certificate market (Energimyndigheten, 2013, p. 22).

2.2.3 Achievement of quota obligation

Most market members (99.96%), met their electricity certificates quota obligations in 2013. Market

participants who did not satisfy their electricity certificates quota obligation were charged with a fee

(Energimyndigheten, 2013, p. 23).

2.2.4 Surplus

The surplus is the difference between the number of electricity certificates that have been issued

and the number that have been annulled. The number of electricity certificates has to be high

enough to balance the market. An increase of surplus is caused when the demand is lower than the

production of electricity certificates. In 2013, there was an increase of surplus of about 0.1 million

certificates compared to 2012, which reflects a 0.645% surplus compared to the total number of

certificates issued in 2013 (see Figure 9) (Energimyndigheten, 2013, p. 27).

The surplus is an indicator for the pressure in the electricity certificate market. A high amount of

surplus, in relation to the amount of electricity certificates to be annulled, causes a negative price

pressure and a low amount of surplus has the opposite effect

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Figure 9 Source: Svenska Kraftnät’s and Statnett’s account systems (respectively Cesar and NECS)

2.2.5 Trading on the electricity certificate market

Primarily, market members with quota obligations trade with market members with certificate

entitlement. In addition, there are also traders who have accounts in the electricity certificate

register. These traders have the goal to buy electricity certificates and sell them later at a profit.

They help to stabilize the market price. The average price from 2003 to 2013 is given in Figure 10.

Figure 10 Source: CleanWorld, ICAP and Svensk Kraftmäkling

2.3 Summary of recommendations

2.3.1 Adjustment of quota curve

Each year a summary report of recommendation is written by the respective directorate. It is mainly

about the adjustment of the quota curve. In 2013, for instance, the Swedish Energy Agency

recommended to adjust the quota curve of both countries in order to reach the 2020 target of 26,4

TWh of new renewable energy power plants. For Norway, the directorate recommended to adjust

the quota curve downwards to reach a reduction in demand for electricity certificates. For Sweden,

an upward rise of the quota curve was recommended (Energimyndigheten, 2013, p. 31).

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2.3.2 Access to projects and risk factors

Possible risks factors and the access to projects are also yearly evaluated by the respective

directorate. Mainly it is about the availability of investable projects and whether there is enough

potential capacity of building renewable energy plants (Energimyndigheten, 2013, p. 31).

2.3.3 Market improvement measures

The Swedish Energy Agency conducts an annual analysis of the market, concluding with a list of

recommendations. The main points of the 2013 report were:

• The relationship between the current electricity quotas and the factors, on which the

electricity certificates quotas are based, should be analyzed annually.

• A database of power production with entitlement to electricity certificates is needed.

Project specific information should be included, like the licenses to build, investment

decisions and plants under construction (Energimyndigheten, 2013, p. 32).

2.4 The Program for Improving Energy Efficiency in Energy Intensive

Industries (PFE)

The PFE (Act 2004:1196) came into force in 2005. It is in line with the EU’s Energy Tax Directive. In

this directive it is defined that energy intensive companies in production industry have the prospect

of being granted tax exemption on their electricity consumption if they take action to increase their

energy efficiency. Therefore, a program was designed by the Swedish government to increase the

energy efficiency in energy intensive industries. The membership in the program is voluntary

(Swedish Energy Agency 1, 2011).

Participation in the program takes five years. The years are divided into the following steps:

• In the first two years a standardized energy management system must be installed.

• A list of measures to improve energy efficiency is created based on the data of the energy

management system.

• In the remaining three years the company is to implement the list of measures.

PFE focuses on electricity-efficiency. Therefore, measures to increase the efficiency of electricity, is

the main target (Swedish Energy Agency 1, 2011).

2.4.1 Report after two years and five years in the program

After two years of participation in the PFE program the company must report an energy review, a

confirmation of the successfully installed energy management system and a list of measures. The

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final result report has to be submitted after five years. The final report describes and summarizes

the results of the measures to increase the energy efficiency (Swedish Energy Agency 1, 2011).

2.4.2 Target of PFE

The measures of PFE should increase electrical efficiency equivalent to those that would have been

realized if the companies had paid the sum of tax on electricity, which their membership in PFE

relieves them from paying. According to the Swedish Energy Agency, all measures should be carried

out with a return on investment of less than 3 years (Swedish Energy Agency 2, 2011).

2.4.3 Energy management systems and procedures for purchasing and planning

A national standard for energy management systems was first introduced in 2003. This was replaced

by the European standard EN16001 in 2009 (Swedish Energy Agency 3, 2011).

When a company takes part in the PFE a standardized energy management system has to be

implemented and it has to be certified in the first two years by an independent certification body.

After the first two years the company must constantly improve the energy management system

within the remaining three years (Swedish Energy Agency 3, 2011).

There are several independent control mechanism and documentation tools with the purpose of

seeing that the certifications and re-certifications continue according to plan. One of the control

bodies is the Swedish Board for Accreditation and Conformity Assessment (SWEDAC), which

cooperates with the Swedish Energy Agency (Swedish Energy Agency 3, 2011).

There are strict requirements for companies that take part in the PFE in reference to energy reviews,

buying of high-consumption electric apparatus, planning procedures, modifications and renovations

after the energy management systems had been introduced. The Life-cycle costing (LCC)

methodology is used for buying high-consumption electrical equipment. The highest efficiency class

must always be chosen when it comes to the purchasing of high consumption electrical motors


The target is always to certify that the companies constantly choose energy efficient equipment


The task of the certifying bodies is to check that the rules for buying and planning are followed and

that the energy management system is used (Swedish Energy Agency 4, 2011).

2.4.4 Energy review – in more detail

The in-depth review and analysis, focusing on electricity, must include the following requirements:

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1. The review has to be carried out from a systems perspective.

2. The review has to cover the short- and long-term measures.

3. Measures to improve electricity efficiency must always be included in the review (Swedish

Energy Agency 5, 2011).

The first point, “carrying out the energy review from a system perspective,” means that the

companies must evaluate the production process and how the energy efficiency can be improved. It

could also involve an analysis on how one measure affects the energy use in other parts of the plant


The second point refers to the short- and long-term measures. The company must analyze possible

changes that could occur within the time period of a decade impacting energy use. These changes

have to be taken into consideration in relation to the short-term changes in energy use (Swedish

Energy Agency 5, 2011).

The last point is important in terms of suggestions for measures to increase electricity efficiency.

During the program period the company has to implement measures which have a return on

investment of less than three years (Swedish Energy Agency 5, 2011).

The energy review has to be reported to the Swedish Energy Agency (Swedish Energy Agency 5,

2011).

2.4.5 Results of the first five years in PFE

After the fifth year a final report from the PFE participants must be handed in to the Swedish Energy

Agency to demonstrate the energy efficiency results and how the program requirements have been

met (Swedish Energy Agency 6, 2011).

In 2009, about 100 companies submitted their final reports. During the five-year program, the 100

companies increased their collective energy efficiency by about 1,45 THh. This was accomplished by

investing 707 MSEK (approx. Euro 70 million) in 1,200 electricity efficiency measures. 350 other

measures to increase energy efficiency were, among others, the switch from fossil fuels to

renewables and increased surplus heat to external parties. All companies implemented and certified

the standardized energy management system (Swedish Energy Agency 6, 2011).

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3 Electrical Energy in Germany (Facts and Figures)

Similar to the Swedish situation described in chapter two, Germany’s energy mix first began a

notable shift following the oil crisis of 1976. Prior to this event, petroleum accounted for 47% of

primary energy consumption (PEC) and fossil fuels as a whole accounted for 97% of PEC. The

following two decades had little development in renewable energies, but there was a transition away

from petroleum in PEC in substitution for predominately natural gas, as well as an increase in nuclear

energy in gross electricity production (GEP) (Deutsche Bank AG, 2014)

Figure 11 Source: Deutsche Bank Research Figure 12 Source: Deutsche Bank Research

Renewable energies in Germany began to emerge following the 1998 elections of the first Social

Democratic Party (SPD)/Greens coalition whose agenda contained two fundamental items in the

context of renewable energy, (1) the gradual phasing-out of nuclear energy in Germany, and (2) the

rapid deployment and integration of renewable energies (Deutsche Bank AG, 2014).

In 1991, the German government adopted its first Grid Feed-In Law (Stromeinspeisungsgesetz –

StromEinspG), which suffered from numerous disputes and was eventual annulled in response to the

Preussen Elektra decision of the European Court of Justice in 2001 for over-stepping the definition of

State aid and for violating the principle of European free movement of goods (Lang & Lang, 2014).

The German government has relentlessly maintained its commitment to increasing the share of

renewable technologies in its energy mix and has consistently met most of its energy and emissions

targets. It should be noted, the National Renewable Energy Action Plan, developed in accordance

with directive 2009/28/EC, of which the EEG is a founding pillar, is robust far beyond the scope of

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this paper and set decadal targets in 13 categories for five decades. Since the release of the 2009

Renewable Energy Action Plan even more targets have been set. Tellingly, it should be acceptable

that some of these targets where not perfectly achieved as the overall agenda has been upheld

(Federal Republic of Germany, 2009).

Figure 13 Source: BMWi, 2014

3.1 EEG

The Renewable Energy Sources Act (Erneuerbare-Energien-Gesetz, EEG) entered into effect in 2000

with the goal of expanding renewable energy to make the “power supply more environmentally

sound and climate-friendly [keeping Germany] self-sufficient in the face of the world’s diminishing

reserves of fossil fuels” while maintaining affordability and reliability of the energy supply (BMWi ,

2015).

3.1.1 Fixed Tariffs

Feed-in tariffs (FIT) are legally defined prices established for the compensation of renewable

electricity for a defined period of time, often 20 years. Once established, FIT rates are, most usually,

guaranteed for the entire defined period, meaning that adjustments to FIT pricing have mostly

occurred for new installations established after FIT pricing revisions.

FITs are independent of the market price of electricity, which provides them with an investment

security as the annual return from a renewable energy (RE) technology can be simply and accurately

estimated based on the technologies’ capacity and historical weather data (such as wind velocity and

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hours of solar radiation). This feature enabled financing of renewable technology installations, more-

or-less, and independent of the installer’s financial history or capacity. Such a provision opened an

opportunity for secured income for most landowners in German, especially farmers, and ultimately

resulted in rapid deployment of RE installations (Finadvice, 2014).

3.1.2 Priority Feed-In

All electricity produced from renewable energy sources (RES) is guaranteed to be fed into the grid,

regardless if the additional capacity is needed. RES electricity, by legal mandate, must always receive

preference from grid operators over electricity produced from conventional sources (fossil fuels).

This mandate does not concern itself with the differentiated production costs of various electricity

generation sources. Certified RES electricity power plants – all of them – always receive preference.

3.1.3 EEG Surcharge

The costs of the EEG are equally spread to all energy consumers in an EEG Surcharge “following the

principles of solidarity“ (BMWi , 2015). The equalization scheme goes through five steps:

1. Renewable energy generator (wind farm, solar park, ect.)

2. Distribution system operator

3. Transmission system operator

4. Electricity supply undertaking

5. Consumer

On the first level, the RES electricity generators have two options. They can sell their RES electricity

directly to a distribution system operator (DSO) at a fixed price determined by the feed-in tariff, or

sell their RES electricity directly to market for a market premium, which is also set by law. Under

both scenarios, the DSO is required to compensate the RES electricity generator for the full value of

either the feed-in tariff or the market premium.

At the second level, DSOs are then required to transfer the EEG electricity to a Transmission System

Operator (TSO). There are four TSO in Germany. The TSO must compensate the DSO for the full cost

of both the feed-in tariffs and the market premiums.

At the third level, the four TSOs average the marginal costs of all EEG electricity over the costs of

total electricity consumption resulting in a differential price per kWh that is then divided by each

individual TSO’s percentage of the full market share in the previous year.

The TSOs then sell the EEG electricity on the European Energy Exchange spot market (EEX-SPOT).

The collective differential cost between the computed cost per kWh (detailed above) and the actual

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compensation of the spot market is then averaged, per kWh, over the total electricity production in

Germany. The resulting value is the EEG surcharge.

The TSOs pass the EEG surcharge back to all electricity suppliers, proportionate to the quantity of

electricity supplied such that each electricity producer compensates the same amount per kWh.

These costs are calculated based on estimates and must be paid by the electricity producers one

month in advance. The calculation is based on the forecasted costs of feed-in tariffs and market

premiums, the forecasted revenue from electricity sales on the spot market and forecasted

electricity consumption.

This forecasted marginal cost, the EEG surcharge, is then equally distributed over every kWh of

electricity consumed in Germany, paid by the consumer. This is the fifth level. In the event that the

EEG surcharge is under-calculated for the following year, the differential cost is then included into

the per kWh EEG surcharge computed for the following year. Similarly, if the EEG surcharge is over-

calculated, then the surplus is equally distributed as a reduction to the following year’s EEG

surcharge (European Commission, 2014).

3.1.4 Monitoring Performance

The “Energy of the Future” monitoring process has been developed to measure the effectiveness of

the EEG and to summarize the results into meaningful statistics. This report is to be published every

three years and will include an extensive review of the performance of individual policy elements. A

committee comprised of “four renowned energy experts” has been charged with managing the

monitoring and reporting process. Additionally, a variety of “high-level specialist panels”

representing business and industry, State and local-level government officials, society and the

scientific community have been formed. A non-exhaustive sample of such focus groups follows.

• “Future-oriented-Grids” platform, the

• Power Plant Forum inter alia with the

• “Strategic Reserve” expert dialogue, the

• “Renewable Energies” platform, the

• “Energy Efficiency” dialogue forum, the

• “New Energy Technologies” coordinated platform, the

• “Energiewende” research platform and the

• “Dialogue on the Renewable Energy Sources Act” (BMWi, 2014).

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3.2 Outcomes

The success the EEG to meet the RES electricity goals, which were quite aggressive, is undeniable

(refer to Figures 15 and 16). Further, the EEG achieved unprecedented success in the rapid market

integration and cost reduction of, namely, two once expensive technologies, solar photovoltaic (PV)

and wind turbines. All of this expansion trickled down the German economy resulting in rapid job

growth in “future-proof jobs” as the BMWi has hallmarked (2014).

Figure 14 Source: Finadvice, 2014

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3.2.1 Increase in Renewables



3.2.2 EEG Surcharge

The FIT program tallied to 317 billion euros between 2008 and 2013. The costs for 2014 alone are

estimated to be 24 billion euro. Peter Altmaier, the former German Minister of the Environment, has

estimated that the FIT program may amount to 680 billion euro, paid by the German citizens, by

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2022. Some estimates suggest that Germany suffered from 52 billion euro in net export losses

between 2008 and 2013 (Finadvice, 2014).

Household consumer electricity prices have climbed from 14 cent/kWh in 2000 to 29 cent/kWh in

2013. In comparison, the average cost for electricity in the U.S., which ranges greatly between

states, has remained relatively stable at 10 cent/kWh over the past decade. North Carolina, the state

with the cheapest electricity prices, has averaged around 4 cent/kWh over the past decade, in euros

(Finadvice, 2014).


3.3 EEG Reform

The EEG has a long and complex history of reform. After introduction in 2000, the first major

amendment occurred in 2004 redefining the legal status of renewable power plant operators and

modifying the feed-in tariffs. Another major revision occurred in 2009 and was subsequently revised

seven times before being revised, yet again, in 2012. The main objective of the 2012 reform was to

encourage the direct marketing of renewable energy by allowing renewable energy producers the

option to directly market their renewable energy without receiving the fixed feed-in tariffs

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traditionally provided by the EEG. Instead, they were offered a market premium additional to the

revenue they received from the sale of the renewable energy (Lang & Lang, 2014).

The most recent rendition of the EEG, referred to as EEG 2.0, went into effect August 1st

, 2014 and

will be explained in more depth here.

3.3.1 EEG Reform in the European Context

The EEG has been under scrutiny from the European Commission from the beginning. Really, since

before the beginning as the EEG’s predecessor, Grid Feed-In Law (Stromeinspeisungsgesetz –

StromEinspG), was also subject to continuous complaint for “illegally” imposing taxes under the guise

of State aid. The 2014 amendments to the EEG were drafted with “intensive deliberations conducted

at the European level to ensure in conjunction with the European Commission that it is compatible

with EU State aid rules” (BMWi , 2015).

Part of these European-level deliberations concerned free trade amongst EU members, known as the

“green electricity privilege” withheld from other EU members, particularly those bordering, and

therefore capable of trading “green electricity”, with Germany. This problem was resolved by a

payment of the German government of 50 million euro for an EU infrastructure project. Beginning in

2015, 5% of all new installed capacity must be made available in international markets.

3.3.2 Special Equalization Scheme

The Special Equalization Scheme for energy-intensive industries was one of the main concerns at the

European level. Going forward there are more stringent requirements to be met for exemption

status, which will decrease the number of companies not contributing to the burden of the EEG

surcharge.

Under the revised scheme, beneficiaries of the Special Equalization Scheme will “pay the full EEG

surcharge for the first gigawatt hour and then 15% of the EEG surcharge for every kilowatt hour of

electricity they consume above and beyond this. This burden is limited to a maximum of 4% of the

respective enterprise’s gross added value or, in the case of enterprises with an electricity-cost

intensity of 20% or more, a maximum of 0.5% (cap / super-cap in the EU’s Guidelines on State aid for

the environmental protection and energy)” (BMWi , 2015).

3.3.3 Self-Supply

One of the most profound changes made in the 2014 EEG reform, in context to the scope of changes

that have been made in the myriad previous reforms and revisions, concerns self-suppliers. A self-

supplier is defined as energy producers that directly consume the energy produced for their own

means. Throughout the history of the EEG, all self-suppliers were exempt from the EEG surcharge.

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Beginning in 2015, all new non-renewable installations built for self-supply will be charged the EEG

surcharge per kWh of conventional electricity consumed (BMWi , 2015).

“Self-suppliers who use new renewable energy installations or new, highly-efficient heat-power

cogeneration systems have to pay only a reduced EEG surcharge. The reduced surcharge rate will

initially be 30% through 2015 and then raise to 35% for 2016” and then raise to 40% from 2017 on”

(BMWi , 2015).

3.3.4 Continued Expansion

Going forward, the expansion of renewables is to become more manageable by developing

“deployment corridors” for the annual increases in capacity, differentiated by technology type. This

reorganization should help rein in continued increasing EEG surcharge values by capping the volume

of new RES installments that will receive FITs in advance. The “deployment corridors” have been

designed, and are subject to regular adjustment as needed, to increase the RE share to 40 to 45% by

2025 and then rise to 55 to 60% by 2035. The initial “deployment corridors” have been set as

following.

• Solar energy: annual increase of 2.5 gigawatts (gross),

• Onshore wind energy: annual increase of 2.5 gigawatts (net),

• Biomass: annual increase of approx. 100 megawatts (gross),

• Offshore wind energy: installation of 6.5 gigawatts until 2020 and 15 gigawatts until 2030

(BMWi , 2015).

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3.3.5 Direct Marketing of Renewable Energy

According to the BMWi, on of the “core objectives” of EEG 2.0, in accordance with insistence of the

EC, is the improved integration of RE exchange in the European electricity market. Going forward, RE

generators of a defined capacity will be required to directly market their RES electricity on the EEX-

SPOT. This transition will happen in stages.

• “Since 1 August 2014: al new installations with a capacity of 500 kilowatts or more.

• Starting 1 January 2016: all new installations with a capacity of 100 kilowatts or more”

(BMWi , 2015).

3.3.6 Pilot Auction

Germany will be testing the potential of a tender market for RES with the installation of a 400 MW

solar park to gain experience with tender models and designs and evaluate the potential of achieving

the targets of the Energiewende in a possibly more cost-effective way. “By 2017, at latest, the

financial support for renewables and the level thereof is to be determined completely by means of

technology-specific tenders” (BMWi, 2014).

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3.4 Summary of Recommendations

It is the opinion of this author that the original approach of the EEG is sufficient, and possibly even

desirable for extrapolation to other cases assuming that the governments in question have an equal

capacity for aid, which is rare, as a launching point for a rapid expansion of renewable electricity

production capacity and reductions in renewable electricity costs and proficiency. However, the

continuously rising cost of electricity compensated by consumers, the constant revision of the act

throughout its short history and the increasing burden to the entire electricity grid system points to a

need for innovation of the current system.

All of the literatures published by the BMWi, including the 2014 EEG amendments, acknowledge the

need to move to a natural, market-based approach in the future (BMWi, 2014; Bundestag, 2014;

BMWi, 2014; BMWi, 2014; BMWi, 2014). It can be concluded, especially relevant to the Swedish

example detailed in chapter 2 of this report, that the government can and should proactively aid

energy transitions by creating a market demand through policy instruments, such as a RES electricity

quota met through a certification system.

Going forward, Germany faces many challenges in the transition of its energy transition from a state-

run, publicly subsidized system to a system that more equitable competes on the entire European

market. Key recommendations for addressing these understood challenges are:

1. Lobby for enhanced emissions trading schemes, which incorporate the transportation sector.

2. Grid expansions so that renewable energy potential can meet energy demand.

3. Load flexibility, a key component for an intermittent, renewable-based electricity system.

4. Storage capacity to enable expanded load flexibility.

5. Energy efficiency, as it is still Germany’s weakest link.

3.4.1 Emissions Trading

Germany’s most immediate action should be the development of an effective, market-based demand

for renewable electricity. One possible approach is to place a price on environmentally damaging

external costs of conventional electricity production, such as the European Union Emissions Trading

Scheme (EU ETS), of which Germany is already an obliged member. This approach is substantiated

under the current administrations proclamations. According to Section 1 paragraph 1 of the EEG

2014, “the purpose of the law is to facilitate the sustainable development of energy supply,

particularly for the sake of protecting the climate and the environment, to reduce the costs of energy

supply to the national economy also by incorporating external long-term effects [emphasis added

by the author], to conserve fossil fuels and to promote the further development of technologies for

the generation of electricity from renewable energy sources.“ One feasible approach could be to

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lobby the EU for more effective reform of the EU ETS, or to create an internal market that is more

competitive than the European market, while maintaining compliance with the EU directive and

competitiveness with the EU and global manufacturing atmosphere. This possibility, admittedly,

would be challenging but, never the less, is plausible and reasonable for discussion.

It should be noted that the current EU ETS only accounts for around 50% of German greenhouse gas

emissions (BMWi, 2014). The author of this report is in agreement with a suggestion offered by the

Deutsch Bank Research Group (2014) that inclusion of the transportation sector in the emissions

trading scheme would likely result in an increase in emissions certificate value, which would result in

a reduction of emissions. The Deutsch Bank Research Group suggests that this will occur with the

increased adoption of natural gas for vehicles. The author of this report agree that this is a likely

outcome, but also foresees a future policy development requiring large fleets, especially public

fleets, to meet pre-defined quotas of electric vehicles (EVs), with a required percentage of that

electricity coming from renewable sources. Initially, parties obligated to comply with this proposed

legislation could receive subsidies for the purchase of EVs, or the conversion adjustments from an

internal combustion engine (ICE) to an electric engine. Affected parties could also be given EEG

surcharge tax breaks if they are self-producers of the renewable energy that they consume to power

their fleet. A few possible approaches for government initiated market-based demand for EVs:

• Subsidies for the purchase of EVs or the conversion from ICE to EV.

• Subsidies for the installation of RET to power EVs.

• Tax credits on new EV purchases and/or EV registration.

• Reduction in EEG surcharge commensurate with quantity of electricity consumed for

powering EVs.

• Waiver and/or reduction of EEG surcharge for self-supplied RE consumed for powering EVs.

Additionally, especially in the case of energy-intensive industries with large fleets, increased

utilization of EVs would directly influence grid flexibility. Voluminous parked fleets could be used as

storage during times of RE production surplus, for example during nights with high wind speeds, and

then also be used as back-up power supplies in the event of an electricity shortage. Enterprises with

such a capacity could hold special contracts with utility providers for their guaranteed flexibility and

cooperation, and, in return, receive special pricing that increased the investment potential of EV fleet

conversion.

3.4.2 Grid Expansion

In a discussion paper recently published by the BMWi, “An Electricity Market For Germany’s Energy

Transition“ (2014) the Federal Ministry explores the current constraints of the existing electricity

system and suggests approaches that the ministry is and will continue to adopt in the future.

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Chapter three is titled “Flexibility is the answer.” This response has been determined in

consideration of the predominate strain to the current German electricity grid, bottlenecks. A

bottleneck occurs when there is an over-production of electricity in one location that is unable to

reach a destination of desire because the electricity infrastructure is not equipped for such a

movement.

The Rocky Mountain Institute (2014) an authoritative think-thank for market-based expansion of the

RES electricity grid, calls for a grid expanded to respond to temporal, environmental, locational and

existing grid pressures and needs. Electricity pricing should reflect its cost and/or value relative to

the time and place it was generated and consumed.

Most importantly, grid expansion unlocks the potential of the remaining recommendations, load

flexibility, storage capacity and energy efficiency, which are all dependent upon grid flexibility for

optimal performance.

An expanded grid should be responsive to grid constraints. It should be able to communicate

production and consumption needs real-time, and determine the most effective routes for

immediate electricity transfer. Further, it should be able to communicate to both electricity

producers and consumers with price signals to allow better control (less strain) of the electricity

system based on a basic supply-demand curve (RMI, 2014).

3.4.3 Load Flexibility and Storage Capacity

RES electricity is characterized by intermittency. As discussed in the previously mentioned Green

Paper of the BMWi (2014), an electricity market balanced on forecasts does not ensure an actual

balance in the physical world. Possible over-shoots, while manageable by “blowing off” extra

capacity, are clearly undesirable as this relates to unnecessary costs and wasted resources,

renewable or otherwise. The worrisome scenario, however, is the threat of a shortcoming in actual

supply resulting in a brownout, or a short-term loss of access to electricity for some consumers.

Future electricity pricing should incentivize customers with the capacity to absorb excess electricity

(at a minimal rate) or to decline their consumption during times of shortage (for an increased,

courtesy rate). Such customers, ideally, would have special contracts that made the arrangement

economically attractive for them. In return, the grid can save unnecessary costs of maintaining

reserve capacity conventional electricity power plants. Ultimately resulting in saved electricity costs

for the end consumer (BMWi, 2014).

3.4.4 Energy Efficiency

A key component to reduced strain on the transitioning electricity grid is an absolutely efficient use

of energy, reducing overall demand and therefore reducing the need for base-line electricity

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generation from conventional sources. This is one of the greatest areas of improvement in the

German context that is receiving thorough attention in the continued development of Germany’s

energy policy (BMWi, 2014).

4 Analysis of Sweden’s and Germany’s Different Instruments

The Swedish market is very different compared to the German electricity market, because the share

of energy sources is very different. Figure 2, page 5 shows the electricity production by energy types

in Sweden and Figure 11, page 14 shows the German counterpart. Almost half of Sweden’s

electricity is produced by clean and relatively low-cost hydropower. The amount of hydropower is

dependent on natural water resources and height differences of landscape. In 2010, the average use

of hydropower in Germany was about 20.9 TWh compared to 68 TWh produced in Sweden that same

year. In 2010, the technical potential for Germany’s hydropower was estimated between 33.2 to

42.1 TWh (IB Floecksmühle, University Stuttgart, Fichtner GmbH & Co. KG, 2010, p. 22). This shows

clearly that there are limitations in the volume of certain renewable energy plants in reference to the

countries environment. Therefore, a direct comparison with numbers of renewable energy plants, of

both countries, is not possible. This may also lead to different political instruments that a country

needs to increase the share of renewables or to make the electricity sector more sustainable.

However, it is possible to see tendencies, based on the different instruments both countries used to

increase the share of renewable energies and to make the electricity sector more sustainable by, for

instance, increasing the electrical energy efficiency. These tendencies can be interpreted by how

successful or useful a certain instrument is. It is explained in the following chapter.

5 Summary of Result and Outlook

The German EEG and the Swedish Electricity Certificate Systems are totally different political

instruments, with the same target, to increase the share of renewables in the electricity sector. Both

instruments have advantages and disadvantages. For example, the solar power subsidies in

Germany, based on the EEG, have led to a mass market of solar panels with a constant decrease of

production price. The solar subsidies could be seen as a start-up financing of a technology, which

were, at first, not economical. Since 2006, a price decrease of 66% for solar panels occurred on the

solar market (Heinrich Böll Foundation, 2012, p. 18). The same is true for wind turbines. Renewables

are becoming increasingly competitive in the conventional electricity market. One kWh of electricty

generated by an onshore wind power plant is almost competitive with the German fossil and nuclear

power mix (Heinrich Böll Foundation, 2012, p. 2). These developments in the renewable energy

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market were probably only possible because of subsidies, based on the German EEG. However,

another result of the high subsidies has been a drastic increase of electricity price for households.

The electricity price in Germany is the second highest in Europe (see Figure 4). This leads to the main

advantage of the Swedish Electricity Certificate Systems. The Swedish Certificate System does not

subsidize a specific renewable energy technology. Instead, every MWh generated by any renewable

energy source is subsidized. It is up to the free market to decide which technology is used and where

to build it. The free economy is always interested in maximizing profit. Therefore, only the

“cheapest” renewable energy sources are used. This trend is visible when analyzing Figure 8. Mostly

wind power electricity certificates were issued in 2013 on the electricity market because wind power

is so far one of the “cheapest” renewable energy sources (Heinrich Böll Foundation, 2012, p. 2).

The Swedish PFE program seems very progressive and effective (see Figure 3) to make electricity

intensive industries more energy efficient. It helps to save energy and leads to a faster energy

transition. Therefore, other countries with energy intensive industry should adopt similar programs.

In conclusion, it seems that the Germans EEG subsidies were necessary to create a mass market for

renewables. The EEG can be seen as a start-up financing, but, in terms of long-term economic

efficiency, the Swedish Certificate System is superior. A good Indicator for that is the price of

electricity for households. Therefore, the Swedish Certificate System should be introduced

throughout Europe with the effect that electricity generation can be reached in a more cost-effective

manner because investment will be focused to where conditions are most suitable for new

renewable power plants. This could lead to a boost of solar energy production in the south of

Europe and perhaps to a boost of wind power in the north of Europe. It seems, based on the

Electricity Certificate market, that the whole energy transition in Europe could be accelerated.

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Comparison between the Energy Policies of Sweden and German

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