Potential of the energy transition for investors in Germany – Noerr Insight No 8: Reappraisal after coalition collapses

In our briefing German energy transition: Potential for investors we gave a detailed overview of the opportunities and risks of the energy transition in Germany for domestic and foreign investors. In our series of Insight articles we then looked in detail at the opportunities and challenges in the offshore wind, onshore wind, photovoltaics, renewable energy storage, electricity grids, hydrogen and geothermal energy sectors and examined the legislative plans of the coalition government. Now that the coalition government has collapsed, many of the legislative plans already initiated or in planning have been called into question.

1. Coalition collapse

The coalition collapsed on 6 November 2024. Chancellor Scholz now lacks the FDP votes necessary for a majority in the Bundestag to pass his legislative plans. Further there is no federal budget in place for 2025 either, especially since the key point of contention between the coalition partners was the adherence to the debt cap.

2. Draft amendment to the German Energy Industry Act (Energiewirtschaftsgesetz)

On 13 November 2024 – and thus after the collapse of the coalition – the federal cabinet adopted the draft of an amendment to the Energy Industry Act. The draft is very extensive at 453 pages and contains changes to a large number of laws.

It provides for a change to the Federal Requirements Planning Act (Bundesbedarfsplangesetz) containing 60 additional and eight modified grid expansion plans. A key element of the planned changes is to determine the necessity for the energy industry and the urgent need for the new and modified grid expansion plans. Another important aspect is to identify cross-state and international grid expansion plans governed by the provisions of the German Grid Expansion Acceleration Act (Netzausbaubeschleunigungsgesetz). To this end, specialist federal planning and a uniform federal public works planning procedure are to be established to avoid delays in projects involving several federal states.

In addition, measures are envisaged to help the transmission grid operators guarantee a secure and reliable supply of electricity for end consumers. The new section 13l of the Energy Industry Act lets the transmission grid operators request that operators of power generation plants convert their plants to provide reactive and apparent power and to support local grid stability (instantaneous reserves). The draft also contains arrangements for securing and checking the controllability and visibility of power generation plants including energy storage facilities for the grid operators’ system security measures.

The draft amendment to the Energy Industry Act also contains numerous provisions regarding the issue of temporary generation surpluses. In particular, there is a plan to gradually reduce the direct marketing threshold over three years to 25 kilowatts of installed capacity.

However, it is uncertain whether the legislative process can be completed before the parliamentary elections, as the governing coalition of SPD and the Greens would need the support of the opposition. The draft amendment also includes adjustments to the amended Electricity Directive, which must be transposed into national law by 17 January 2025. It is therefore conceivable that a slimmed-down version of the legislative package, focusing for example on implementing the EU requirements, might still find a majority, although there is currently no concrete indication of this.

3. Other legislative plans

Besides the amendment to the Energy Industry Act, other legislative plans are in the legislative process, but it is now uncertain whether they will be completed.

Some of the legislative plans are driven by European legislation and would have to be pursued by the next federal government too. For example, the Renewable Energy Directive (RED III) has to be transposed into national law by 21 May 2025 as a general rule. On 29 April 2024, the federal government presented a bill to implement the Renewable Energy Directive in wind power and electricity grids and to amend the Federal Requirements Planning Act and on 24 July 2024 a bill to implement RED III in onshore wind power and solar power including the related energy storage facilities. Both legislative plans have not yet been completed.

In September, the federal government also presented key points for a power plant safety law to implement the power plant strategy, including tenders for the construction and conversion of gas-fired power plants into hydrogen-capable gas-fired power plants. Since building a gas-fired power plant takes some time, the new federal government will face the challenge of enabling tenders to be issued quickly if the (hydrogen-capable) gas-fired power plants are to be available in time as a transitional technology. The ministerial draft is reported to be already available, and the federal government had planned to submit it to the cabinet this year.

A draft amendment to the German Carbon Dioxide Storage Act (Kohlendioxidspeicherungsgesetz) has already been discussed in a public committee hearing. A draft of the German Hydrogen Acceleration Act has also already been heard by the Committee for Climate Protection and Energy.

4. Outlook

Achieving climate targets and implementing certain EU requirements in this area is a matter of urgency. However, it will be some time before a new government can address the pressing challenges after the new elections, which are set to take place on 23 February 2025. In particular, given the substantial investment required for the energy transition to succeed, the new federal government will face the challenge of quickly driving forward the corresponding legislative proposals and producing the 2025 federal budget, while reconciling the financing requirement with the debt cap laid down in the German constitution.