After the German federal government break-up in November 2024 and the new elections in February 2025, the political parties – Christian Democratic Union of Germany (CDU)/ Christian Social Union in Bavaria (CSU) and Social Democratic Party of Germany (SPD) – that are likely to form the new German government for the next four years published a draft coalition agreement (the Coalition Agreement) on Wednesday, April 9, 2025.
Such Coalition Agreement is a typical instrument in German politics setting forth political guidelines for the new government’s policy program for the four-years legislative period until the new regular elections. CDU, CSU and SPD are letting their members vote on whether this Coalition Agreement should be concluded – the vote is to be completed by the end of April 2025.
Regarding climate and energy, the Coalition Agreement raises numerous points and is overall promising but stays very vague at the same time. The Coalition Agreement contains many general commitments without going into any technical details yet – in particular, it does not specify on how the new EUR500 billion special infrastructure fund is going to be used and what sectors or projects may benefit (most) from this enormous amount of public capital.
Please find below a summary and assessment of the key aspects of the Coalition Agreement in the area of climate and energy:
1. Climate protection
The Coalition Agreement commits to climate targets, particularly the goal of climate neutrality by 2045. Insofar, it sticks to the principles established by the previous government.
Further, the Coalition Agreement states that the European interim climate target for 2040 of a 90% reduction compared to 1990 levels is supported. However, three conditions are formulated for this: (i) the EU targets should not exceed the German climate target for 2040 (i.e. minimum 88% reduction until 2040), (ii) negative emissions should also be credited to a limited extent, and (iii) CO2 reductions in non-European countries should be credited (but no more than three percentage points of the 2040 interim target). At the EU level, discussions will therefore continue on whether and how the 2040 target can be maintained.
At the same time, the agreement discusses the use of hydrogen of all colors (i.e. green, turquoise, blue, and grey hydrogen), 20 GW of new gas-fired power plants, and gas-fired power plants with CCS. The extent to which these plans are compatible with climate neutrality remains unclear. The funding of gas-fired power plants, in some cases in conjunction with also costly CCS processes, also does not seem to align with the plan to reduce energy costs.
The Coalition Agreement emphasizes that global warming is a global problem that can only be solved together. This could be interpreted to reflect the new government’s intention not to increase Germany’s contribution on global climate protection and to focus on climate action coordinated on a European or global level father than storming ahead with separate national measures.
2. BESS
Support of system-beneficial (systemdienliche) BESS projects
The Coalition Agreement generally commits to supporting the further expansion of storage capacity benefiting the electricity system and market. Development of large-scale Battery Energy Storage Systems (BESS) will be supported and incentivized only if developed at system-beneficial locations. This seems to mark a shift from the current approach where the development of BESS remains largely unregulated with no specific incentives for system-beneficial location of new BESS projects.
However, it remains unclear which criteria apply for the characterization of projects as grid- or system-beneficial. Further, it is puzzling that these terms are used largely interchangeably in the Coalition Agreement. The important role that grid operators could play in determining whether a BESS is system-beneficial and therefore the grid operators’ increased influence on the expansion of BESS and renewables projects in general is viewed critically in the market. It is to be expected that the question of whether and when a BESS is system- or grid-beneficial will become a core issue in the coming years.
Privileged status of BESS in outskirt areas (Außenbereich)
In addition, the Coalition Agreement sets forth that co-location projects, i.e. BESS in connection with other privileged renewable energy generation plants, are to be privileged under construction planning law. Considering that it has already been discussed whether to award a privileged status to grid-beneficial (netzdienliche) BESS in general, it is not clear from the Coalition Agreement if the planned privileging of co-location projects entails that a general privileging of BESS in outskirt areas is off the table.
Privileging co-location projects would (at least ultimately) hopefully result in meeting the corresponding industry demands to expand the legal provision special privileging of green hydrogen projects in sec. 249a of the Federal Building Code (Baugesetzbuch – BauGB) so that the privileging also encompasses BESS.
Costs
The Coalition Agreement does not contain any specific statements on financial or regulatory issues such as construction cost contributions (Baukostenzuschuss), grid fees, etc. The agreement merely states in general terms that the multiple burden for BESS in the form of taxes, levies and grid fees should be abolished as far as possible.
Other
Further, BESS shall be awarded the status of being of significant public interest (überragendes öffentliches Interesse). This should, however, not have any practical effect as BESS already have been assigned such status pursuant to sec. 11c of the German Energy Industry Act (Energiewirtschaftsgesetz –EnWG).
3. EEG reform
The Coalition Agreement remains rather unclear regarding public funding for renewable electricity but clearly states the intention to discontinue any subsidies in the long term. In the future, renewable energies should be able to fully refinance themselves on the market.
For the further ramp-up of renewable energies and BESS, a secure investment framework together with a simultaneously increased integration of market-based instruments is planned.
This will probably entail a reform of the Renewable Energies Act (Erneuerbare Energien Gesetz – EEG) which, however, would have been necessary in any case regardless of the new government's intentions in this respect, as the current authorization of this regulatory regime under European state aid law will expire at the end of 2026. At EU level, the overall focus regarding renewable energy subsidies is on contracts for difference. It is therefore to be expected that the EEG will also be amended in this regard.
4. Wind energy
Area target (Flächenziel)
The area targets are to remain in place until 2027. This means that the federal states will be given area targets ensuring that a total of 1.4% of the national territory is designated for wind energy. However, the target for 2032, i.e. the 2% area target, is to be evaluated. The at least temporary abolition of the 2% area target is viewed critically, as the area target has led to a significant increase in the availability of land for wind energy. Moving away from the 2% target creates procedural uncertainty for planning authorities and could create false incentives for those federal states that have so far been reluctant to designate land for wind energy.
The Coalition Agreement emphasizes that an effective steering effect of wind energy areas (Windenergiegebiete) should be ensured as it is vital for local acceptance of onshore wind energy projects. However, it is unclear whether this means that the new government intends to modify the steering model (Steuerungsmodell) again. The Coalition Agreement is not clear on this point: on the one hand, it could be interpreted as meaning that municipalities should be re-granted their own planning authority in this regard. On the other hand, however, the Coalition Agreement sets forth that the current framework should remain in place.
Grid expansion
According to the Coalition Agreement, it should be examined whether the synchronization of grid expansion and wind energy expansion could be improved by designating temporary bottleneck areas (befristete Engpassgebiete). This could give grid operators more time for required grid expansion and slow down the expansion of wind energy. Ideally, the cable pooling option introduced in February 2025, i.e. the possibility to connect more feed-in capacity to a grid connection point than the grid connection point’s capacity, can prevent a delay in the expansion of wind energy in most cases.
RED III
The Renewable Energy Directive (RED III) is to be implemented swiftly. RED III is intended to simplify and streamline permit procedures in the renewable energies sector. Corresponding measures were already introduced in December 2022 with the EU Emergency Regulation, but these were limited in time. With RED III, the streamlined procedures are being perpetuated and expanded. The current implementation of the EU Emergency Regulation expires at the end of June 2025. However, there is no clear commitment to implement RED III until that time and an implementation in Germany by June 2025 would, in any case, be quite unrealistic. In any case, we expect that the new government will prioritize and tackle this task directly from the start. We further estimate that RED III implementation will probably look different to what has been proposed by the last government so far.
Cap on agreed land lease amounts
One positive aspect of the Coalition Agreement for project developers is that lease amounts for land required for the development of wind turbines subsidized under the EEG are to be capped to prevent unreasonably high development costs due to extremely high land leases. This has previously been requested by the industry.
5. Solar energy
The section in the Coalition Agreement on solar energy is very brief. It states that solar energy in conjunction with storage (so called co-location projects) should be expanded in a system-beneficial (systemdienlich) way. Therefore, the question which criteria apply for the characterization of projects system-beneficial (cf. above regarding BESS) also applies to solar energy. In contrast to this new development, renewable energy generation systems have had priority regarding grid connection (sec. 8 EEG) without considering system-beneficialness to date. Incentives for system-beneficial feed-in are planned to be set forth also for existing facilities.
In addition, registration procedures shall be digitalized. The term “registration procedures” is not further detailed, but most probably (and hopefully) refers to the grid connection procedure.
The provisions of the Solar Peak Act (Solarspitzengesetz), which had been adopted only recently (with the votes of the CDU/CSU), will be reconsidered. According to the Solar Peak Act, the EEG remuneration for electricity from renewable energies will no longer be paid if high feed-in volumes lead to negative electricity prices on the electricity market. Further, it stipulates that the 20-year funding period will be extended by this ‘lost’ remuneration time. The zero remuneration for renewables projects in times of negative electricity prices could therefore be abolished again.
6. Electricity price, energy costs, grid expansion
Electricity price
As already set out in the CDU/CSU New Energy Agenda dated November 2024 and all previous negotiation steps towards this Coalition Agreement, an industrial electricity price (Industriestrompreis) shall be introduced.
Electricity costs and grid expansion
To reduce electricity costs by at least five cents per kWh, electricity tax and grid fees shall be reduced. The electricity tax is to be reduced to the European minimum (private consumers: 0.1 cent/kWh; companies: 0.05 cent/kWh). Until now, the reduction in electricity tax was only granted for the manufacturing industry, agriculture and forestry. The current reduction only applies until December 31, 2025. The plan is to extend the electricity price compensation (Strompreiskompensation) to other sectors (including data centers) and to prolong it.
Lower grid fees are to be achieved, inter alia, through reduced grid expansion costs. To achieve this aim, the new government intends to realize newly planned transmission lines as overhead lines (Freileitungen) instead of the previously planned underground cabling, potentially saving dozens of billions of grid expansion costs in the next years. However, the Coalition Agreement contains the limitation that this policy shift to overhead lines shall only be realised where possible. It is not specified under which criteria an overhead line is deemed to be possible or not.
7. GEG
According to the Coalition Agreement, the Heating Act (Heizungsgesetz) is to be abolished and the CO2 price to be used as a steering instrument (Lenkungsinstrument) instead. Presumably, it is not planned to abolish the Building Energy Act (Gebäude-Energie-Gesetz – GEG) as a whole, but only the provisions on the requirements for heating systems and the operating ban for heating boilers, i.e. sec. 71 to 71p GEG.
Regarding CO2 pricing, it should be noted that the European Emissions Trading System (ETS II) enters into force for the building sector in 2027. This means that gas prices are likely to rise, and the question is how the new government wants to strike the balance between such rising prices and allowing the continued use of gas-based heating systems (if this should be considered at all).
Due to the requirements of European law, a complete abolition of the regulatory content of the GEG is not possible, so that the result will be an amendment for more "technology openness" – possibly under a new name. The potential scope for amendment will probably be very limited due to the EU requirements.
8. Nuclear fusion, nuclear power
Both in the CDU/CSU's New Energy Agenda and in the steps taken towards the Coalition Agreement so far, the CDU/CSU had argued in favor of restarting nuclear power plants or at least examining the possibility of such step. There is no mention of this in the Coalition Agreement, which is hardly surprising given that the nuclear power plants’ previous operators had all spoken out against resuming operation, inter alia, due to the lack of profitability.
Nuclear fusion is expressly featured in the Coalition Agreement which states that nuclear fusion shall be regulated outside the existing German nuclear laws. The aim is for the world's first fusion reactor to be developed in Germany.
9. Gas-fired power plants and power plant strategy
New gas-fired power plants
The new government aims to build 20 GW gas-fired power plants by 2030. The Coalition Agreement states that a reliable framework for investments to reach a sufficient level of electricity supply security will be created by means of tenders that are open to all technologies as quickly as possible. The planned funding could therefore be available not only to gas-fired power plants but also to other types of power generation.
Reduction of electricity costs
According to the Coalition Agreement, (reserve) power plants shall not only avoid electricity supply bottlenecks but also reduce electricity costs by providing increased electricity supply in times of high electricity prices. This could potentially affect the business model of BESS projects as the profitability of such projects relies partly in the high volatility of the electricity spot market price on the day-ahead and intraday market.
EU law requirements
The tendered gas-fired power plants will be subject to special EU guidelines on state aid for climate, environmental protection and energy. To be compatible with the EU state aid rules, these new gas-fired power plants will have to be hydrogen-ready (i.e. able to switch to hydrogen-based operation at a later stage of the project lifetime). Furthermore, the EU Commission set forth that the combusted gas of those plants must come from renewable sources or have low emissions by around 2035.
EU state aid law is currently being reviewed as part of the EU Clean Industrial Deal. The Internal Electricity Market Regulation (Elektrizitätsbinnenmarktverordnung) particularly stipulates two requirements regarding the implementation of a capacity market: (i) funding should not last longer than ten years, and (ii) a capacity mechanism must be open to the participation of non-fossil forms of flexibility.
It is therefore to be expected that the EU Commission will have many questions here and approval of the funding of the gas fired power plants and the capacity market will not be implemented that easily.
CCS
Regarding CCS in gas-fired power plants, the SPD has dropped the resistance it had initially put up in the working group. Gas-fired power plants therefore can be equipped with CCS facilities. Regarding reserve power plants, the use of CCS facilities is, however, unlikely because the intermittent operation of such power plants is not an ideal prerequisite for CCS. Hence, it is to be expected that CCS will tend to be used more for industrial self-supply. Further, the extent to which investors want to and will utilize CCs in connection with gas-fired power plants will presumably depend on the further development of the hydrogen ramp-up.
10. CCU and CCS
The adoption of a new legal framework to enable the capture, transport, usage and storage of CO2 is planned. The Coalition Agreement stipulates that the new government wants to enable (i) CO2 offshore storage outside of the German exclusive economic zone and (ii) CO2 onshore storage where suitable and accepted, the latter most probably referring to societal acceptance in the respective region. The construction of CCS/CCU facilities and pipelines shall be classified as being in the overriding public interest (überragendes öffentliches Interesse).
The ratification of the amended London Protocol (an international agreement that regulates the cross-border transfer and offshore storage of (inter alia) CO2) and related bilateral agreements with neighboring countries are top priorities for the new federal government.
In addition, ‘direct air capture’ is considered a future technology for negative emissions.
11. Ministries
Irrespective of the goals and intentions set out in the Coalition Agreement, it appears that the Federal Ministry for Economic Affairs and Climate Protection will not stay in its current form. The energy section is to remain in the Ministry of Economic Affairs while the climate protection section will return to the Ministry of the Environment. This division of energy and climate is likely to be reflected in future legislative proposals. It will be interesting to see how the new ministries will interact given that the Ministry of Economic Affairs will be led by the conservative and rather market-oriented CDU whilst the Ministry of the Environment will be led by the social-democratic SPD.
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