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What is a ‘breathing cap’?
Controlling the expansion of renewable energy
Everybody knows what is meant when we say that something is ‘capped’. Capping expenditure, for example, means keeping it from rising above a certain point. Often, caps are inflexible. The message is that there is a limit that must not be exceeded. However, a ‘breathing cap’ is flexible and adapts according to the quantities involved.
The ‘breathing cap’ is a policy instrument that was introduced with the 2012 Renewable Energy Sources Act and has helped to successfully reduce the feed-in tariff rates for photovoltaics installations. The idea is that at a time when the market is growing fast and when large numbers of renewables installations are being built, feed-in tariff rates will be reduced more quickly than at a time when the market is growing more slowly and smaller numbers of renewables installations are being built.
When the Renewable Energy Sources Act was amended in 2014, this method was transferred to the areas of onshore and offshore wind energy and biomass. The aim of this amendment was to better control the extent to which renewable energy was expanded and to considerably slow down the rise in feed-in tariff rates. The amended Act sets out the extent to which individual technologies such as PV or wind energy may be expanded each year by introducing expansion targets. The feed-in tariff rates are periodically reduced by a fixed percentage value unless – and now the breathing cap comes in – the level of newly installed capacity considerably exceeds or falls short of the expansion target laid down by the Renewable Energy Sources Act. In the event that this happens, the percentage value is adjusted to raise or lower feed-in tariff rates and therefore control the level of installed capacity. Responsibility for adjusting and releasing the feed-in tariff rates lies with the Bundesnetzagentur.
Example 1: Photovoltaics – funding rate remains stable
As far as the funding rates for PV installations are concerned, the breathing cap works as follows: if the number of newly built PV installations remains within the permissible range, feed-in tariff rates are reduced by 0.5 percent each month. If the number of newly built installations exceeds the permissible range, feed-in tariff rates are reduced by a higher percentage value – up to 2.8 per cent each month. If the number of newly built installations falls short of the target, feed-in tariff rates are reduced by a smaller percentage value or are not reduced at all; in some cases, feed-in tariff rates may even be increased.
Since 1 October 2015, the feed-in tariff rates for PV installations have remained stable. The funding rates have not been reduced; the percentage value used for adjusting the rates was zero. This is because in the last two years, the level of PV capacity that was added was around 1,500 megawatts (MW) – below the expansion target of 2,500 MW set out in the Renewables Energy Act. These 1,500 MW in PV capacity correspond to around 50,000 PV installations of varying sizes.
The 2017 amendment of the Renewable Energy Sources Act sets out that the calculation of the breathing cap will be based on the preceding six months rather than on the previous year. This way, the government can respond more quickly to new developments on the market. The latest version of the Renewable Energy Sources Act has also laid down that feed-in tariff rates can be raised more quickly in the event that the level of newly installed capacity falls far short of the expansion target, i.e. if it falls below 1,400 MW.
PV installations that have a capacity of more than 750 kW are required to take part in a competition-based auction in order to determine the feed-in tariff rates they will receive (click here to find out more). Small PV installations that generate less than or equal to 750 kW – including installations built on the rooftops of detached and semi-detached homes – will continue to receive fixed feed-in tariffs rates which are determined by using the breathing cap.
Example 2: Onshore wind energy – funding rate is reduced
Since 1 January 2016, the ‘breathing cap’ has also been used for calculating the level of feed-in tariff rates for onshore windfarms. As the level of newly installed onshore capacity has been permanently exceeding the 2,400 to 2,600 MW expansion target since the beginning of the reference period, feed-in tariff rates have fallen by 6 per cent since the time the breathing cap was introduced. Lawmakers have reacted to this substantial rise is capacity by adopting a new exceptional rule according to which feed-in tariff rates will be reduced by 1.05 percent each month in the time between March and August 2017. From October 2017, feed-in tariff rates will again be reduced on a quarterly basis by using the breathing cap. If, from then on, the level of new capacity is more than 3,500 MW annually, feed-in tariff rates will be reduced by 2.4 per cent per quarter. This means that windfarms that are commissioned in the first quarter of 2018 could see their feed-in-tariff rates reduced to around 7.5 ct/kWh – a drop of more than 15 per cent compared with 2015.
In the future, feed-in tariff rates will no longer be calculated based on the breathing cap, but exclusively via auctions. In order to implement this switch, transitional rules will apply: operators of installations that were approved before the end of 2016 and are commissioned before the end of 2018 have up to 28 February 2017 to decide whether they want to take part in a competition-based auction or whether they want to continue to receive fixed feed-in-tariff rates based on the breathing cap. This year, a total of 2,800 MW in onshore capacity is to be up for auction. The first round of auctions will take place on 1 May 2017 and will be open for operators of installations that have a capacity of or of more than 750 kW.