Tenants are increasingly interested in sourcing their electrical power consumption from renewable energy generated by themselves. According to a recent survey, 66 percent of the tenants contributing to the survey are open to the idea of utilising so-called tenant consumption energy (“Mieterstrom”). However, in many cases photovoltaic (“PV”) based tenant energy models do not pay off. In addition, the number of PV-units is insufficient: for the third consecutive year, Germany is lagging behind its annual PV growth target of 2,500 MW per year. Tenant energy models can, according to the German government, stimulate the additional investment in and growth of PV parks, and will in addition allow tenants to actively participate in Germany’s energy transition.
It is for the aforementioned reasons that the German government wants to support PV energy generation from tenant energy models. According to the German Federal Ministry of Economics and Technology, the potential for tenant consumption energy covers 3.8 million households. In order to do so, the German parliament has passed the “Gesetz zur Förderung von Mieterstrom und zur Änderung weiterer Vorschriften des Erneuerbare-Energien-Gesetzes” (“Mietersromgesetz”), “bill in support of tenant energy supply models and changes to the renewable energy act” (“Tenant Energy Act”), in second and third reading on June 29th 2017. The tenant energy act is a framework legislation which implies changes on the existing Renewable Energy Sources Act (“EEG 2017”), the Energy Industry Act (“EnWG”), the Combined Heat and Power Generation Act (“KWKG”), as well as the market data register decree.
What is tenant energy?
There is no legal definition in place of what is meant by tenant energy. The term is commonly used for energy which is generated by a PV plant on top of a residential building (or in a block heat and power station1) and directly consumed within the residential building (in particular by the tenants), without feeding into the public grid. On the one hand, for this kind of energy supply, some components of the regular power price are not due, including: grid costs, power tax, concession levy, and apportionments from the grid side. However, on the other hand, tenant energy is fully exposed to the largest price drivers of the power price, the “EEG apportionment”, which has to be paid by the end consumer. Energy which is not used by the end consumer is fed into the public grid or decentrally stored. In order to ensure security of supply for the tenants, residual energy supply is commonly ensured via the power market.
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There is no direct subsidy for tenant energy models according to current German legislation. The reason for this is that according to EEG 2017, in order to receive subsidies, the generated PV energy needs to be fed into the public grid – this is of course precisely not what is intended by the tenant energy model. Indeed, sec. 95 no. 2 EEG 2017 contains a power to issue statutory ordinances by the German government, which implies reduced EEG apportionments for tenant energy. Nonetheless, the German government is of the opinion that a direct subsidy of tenant energy is to be preferred over an indirect measure like the reduction of the respective EEG apportionments. The reasoning is that in the former case the subsidy is only viable in case the energy is fed into the public grid, whereas in the latter model the tenant energy model is also being supported in cases where the energy is directly consumed by the tenants, without making use of the public grid. The EEG apportionments are thus fully due for tenant energy.
Subsidy schemed according to the tenant energy act
The Tenant Energy Act introduces a so-called “tenant energy surcharge”, which is an additional revenue component for tenant energy, besides market premium and feed-in tariff. The tenant as asset operator receives the tenant energy surcharge for electrical power generated in PV units (applicable to units up to in total 100 kW) which are either on top of or beside his residential building, given that the electrical energy is indeed consumed by an end user within this building. A building is considered a residential building if at least 40% of the building are used for housing purposes (sec. 21 para. 3 EEG 2017 new version).
In line with the systematics from the feed-in tariff model, the overall tenant energy surcharge is computed from the statutory fundings according to sec. 48 para. 2 and sec. 49 EEG 2017, where 8.5 ct/kWh are deducted. The reason for this deduction is that the landlord not only receives the tenant energy surcharge, but also the remuneration from selling the energy to the tenants, but without paying grid fees and related costs. The German government is of the opinion that a unique deduction amounting to 8.5 ct/kWh makes tenant energy models competitive whilst avoiding excess returns.
The regulation regarding the so-called flexible cap (“atmender Deckel”) also applies to the tenant energy surcharge – the remuneration constantly decreases; the higher the growth rate of PV installations, the faster the decrease in the tenant energy surcharge. For 2017 the following tariffs shall apply:
According to the German government, the aforementioned feed-in tariffs will increase the project return of tenant energy models up to a level of at least 5 to 7 percent per year. Obviously, the return will mainly depend on the purchase price to be paid by the tenant to the landlord.
For the energy which is not consumed by the tenant, but fed into the public grid, the landlord receives the feed-in tariff according to the EEG. As the remaining price components do not apply, finally the tenant and the landlord benefit from a tenant energy solution.
Limitation of government funding
Tenant energy models are limited to 500 MW per year. This is implemented in order to avoid that a changing regulatory framework leads to unexpected developments and therefore to higher costs for non-privileged end consumers. The tenant energy surcharge is granted for 20 years from the date of commissioning of the PV plant (sec. 25 EEG 2017). It is only granted for new PV plants, which means for those which are commissioned after the entry into force of the Tenant Energy Act
Free choice of energy supplier
Freedom of contract and free choice of supplier must be granted; therefore, tenant energy supply contract and residential lease contract must in general be separated and concluded independently from each other. The tenant energy supply contract must also include the supply of residual energy, in order to ensure the full energy supply of the tenant. In case of termination of the residential lease contract, the tenant energy supply contract is terminated automatically, with the termination being linked to the return of the flat.
In addition, sec. 42a para. 3 EnWG new version foresees a maximum duration of tenant energy supply contracts of one year. The tenant energy supply contract may not be extended without notification for more than one year and the period of notice may not be longer than three months. Deviating contractual regulation is invalid. This is for the reason that the tenant shall be free to terminate the tenant energy supply contract also in case he is not willing to terminate the residential lease contract.
In order to protect the tenant, the law foresees a maximum price of 90% of the local basic supply tariff. Such a price cap shall avoid a worsening of the economic position of the tenant in comparison to a situation where he is supplied through a basic supply tariff.
Obligations of the landlord
The supply of tenant energy is an energy supply to an end consumer. Therefore, the landlord is obliged to comply with all legal requirements for the provision of end consumers also in case of the supply of tenant energy, unless sec. 42a EnWG new version foresees deviating provisions.
Outlook
The German Bundestag passed the Tenant Energy Act, which is now up to the German federal council. The Tenant Energy Act is expected to come into force in autumn 2017.
However, it has to be noted that the tenant energy surcharge may not be granted before the EU commission has approved the new law under consideration of state aid requirements.
It remains to be seen whether the introduction of a tenant energy surcharge accompanied by the regulatory framework to be implemented by the Tenant Energy Act will lead to an increase of tenant energy models as well as an expansion of PV plants.
It has to be pointed out that a new article has been added to the Tenant Energy Act according to which time-limited changes to the tender procedure for onshore wind farms will be made. In order to avoid that solely publicly funded consortiums (“Bürgerenergiegesellschaften”) are awarded, the facilitations granted by the EEG 2017 to those publicly funded consortiums will temporarily be suspended. This applies in particular to the fact that publicly funded consortiums are currently not required to submit a permit for the plant requiring emission control (“BImSchG-Genehmigung”) when applying for a tender.
1 In the scope of application of the KWKG including the remuneration of energy generated by a block heat and power station, the surcharge is already granted under current rules, whether or not a feeding into the public grid takes place.
Banner and preview image by Andrewglaser at English Wikipedia, CC BY-SA 3.0, Link
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The impact of the German Renewable Energy Sources Act 2017
Author
Dr. Carmen Schneider, DWF Germany Rechtsanwaltsgesellschaft mbH
Dr. Carmen Schneider is a partner and head of energy at DWF Germany Rechtsanwaltsgesellschaft mbH. She advises on all aspects of energy law, specializing in project development, regulatory and M&A transactions in the energy sector.
DWF LLP is a British full-service business law firm with offices throughout Europe, the Middle East and Southeast Asia with a strong focus on the energy sector.
