Microgeneration in Germany (Part 2) – how is it regulated and subsidized?

This regime incentivises and supports the financing of these projects in various ways: 

The regulatory regime consists of statutory duties for certain market participants as well as a ban of certain technologies. The legal framework also provides for incentives through various costs exemptions and provides for privileges for certain business models. Moreover, statutory requirements were introduced to support certain business models and technologies as well as direct funding which is set up in the form of state aids or government-backed loan programs. 

In the last few years in particular rooftop PV installations have become mandatory in many federal states for new-built and renovated buildings under federal law. Such installations could be operated by simply making use of a guaranteed market premium paid by the grid operators for the power fed into the grid or by selling the power onsite to tenants or industrial companies. Mostly, it is a combination of receiving the market premium (based on the Renewable Energy Act – EEG) for surplus power that could not be used on premises. The regulatory framework exempts power generation and distribution within customer facilities behind the meter (e.g. in closed industrial or housing areas) from the system costs (according to the Energy Industry Act – EnWG). This means that any combination of renewable and conventional power generation with the distribution of this power on-site, the integration of EV charging stations, battery storage as well as heat pumps, has become a quite widely used concept. 

These concepts have also been supported by the legal framework for energy efficiency in buildings (according to the Energy in Buildings Act – GEG). This framework provides for buildings to become more carbon neutral by introducing a statutory quota of 65% renewables for the production of heat used in these buildings. Due to the complex statutory requirements for heating and energy efficiency, buildings will be built preferably with renewable electricity run heat pumps, with a connection to district heating networks or based on green hydrogen. There will be a ban on heat production from natural gas from 2045 on. 

Based on the same legal framework, data centre operators in Germany are generally obliged to use their waste heat e.g. by supplying it to a district heating system or other customers in the region. 

Another form of microgeneration is established by the fast growing market of battery energy storage systems (BESS) that are connected to industrial sites in order to facilitate the operator of the industrial sites to lower their grid fees, as their power consumption is stabilised through the use of batteries. Batteries themselves are incentivised through an exemption from grid fees when consuming power from the grid. Batteries are also treated as renewable power plants regarding the market premium whenever they feed power into the grid that was generated by a renewable power plant. The concept of shared renewable power generation onsite is also incentivised for building owners and their tenants by exempting these concepts from energy regulatory requirements related to power supply. 

Another focus area of the German energy regulatory framework is the rollout of smart metering systems. As the German legislator sees big potential in integrating decentralised power generation, EV charging and battery storage into the interconnected grid, they regard the smart metering systems as a key factor to facilitate this integration. The biggest challenge of the German interconnected power system due to the nuclear and coal phase-out (until 2038) is the integration of decentralised power generation into the system. Therefore, the legislator has provided for the statutory installation and fees for the operation of smart metering systems, as well as statutory participation of e.g. heat pump and EV charging station operators in private premises in system measures initiated by the grid operators. 

It is fair to say that the German regulatory framework for any microgeneration project is highly complex, so it is key to determine market roles and relationships between the relevant participants in order to find the right model that can be implemented at the best cost ratio. Nevertheless, once you have navigated through the complexity, in particular microgeneration projects helping decarbonisation in Germany are highly incentivised for a long period of time. 

Look out for our final article in this series exploring microgeneration in Germany, which will be published very soon.

Authored by Dr. Florian-Alexander Wesche.