What’s Next for Germany’s Energy Future? An Overview of the Just Announced Coalition Agreement

After the February election, Germany's energy transition is at a critical turning point. With the just announced coalition agreement between the CDU/CSU (Christian Democratic Union) and the SPD (Social Democratic Party), Germany might be back on track to reach climate goals and recognises the need to reevaluate important energy sector metrics.
 

Key Takeaways

• Climate Protection Goals and Climate Neutrality: The coalition is committed to German and European climate goals and aims for climate neutrality by 2045. The Paris Agreement will be implemented. Climate protection, economic competitiveness, and social balance are to be aligned.
   
• Emissions Trading: The CO2 pricing system will remain a central component of a mix of instruments. Emissions trading is to be advanced both at the European and international levels. Additional countries are to be encouraged to adopt CO2 pricing.
   
• Expansion of Renewable Energies: All potential for renewable energy sources, particularly solar, wind, water, biomass, and geothermal energy, is to be utilised. The expansion should be network friendly. In the long term, renewable energies should be able to fully refinance themselves on the market. A secure investment framework is to be created for the further ramp-up of renewables and storage.
   
• Battery Storage: Battery storage is recognised as being of paramount public interest ("überragendes öffentliches Interesse"). The expansion of storage capacities and the system-friendly use of electric vehicle batteries and home storage batteries are to be fostered. The multiple negative impacts of taxes, levies and charges will be eliminated as far as possible.
   
• Power Plant Strategy and CCS/CCU Plants: An expansion of gas-fired power plant capacity by up to 20 GW by 2030 is planned. Future reserve power plants are not only to be used to avoid supply bottlenecks but also to stabilise electricity prices. A legislative package for the capture and storage (CCS) and the use (CCU) of carbon dioxide specifically for hard-to-avoid industrial emissions and gas-fired power plants is to be enacted promptly. The construction of these CCS/CCU plants and pipelines is to be of paramount public interest.
   
• Network Expansion: The expansion and modernisation of the network will be advanced in a cost-efficient manner and synchronised with the expansion of renewable energies. A single electricity bidding zone (einheitliche Stromgebotszone) is to be maintained.
   
• Energy Prices and Relief: Companies and consumers are to be permanently relieved by at least five cents per kWh. As an immediate measure, electricity tax is to be reduced to the European minimum, and levies and network charges are to be reduced. Electricity price compensation is to be permanently extended and expanded to other sectors. A special relief in form of the industrial electricity price ("Industriestrompreis"), is to be introduced for energy-intensive companies within the framework of state aid regulations. The gas storage levy will be abolished.
   
• District Heating: Federal funding for the expansion of heating networks is to be increased. 
  The AVB Fernwärme Ordinance (AVB-Fernwärme-Verordnung) and the Heat Supply Ordinance (Wärmelieferverordnung) are to be revised and modernised to improve investment conditions.
   
• Hydrogen Economy and Hydrogen Core Network: The development of a hydrogen economy is to be accelerated and designed more pragmatically, using all colours during the ramp-up. Energy partnerships and cross-border infrastructure for hydrogen imports are to be consistently expanded. The hydrogen core network must connect industrial centres throughout Germany, including those in the south and east of the country. This goal is to be achieved by an extended planning with additional pipelines.
   
• Energy Efficiency: Energy efficiency is to be improved through tax incentives and market signals. The Energy Efficiency Act (Energieeffizienzgesetz) and the Energy Services Act (Energiedienstleistungsgesetz) are to be amended and simplified. Energy efficiency targets must not hinder the flexibility of electricity consumption.
   
• Coal-Fired Power Generation: The phase-out of coal-fired power generation by 2038 at the latest will be maintained. The recommendations of the Commission on Growth, Structural Change and Employment created by the Federal Government will be implemented, and the promised structural strengthening funds will be made available in full by the end of 2038.
   
• Investment Framework and Predictability: The necessity of predictable and internationally competitive energy costs is emphasised. Approval procedures for industrial plants and infrastructure projects are to be significantly shortened. An investment fund for energy infrastructure involving public and private capital is to be established.

Implications

• The continued focus on climate neutrality follows from European law, and together with the strengthening of emissions trading indicates a stable political framework for long-term investments in decarbonisation technologies.
   
• The planned measures for cost relief in electricity and the introduction of an industrial electricity price can strengthen the competitiveness of energy-intensive industries.
   
• The expansion of the power grid continues to be the bottleneck in the energy transition. It remains to be seen whether the coalition will address this adequately.
   
• Plans to enable CCS/CCU technology could open new business fields in CO2 capture, transport, usage, and storage.
   
• The continued promotion of the heating transition offers opportunities for investments in energy-efficient technologies and the expansion of heating networks.
   

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