Has Germany Proven That Auction Schemes Can Work For Community Energy?

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By Franziska Mey, Nicky Ison and Jarra Hicks, Community Power Agency

Germany is one of the pioneering countries for citizen-owned energy  —  which refers to communities who set up and operate wind turbines, bioenergy, or solar PV projects. One reason for this success story was the instauration of the feed-in tariff policy for renewable energy. Yet, three years ago the German Government decided to move to a reverse auction approach to foster efficiency. After five years of policy development and tendering, the results of the first auction for onshore wind energy in Germany were eagerly awaited. For most of the proponents, the results came as a great surprise. The majority of bids were awarded to citizen-owned energy projects (Bürgerenergiegesellschaften).

Since 2014, when the reform process of the German Renewable Energy Act was proposed, the reform has been widely criticized by proponents and advocates of community energy projects, which number well over 1,000 across Germany. Community energy advocates feared that smaller community actors would not be able to compete with large corporate investors in the tender process.

Meeting the challenges associated with auction schemes

These concerns were not without reason. Government tender processes are widely regarded as inadequate while locking-out a range of actors including community initiatives. This is mainly owed to the fact that the principles of a tender process contrast greatly with the very nature of community energy project. Auction processes are highly competitive to allow for an efficient and cost effective deployment of large scale projects in which economic performance is the principal concern. Initiatives by communities, small businesses and farmers are typically collaborative, based on local social and environmental values and value, rather than maximizing economies of scale.

Thus, it was not without struggle that community stakeholders in Germany saw their needs finally reflected in the new policy framework. They achieved exemptions for smaller wind energy projects owned by local citizens, which simplified the initial planning process. In particular, the exemptions minimized the risk of community actors bearing high up-front costs associated with the planning process, without guarantee of success in the auction process. This resulted in a high competition in the auction, in which 70% of the total 256 bids came from community energy projects.

Community label: what is it good for?

The surprise by the community energy proponents was significant since the first five auctions for free standing solar PV resulted in only 15% of the bids coming from community energy cooperatives.

The greater success of community wind over community solar, can at least be partially explained by the long tradition of community wind in Germany. The first projects were installed in the late 1980s and since then the community wind sector has matured significantly. The sector was well assisted by a stable policy environment with favorable grid connection regulation and feed-in-tariffs for over 20 years. Apart from the environmental motivations, the socio-economic benefits of community driven wind energy projects has gained wide acknowledgment and interest. A recent study from Hessen, Germany found that wind energy projects initiated and developed locally can deliver eight times the value to a local community than a project exclusively delivered by an external developer.

However, voices of caution have also been raised. The Renewable Energy Act considers a new definition for community wind projects, which requires 51% of the voting rights reside with community members in the local area of the proposed project. This requirement is a good step in the right direction, but there are some questions as to how ‘community’ these successful community wind projects actually are. The association of community energy projects and NGOs, Bündnis Bürgerenergie, and Greenpeace Energy are suggesting that all projects that identified themselves as community owned should be scrutinized and determined if they can actually live up to the expectations of localized participation and benefit sharing. The critics point out that possible loopholes in the law might allow large investors to misuse the opportunity offered to community actors.

Hence a more detailed analysis is required to ultimately see if community energy was successful under the auction mechanism or if these projects are corporate wind projects masquerading as community energy.

Auction schemes more closer to home

In Australia the reverse auction mechanism is becoming increasingly popular as a policy to support renewable energy deployment. The first jurisdiction to introduce this policy mechanism was the Australian Capital Territory Government for wind and solar energy, which included a subset of the auction being set aside for 1 MW of community solar. In addition, all tenders were required to demonstrate their approach to community engagement and benefit sharing, where in community co-investment and co-ownership would be viewed favorably.

The Victorian Government is also considering an auction scheme to deliver their ambitious 40% renewable energy target. Public acceptance is essential for the timely delivery of renewable energy targets. Hence, ways to increase social support need to go hand-in-hand with other transition efforts. Participation and ownership are ways of supporting local communities to equally share in the benefits of the clean energy transition. However the community energy sector in Australia is still in early stages and will find it hard to compete with well-established corporates in an auction environment. Therefore a number of NGOs advocate for a carve-out of any reverse auction scheme or target for community energy projects, as well as a means to assess the social value of all tender applicants. In this context, the German example might provide some regulatory measures under an auction scheme that help local communities to partake in the energy transition.

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