Coalition in Progress, Energy in Transition: What’s next for Germany’s power future?

Authored by:

Sarah Schoch —Research Associate

Reviewed by: 

Claudia Günther—Research Lead and Nicolas Leicht—Advisory Project Leader

Introduction

Following the February elections, Germany’s energy transition stands at a pivotal crossroads. The preliminary coalition agreement between the Christian Democratic Union (CDU/CSU) and the Social Democratic Party (SPD) reaffirms Germany’s climate targets and acknowledges overdue re-evaluations of key power sector metrics. While a decisive push for renewables expansion shall continue and the commitment to market-driven investments in renewables is promising, certain policy intervention plans—particularly regarding thermal assets—risk distorting market dynamics and deterring efficient investment. Striking the right balance between regulatory guidance and market forces will be crucial for achieving a resilient energy transition.

Re-evaluating Energy Targets: A Pragmatic Reality Check

One of the coalition’s initiatives is to reassess Germany’s energy transition milestones—a necessary step in ensuring that policy remains grounded in economic and technical realities. Current renewables expansion plans are based on the assumption that electricity demand will reach 750 TWh by 2030. However, factors such as the economic recession following COVID-19, slower-than-expected industrial electrification, and delays in sector coupling have led to lower-than-anticipated demand growth.

Revising renewables buildout milestones in response to subdued demand projections is a pragmatic step, but it should not come at the expense of lowering decarbonisation ambitions. This reality check should, rather, ensure that Germany’s energy policies remain adaptive and responsive to real-world developments and ultimately contribute to a more resilient and cost-effective energy transition.

While adjusting milestones sets the framework, the regulatory environment ultimately determines the trajectory of the energy transition. Noteworthy in this regard is the large emphasis on market-based financing mechanisms in the soon-to-be coalition government’s strategy. While the previous government increasingly integrated market elements into the EEG, a quarter-century after the launch of this influential renewables subsidy scheme, a significant portion of the renewables fleet remains largely shielded from market exposure.

Increasing reliance on market-based financing could reduce subsidy dependence and allow for greater market exposure which could encourage more system-friendly dispatch behaviour. However, the specifics will be crucial, and it remains to be seen how concrete measures will take shape. There are two promising avenues for strengthening market-based financing: the first being the long-overdue revamp of the EEG subsidy scheme that needs to be in place by 2027, and the second being the potential introduction of government guarantees for power purchase agreements (PPAs).

Lower Power Prices Through Reserve Plants: A Market Distortion

Despite a commendable market-oriented approach to renewables, the coalition’s stance on thermal energy raises concerns. The proposal to allow reserve capacities to participate in the wholesale market, alongside the plan to add 20 GW of new gas-fired power plants by 2030, introduces significant risks to long-term market stability... ↙️

Read the full commentary on our website ➡️ 

Product Updates:

Authored by: Johannes Maywald

Renewable Delays: A Risk for Batteries with a Silver Lining 

Investment in renewable energy sources (RES) and battery storage is booming, but decisions today hinge on an uncertain future. While governments set ambitious decarbonisation targets, real-world challenges such as grid constraints, permitting delays, and supply chain issues may slow deployment. 

A common concern among investors is whether slower RES deployment will reduce the value of battery investments, which rely on market volatility. The answer is not straightforward, as there are different effects at play that may partially offset each other: reduced volatility, less congestion, and increased prices.

➡️Read the full blog post here—powered by the Origin-Chronos Integration.

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