Renewable energy in Germany

The expansion of renewable energies plays a central role in Germany's energy transition (Energiewende), aiming to combat climate change, ensure a sustainable energy supply and reduce its dependence from fossil fuel imports.  

Solar energy stands out as one of the leading technologies. By the end of 2022, Germany had an installed photovoltaic capacity of 67 GW with an additional installed capacity of 7.5 GW in the first half 2023. Growth in the solar sector is observed in various segments, including home solutions, plants on commercial real estate, and larger ground mounted plants, both with and without financial support. 

Another crucial sector in the German renewable energies mix is wind energy with an installed generation capacity of 66,2 GW at the end of 2022, encompassing both onshore and offshore wind farms. Onshore growth had slowed down due to planning restrictions, length of permitting procedures and other factors. However, numbers are on the rise again, as a result of the gas crisis in 2022, increased electricity prices, and legislative changes aimed at expediting permitting procedures. The sector witnessed growth of 1.5 GW in the first half of 2023, following a total growth of 2.1 GW in 2023.  

Biomass and hydro power play a comparatively smaller role in electricity generation, contributing less than 10 % to the total installed capacity of renewable generation plants. 

Germany has established an extensive legal and regulatory framework to support the expansion of renewable energies. The Renewable Energy Sources Act (EEG) together with the Offshore Wind Act (WindSeeG) serve as central instruments, promoting renewable energies through financial incentives, priority grid connection, and off-take obligations.  

Germany remains dedicated to its commitment by upholding ambitious goals for the expansion of renewable energies and the reduction of greenhouse gas emissions. This determination has gained further momentum since the Green Party's return to government in 2021 and the gas crisis in 2022, reinforcing its efforts to expedite the energy transition. 

Germany is experiencing a considerable increase in the demand for renewable energies, driven by a number of factors that collectively contribute to the nation’s transition towards a more sustainable and cleaner energy system. 

One significant driver is the implementation of the Coal Exit Act of 2022, which outlines the roadmap for a gradual phase-out of coal-based power generation by 2038. To support the transition, the government has introduced financial incentives aimed at encouraging coal plant operators to shutdown their facilities ahead of schedule. There are discussions in the public domain to accelerate the coal phase-out even further. 

Moreover, Germany's decision to phase out nuclear power due to concerns about safety and the long-term management of nuclear waste, resulted in the decommissioning of the last nuclear plants in April 2023. The German government had originally planned to fill the corresponding gap in power supply with both gas imports and the expansion of renewable energies.  

Consequently, the reduction and eventual cessation of gas imports from Russia in 2022 further spurred the demand for renewable energies in Germany. The political and environmental concerns, including dependence on fossil fuels and geopolitical tensions, have increased the focus towards reducing reliance on fossil fuels and promoting renewable energy sources, not only for the purpose of climate action, but also to enhance security of energy supply. As a result, legal changes have been implemented in 2022 and 2023 and further changes are planned to expedite the growth of renewable energies and support the generation and use of green hydrogen as an alternative to natural gas and coal. 

Green hydrogen is expected to be pivotal in the future energy landscape of Germany. It offers a clean and versatile fuel source, particularly for sectors difficult to electrify, such as heavy transport and industrial processes. Furthermore, the German government is exploring the introduction of so-called Carbon Contracts for Difference. This initiative aims to support industrial companies investing in climate-friendly production facilities that might otherwise lack profitability, such as those in the steel, cement, paper or glass industries, which may also comprise green hydrogen. The demand for green hydrogen adds yet another dimension to the demand for renewable electricity. 

Lastly, Germany pushes for e-mobility. The government has implemented various measures to promote electric vehicles (EVs) and the necessary charging infrastructure. As more individuals and businesses adopt EVs, the demand for renewable electricity has surged to meet the growing charging needs of EVs, and therefore contributing to a cleaner and more sustainable transportation sector. 

The changes in the legal framework promoting offshore wind energy are a key recent development in the German renewables market. Commencing from 2023, the revised Offshore Wind Act (WindSeeG) has firmly established specific targets for offshore wind energy, aligning with Germany's Energiewende initiative: (i) achieving an installed capacity of 30 GW from offshore wind turbines connected to the grid by 2030; (ii) progressing to 40 GW by 2035; and (iii) setting a more ambitious goal of 70 GW by 2045. This would amount to a significant increase from end of 2022, where the installed capacity amounted to roughly 8 GW. 

The general concept for offshore wind is to tender specific offshore areas for the construction and operation of offshore wind farms. This includes, amongst others, the designation of geographical coordinates and dimensions, the determination of capacity limits, and certain financial conditions. A tender award thus covers aspects of the permit, the grid access, and (if applicable) financial support under the EEG. 

The development and deployment of larger and more efficient wind turbines have improved the overall efficiency and cost-effectiveness of offshore wind energy. While tenders for offshore wind projects were won by the bidders claiming the least financial support (i.e. bidding the lowest guaranteed tariff), it has become more common in the past years for bidders to submit zero-support bids in offshore wind tenders. This means bidders are willing to forego a guaranteed payment for the produced electricity, and therefore effectively accepting to bear the market risk. In anticipation of the rise in zero-bids, Germany amended the Offshore Wind Act to incorporate a mechanism for scenarios in which more than one zero-bid is submitted for the same project area. 

In July 2023, the Federal Network Agency started its so far largest tender to date for offshore wind farm areas under the new rules. The tender included three areas in the North Sea each with a capacity of 2,000 MW, and one area in the Baltic Sea with a capacity of 1,000 MW. As anticipated, the first bidding round ended with several zero-support bids for the relevant areas. The amended Offshore Wind Act stipulates for such a scenario that a second round of bidding follows where only bidders who submitted a zero-bid are eligible to participate. In this round, the bidders do no longer compete for the lowest amount of financial support. Instead, their bids reflect the amount they are willing to pay in order to be awarded the respective area and capacity. The winning bids for the three areas in the North Sea and the one in the Baltic Sea remarkably resulted in commitments to pay a total of 12.6 billion euros in exchange for the award. The wind farms are planned to be operational by 2030. 10 % of the proceeds from these offshore tenders have to be paid within one year and will be used for marine nature conservation and the promotion of environmentally friendly fishing. The remaining 90% will be disbursed in equal annual installments over a span of 20 years to the transmission system operator obligated to provide the connection. It shall serve to reduce electricity costs, especially to finance the necessary transmission system expansion, and therefore reduce the burden on grid fees. 

Another significant development in Germany's renewables market is the increasing prominence of photovoltaic solar power, both rooftop and ground-mounted. Alongside onshore wind, solar plants have been expanding, which has been driven by falling costs, technological advancements, and supportive government policies. According to the EEG 2023, the installed solar capacity is projected to triple, reaching a remarkable amount of 215 GW by 2030, and even to 400 GW by 2040. 

Against the background of the necessary acceleration of the energy transition, “compulsory solar” is gaining traction: The federal government's political program – the coalition pact – stipulates that all suitable roof surfaces should be used for solar energy in the future. Some installations are voluntary, while others are rooted in legal obligations, as an increasing number of federal states modify their planning laws to mandate solar plants for the rooftops of new or significantly renovated commercial properties. Homeowners, commercial and industrial property owners, and even municipalities have been installing solar panels on their rooftops to generate clean electricity, fulfill ESG goals and reduce their dependence on fluctuating market prices.  

Both the federal government and several federal states have implemented legislative changes to support the expansion of solar energy. The first larger federal state to introduce “compulsory solar” was Baden-Württemberg in 2022, requiring all new buildings, whether residential or not, to install a solar plant. Since 2023, the solar obligation also applies to roof refurbishments for existing buildings. Other federal states already have introduced or are expected to introduce similar obligations, commonly with a more limited application, for instance, obligations only to public or commercial buildings. It is uncertain if “compulsory solar” will be expanded nationwide by federal law in the near future. 

At the federal level, both planning law and the EEG have been amended to support the expansion of rooftop and ground-mounted solar energy. To incentivise investments in rooftop solar, i.e. the guaranteed tariff under the EEG has been increased, and only solar plants with a capacity of 1 MW or more are required to participate in tenders to secure a guaranteed tariff. Increased remuneration for solar plants that completely feed into the grid incentivises investments in cases were on-site consumption is not feasible. In terms of urban planning, the construction and operation of solar plants are now considered of “paramount interest” (vorrangiger Belang), meaning these activities are now in the public interest and serve the public safety. As a result, they benefit from priority over the concerns of monument protection (Denkmalschutz). 

In parallel, regulatory changes have also impacted ground-mounted solar plants. For example, adjustments were made to the maximum bid amount for tariffs bid in tenders, and the Federal Network Agency, the relevant regulatory body, was granted increased flexibility for further adjustments. For tenders in 2023, the maximum size of solar projects permitted to participate in tenders has been increased from 20 MW to 100 MW. In addition, the scope of areas eligible for ground-mounted solar plants broadened. For example, the areas along motorways and railways on which solar plants can be installed have been extended from 200 to 500 meters, and new categories of areas have been introduced, including: Agri-PV, car park PV, floating PV and so-called peatland PV (drained agricultural land on former peatland soils to be permanently rewetted). Similar to the above, ground-mounted solar now also benefits from priority within the context of planning law.