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Germany’s Renewable Energy Landscape: The new “Traffic Light” government and its ambitious energy agenda

After the federal elections at the end of September, the winning Social Democratic Party had to unite with other parties in order to reach 50% of the Parliamentary seats required to form a ruling government. Recently, the SDP, Green, and Free Democrats—or so-called “Traffic Light Coalition”—released a joint agreement entitled “Daring more progress. Alliance for freedom, justice and sustainability” (in German). In this article, we will summarize the primary provisions in the agreement that could significantly affect renewable energy suppliers and consumers over the next four years.

1. More aggressive renewable energy targets

The Coalition agreement has set limiting the average temperature increase to 1.5°C as a central pillar of the new policy and considers renewable energy the most viable pathway to achieving this.

As expected, the Coalition recently announced more aggressive renewable energy targets:

To drive onshore wind, the government plans to dedicate 2% of government-owned land to erect new wind turbines. This is expected to simplify the repowering of existing onshore wind farms, as well as removing regulatory barriers.

Renewable energy will also play a significant role in heating, as the government has set a goal for every new heating system to be operated with 65% renewable energy sources.

2. Coal phaseout and hydrogen

With significant focus on climate, the new coalition is aiming to shutter all coal plants by 2030 as opposed to the original target date of 2038. To bridge the gap created by the drop in energy supply, the new government has proposed using natural gas as well as building gas infrastructure that can be used for hydrogen once the technology is developed.

Hydrogen development plays a significant role in the energy transition. Together with more ambitious targets on hydrogen capacity, the new government is planning to develop the hydrogen economy for sectors that cannot be electrified.

3. New buildings and large energy consumers

Large energy users will be impacted by these energy reforms. As an example, all new privately-owned buildings will be required to install solar PV on rooftops. Additionally, all new buildings will have to acquire a digital “buildings resource passport” in order to increase sustainability of buildings and to drive a circular economy in the buildings sector. Beyond this, the government supports a CO2 price increase to push energy users to find lower carbon footprint solutions for their operations. At the same time, the new government will support low-income residents and provide social compensation.

The new “traffic-light” government is shifting part of the responsibility for these renewable energy reforms to large energy consumers. The coalition agreement states that governmental support around renewable energy will phase out once all coal plants are taken offline. The EEG levy that is currently paid by energy consumers and that subsidizes renewable energy projects will also be cancelled beginning January 1, 2023. Power Purchase Agreements will be the key tool for achieving these new renewable energy goals.

This will be supported by facilitating and streamlining the permitting processes for new renewable energy projects across the country, as well as maintaining competitive electricity prices for industry.

With the fast-evolving energy and regulatory landscape, businesses will need to make some important decisions in the months and years ahead. Contact us to learn more about how these new policies may affect your business and your renewable energy strategy in Germany.

Find out more about the future of the German renewable energy market in our recent blog!