Mayer Brown LLP is a limited liability partnership established under the laws of the State of Illinois, U.S.A.Mayer Brown LLP ist eine Partnerschaft mit beschränkter Haftung nach dem Recht des Staates Illinois, U.S.A.

The German Renewable Energy Act – 2009

Chances & Risks under the Scope of an European Front-Runner

Dr. Marius BoeweCounsel+49 221 5771 233mboewe@mayerbrown.com

2

Overview

• Introduction and background information

• History of current Renewable Energy Act (EEG)

• Operation mode of EEG

– Energy sources

– Feed-in tariffs

– Burden sharing

• Case study

Background Information

3

Shares of renewable energy sources among total final energy consumption in Germany 2009

RES share 200910.1 %

Hydropower0.8 %

Wind energy1.6 %

Biomass2)

7.0 %Other fossil energy resources (e.g. hard coal, lignite, mineral oil, natural gas) and nuclear energy

89.9 %

Other renewables0.7 %

RES - Renewable Energy Sources; )solid, liquid, gaseous biomass, biogenic share of waste, landfill and sewage gas; Deviations in the totals are due to rounding;Source: BMU-KI III 1 based on Working Group on Renewable Energies-Statistics (AGEE-Stat) and the Centre for Solar Energy and Hydrogen Research Baden-Württemberg(ZSW), according to Working Group on Energy Balances (AGEB); all figures provisional

Background Information

4

Structure of final energy supply from renewable energy sources in Germany 2009

Wind energy15.9 %Biogenic fuels,

electricity12.8 %

Photovoltaics2.6 %

Geothermal energy2.1 %

Solar thermal energy2.0 %

Biogenic solid fuels, heat

42.4 %Biofuels14.2 %

Hydropower8.0 %

Biomass (total)*, including biofuels: 69 %

Total: 237.8 TWh

,

* Solid, liquid, gaseous biomass, biogenic share of waste, landfill and sewage gas; Source: BMU-KI III 1 according to Working Group on Renewable Energies-Statistics (AGEE-Stat); all figures provisional

Background Information

5

Development of electricity generation from renewable energy sources in Germany 1990 - 2009

0

20,000

40,000

60,000

80,000

100,000

120,000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Elec

tric

ity g

ener

atio

n [G

Wh]

Hydropower Wind energy

Biomass * Photovoltaics

EEG:April 2000

EEG:August 2004

StrEG:January 1991 - March 2000

EEG:January 2009

Amendment to BauGB:November 1997

* Solid, liquid, gaseous biomass, biogenic share of waste, landfill and sewage gas; Electricity from geothermal energy is not presented due to the negligible quantities of electricity produced; StrEG: Act on the Sale of Electricity to the Grid; BauGB: Construction Code; EEG: Renewable

Energy Sources Act; Source: BMU-KI III 1 according to Working Group on Renewable Energies-Statistics (AGEE-Stat); Image: BMU / Christoph Edelhoff; all figures provisional

European Background

• Dec.2008: Political agreement on the Renewables Directive• 11.-12. Dec. 2008: EU summit agrees final version of the

Renewables Directive (2009/28/EG)• 30. June 2009: EU issues template for National Renewable Energy

Action Plans (NREAPs)• 30. June 2010: Deadline for EU states to present National

Renewable Energy Action Plans• 2020: Target date for EU objective of sourcing 20% of energy from

renewable sources

6

Europeanwide Comparison of Shares in Renewable Energies by Member States

7

History of Current Act

• 1991: Renewable Energy Input Statute (StromeinspeisungsG)

– First steps to guarantee feed-in of renewable energy producers

– First legally guaranteed feed-in tariffs

– Only profitable for wind power

• 2000: Renewable Energy Act 2000

– Increasing the scope of reneweable energy sources

– Raising the feed-in tariffs

• 2004: Renewable Energy Act 2004; and

• 2009: Renewable Energy Act 2009

– Adjustments on tariffs, periods of sponsorship and degressions

– 1 sec. 2 EEG 2009: by 2020 share of renewable energy sources shall at least amount to 30 percent

8

Operating Mode of EEG

9

Legally guaranteed feed-inof entire produced powerinto power grid and legallyguaranteed feed-in tariff for20 years to be paid by grid-operator

Operator of reneweable energy production plant, e.g., windmill

Power grid

End consumer

„feed-in tariff " to be paid by end consumer as renewable energy contribution

Renewable Energy Sources Sec. 3 No. 3 EEG

• Hydropower (including wave power)

• Tidal power

• Salt gradient and flow energy

• Wind energy

• Solar radiation

• Geothermal energy

• Energy from biomass (incl. biogas)

• Landfill gas and sewage treatment gas

• Biodegradable fraction of waste

10

Feed-In Tariffs

Feed-in tariffs depend on:

– Renewable energy sources

– Year of commissioning

– Capacity of power plant

– Degression

11

12

• Hydropower:

• No degression; no difference in year of commissioning

Examples of Feed-In Tariffs

Capacity up to 500kW 500kW-2MW 2MW-5MW

12.67 ct/kWh

8.65 ct/kWh 7.65 ct/kWh

Examples of Feed-In Tariffs

• Offshore wind energy:

– Degression rate until 2014: 0.0 %; from 2015: 5%; duration of tariff payment: 20 years

13

Initial tariff in ct/kWhfor first 12 years

Early bird bonusduring initial tariffperiod

Basic tariff in ct/kWh

2009 13 2 3.5

2010 13 2 3.5

2011 13 2 3.5

2012 13 2 3.5

2013 13 2 3.5

2014 13 2 3.5

2015 12.35 1.90 3.33

2016 11.73 0.0 3.16

2017 11.15 0.0 3.00

2018 10.59 0.0 2.85

Burden Sharing under the EEG

• Grid operator is obliged to

– Accept entire amount of renewable energy

– Pay legally guaranteed feed-in tariff

– Sell renewable energy at spot market

• Grid operator is allowed to

– Pass through difference between paid feed-in tariff and earned profit to end consumer („renewable energy contribution“)

14

Requirement for Compensation Mechanism for Practical Reasons

15

Consequence: Equalisation Scheme

16

Energy provider

Operator of RE plant

Local grid operator

Transmission grid operator

End consumer

Nationwide equalized RE contribution

Energy

Tariff

Energy

Energy

Energy price, including RE contribution (currently 2,047 ct/kWh)

Tariff

Selling RE at spot marketEqualisation amongst transmission system operator

Case Study

• Client runs biomass plant, revenue has been calculated on basis of EEG, which defines all relevant figures for 20 years.

– Basic tariff + energy crops bonus (for using plants/parts of plants from agricultural operations, have not been treated or modified in any way)

• Calculated investment : 4.72 Mio €

• Calculated earnings by selling EEG-power: 1.275 Mio € (p.a.)

17

Case Study

Biomass plant originally used saw mill as energy source

• Issue: saw mill waste ≠ energy crop

• Client reaction: import of silvicultural waste from Netherlands

• Problem: very high proportion of soil/sand soil/sand outweighs wood 4-5 times

• Consequences: - as waste is delivered on m³ basis and paid by weight, client paid for 450 kg/m³ instead of 400 kg/m³

12 % higher costsmore waste required

- sand melts in plant and slags mechanismFurther consequence:

• maintenance must be conducted 4 times a year (instead of 1 time)

• each maintenance lasts 1 week (additional costs)

• missing feed-in tariffs 100,000 € (p.a.)

18

Case Study

• Client reaction: change of supplier

• Problem: new supplier (inter alia) contaminated wood (tar, plumb , etc. )

• Consequences: -Client loses energy crops bonus (225,000 € p.a.)

-Client loses guarantee and warranty of plant for using improper fuel (sand, tar, etc. )

-Client violates various laws and was fined for:

-Unlawful operation of plant

-Unlawful combustion of contaminate waste (tar)

Actual Investment: 5.30 Mio € (+580 t € difference)

Actual EEG-earnings: 0.855 Mio € (-420 t € difference)

19

Contact

Dr. Marius BoeweCounsel, CologneT.: +49 221 5771 233E.: mboewe@mayerbrown.com

20