Energy Policy Review

Germany
2025
INTERNATIONAL ENERGY
AGENCY
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 Germany 2025 Table of contents

Table of contents

Executive summary ........................................................................................5

Energy policy landscape ..............................................................................11
Climate and energy strategy ............................................................................ 12
End-use sectors ............................................................................................... 18
Electricity .......................................................................................................... 30
Fuels ................................................................................................................ 33
Recommendations ........................................................................................... 37
Focus areas ...................................................................................................41
1. Electricity system optimisation .................................................................. 41
Recommendations ........................................................................................... 58
2. Decarbonising heating in buildings ........................................................... 61
Recommendations ........................................................................................... 72
3. Expanding the role of hydrogen ................................................................ 73
Recommendations ........................................................................................... 87
Annexes .........................................................................................................89
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 Germany 2025 Executive summary

Executive summary
Germany is at an important inflection point in its energy transition. As one era
of its energy history draws to a close, another is coming clearly into view – the move
away from nuclear, coal and Russian natural gas contrasted by the transition towards
renewables, low-emissions hydrogen, heat pumps and electric vehicles (EVs). While
the world has been buffeted by geopolitical and geoeconomic challenges in recent
years, Germany has worked hard to accelerate its clean energy transition. This report
seeks to provide Germany with timely advice on how it can progress towards its
energy and climate goals, including in three key focus areas: 1) optimising electricity
system operation; 2) decarbonising heating in buildings; and 3) expanding the role of
hydrogen in the energy system. It emphasises the need for long-term policy stability,
targeted demand creation, infrastructure development, integrated planning and
streamlined permitting to successfully advance Germany’s energy transition.

Germany’s transition is crucial not only to meet its climate goals, but also for
its energy security and economic competitiveness. It is targeting a 65% reduction
in greenhouse gas (GHG) emissions by 2030 (from 1990 levels) and climate neutrality
by 2045, with the long-standing Energiewende strategy guiding the evolution of its
energy system. While this has supported a surge in renewables-based electricity
generation, which will need to both continue and grow, more work lies ahead to
decarbonise end-use sectors, such as transport, industry and buildings. Existing
strategies and supportive policy measures in these sectors will need to be matched
by a strong focus on effective, cost-efficient implementation. Given that German
consumers pay among the highest electricity prices in Europe, policy developments
will need to also be seen through an affordability and competitiveness lens, including
by ensuring that the distributional impacts are well understood and that proactive
measures are taken to manage the costs of transition measures. To ensure public
support for the transition, the government should also clearly communicate costs,
benefits and timelines.
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 Germany 2025 Executive summary

Germany should prioritise actions that optimise the efficiency and resilience of
its growing electricity system, such as smart meters, grids, storage and
locational pricing. As it seeks to achieve 80% renewable energy in power
consumption by 2030, faster smart meter rollout can help unlock the flexibility latent
within “behind-the-meter” assets (solar panels, heat pumps, EVs). Actions could also
be taken to facilitate distribution grid upgrades, enable access to and use of smart
meter data, and potentially allow smart meters to control distributed solar photovoltaic
(PV) supply. Germany should also jump-start an expansion of large-scale storage in
optimal locations, including by fast tracking the implementation of measures in its
electricity storage strategy and accelerating grid connections for projects. Routes for
action could include the expansion of capacity in existing programmes (frequency
response and services markets, grid booster initiative, etc.) and the adoption of new,
utility-scale storage tenders targeting optimal locations. Such efforts should be
complemented by clearer locational signals to improve system operation and reduce
the need for new grids, as the efficient use of existing grid infrastructure is crucial.
Supportive actions could include ensuring that new grid connections are in optimal
grid locations (now and in the future), and that locational signals are part of future
support rounds for generation, storage and electrolysers.

The transport sector must shift into high gear if it is to help drive Germany’s
energy and economic transition. Transport is the largest source of energy end-use
emissions and has registered only modest reductions in recent years. A broad
approach is required that incorporates all clean fuels and technologies, including
greater use of public transport. Long-term investments to upgrade public transport
infrastructure can support modal shifts away from road transport (which accounts for
95% of total transport emissions). There is also considerable potential to adopt
policies that boost EV uptake. Options include a bonus-malus tax structure that
incentivises low-emissions vehicle purchases, specific measures targeting leased
and company cars (the largest share in the German market), faster deployment of
charging infrastructure, ensuring even treatment of compliance options in Germany’s
GHG quota policy, and improving co-ordination across relevant ministries. Germany’s
incredible transport heritage and manufacturing base has the potential to be a
distinguishing asset, but this hinges on well-designed transition measures that
support its competitiveness in the clean energy economy.

A clear vision for transitioning Germany’s building stock must be coupled with
consistent communication and dependable policy signals. The Building Energy
Act provides a clear, long-term legal framework that sets targets and timelines for
renewables-based heating systems. This must be coupled with equally clear policy
signals that electricity (i.e. decentralised heat pumps) and decarbonised district
heating paired with increased energy efficiency will be the primary options to
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 Germany 2025 Executive summary

decarbonise heating in buildings. There should be support for energy efficiency

upgrades and the deployment of heat pumps, as well as backing the role of energy
advisors to assist homeowners. The Heat Planning Act is also a significant positive
step, requiring municipalities to present plans to make local heating infrastructure
climate-neutral. It is important to support the timely development of these plans,
ensuring that all levels of government have the resources needed to implement them.
There may also be positive opportunities to foster regional co-ordination, align heat
planning with other energy system planning, and use the plans as the basis for large-
scale technology procurement. Proactive, fact-based communication to consumers
should explain the need to accelerate the decarbonisation of buildings, that energy
efficiency and electrification is the most viable solution pathway, the business case
for such investments, and the support measures available to facilitate adoption.

Germany has high ambitions for low-emissions hydrogen to transform the

industrial heart of its economy. A comprehensive hydrogen strategy exists,
prioritising hydrogen use in industries where direct electrification is challenging.
Ambitious supply and demand goals are accompanied by plans for extensive
domestic infrastructure buildout and international co-operation to help grow a global
green hydrogen economy. Despite this, final investment decisions are lagging due to
concerns over supply, affordability and the lack of off-taker commitments. There is a
need to stimulate low-emissions hydrogen demand, using levers such as public
procurement, targeted carbon contracts for difference and green materials standards,
among others. An integrated planning approach for hydrogen, natural gas and
electricity infrastructure can maximise synergies and de-risk investments, such as by
realising opportunities to repurpose gas pipelines. Toward this end, the 2024 System
Development Strategy aligns system planning across the electricity, natural gas and
hydrogen networks.

Overall, Germany’s energy transition can present an immense opportunity if

the right policy choices are made. As a technological and industrial leader,
Germany is well-placed to realise these opportunities if it can optimise the operation
of its energy system; increase citizen acceptance for the energy transition (including
through clear, regular communications); and ensure a steady, long-term policy and
regulatory environment that help accelerate investments. Equally important will be
due consideration to energy costs, especially electricity, as electrification becomes a
centrepiece of the energy transition. Looking forward, regular reviews of progress and
corrective actions will be important to help Germany meet its goals.
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 Germany 2025 Executive summary
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 Germany 2025 Executive summary

Policy recommendations for Germany

1
Ensure long-term policy and regulatory stability to support a secure and affordable
clean energy transition as the key engine of German economic growth.

2
Significantly ramp up efforts to decarbonise the transport sector.

3
Clarify the role that natural gas is expected to play through the energy transition.

4
Prioritise actions to lower electricity retail prices.

5
Create clearer locational signals to improve system operation and reduce the need for
new grids.

6
Hasten the smart meter rollout to unlock the enormous potential of demand-side
flexibility and distributed generation.

7
Jump-start the expansion of large-scale storage in optimal locations.

8
Co-ordinate and advance municipal heat planning to enhance the value for
stakeholders.

9
Send clear signals that heat pumps and district heating paired with energy efficiency
will be the primary option to decarbonise heating in buildings.

10
Focus efforts to stimulate targeted, low -emissions hydrogen demand.
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 Germany 2025 Executive summary
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 Germany 2025 Energy policy landscape

Energy policy landscape

Germany has made impressive strides in its energy transition in recent years. Its
Energiewende strategy to move away from fossil fuels and nuclear toward a
renewables-based energy system has already shown results. Renewable electricity
has surged in the past decade and all nuclear generation ceased as of 2023.

Moreover, despite an historically heavy dependence on energy supplies from the

Russian Federation (hereafter, “Russia”), Germany has managed to significantly wind
down its imports of Russian oil and gas. In line with European Union (EU) policy,
Germany, in its so-called “Easter Package”, has placed a more rapid shift to
renewables at the cornerstone of its energy strategy. This will help to achieve its
climate objectives and mitigate energy security risks stemming from a heavy
dependence on imported fossil fuels.

Nonetheless, the changes in Germany’s energy system did not come without their
challenges. In particular, as the energy crisis drove an increase in energy prices,
German industry bore heavy costs, resulting in stalled industrial output and a growing
number of companies considering to relocate abroad. Likewise, German households
face some of the highest energy costs in Europe, especially for electricity. As German
climate targets necessitate accelerating action to cut emissions from the energy
sector, addressing competitiveness and affordability challenges will take on outsized
importance, to maintain support for the energy transition itself and to ensure a fair
distribution of the benefits and costs from the transition. Furthermore, a 2023
constitutional court ruling on climate spending in the context of debt limits could
hamstring the government’s ability to offer financial support for energy transition
measures.
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 Germany 2025 Energy policy landscape

The goal of a climate-neutral energy system is also accompanied by challenges

regarding system stability and the safe operation of the energy system. The federal
government’s “System Stability Roadmap” provides the first structured roadmap for
achieving a secure and resilient operation of the energy system with 100% renewable
energy sources. To ensure integrated planning of energy infrastructure, the System
Development Strategy details the envisioned transition to a climate-neutral energy
system by 2045.

Notwithstanding the challenges, Germany is well-positioned to advance its energy

transition in the coming years. It has a legally robust climate framework, effective
support mechanisms for renewable energy, and clear strategies for areas such as
decarbonisation of heating and the development of a hydrogen economy. To leverage
its advantages as an industrial leader, Germany must identify ways to optimise the
operation of its energy system, increase citizen acceptance for the energy transition,
and ensure a supportive policy and regulatory environment to accelerate energy
transition investments in a cost-effective way.

Climate and energy strategy

Climate trends and targets
Under both the Paris Agreement and its Federal Climate Change Act, Germany
committed to cutting GHG emissions by at least 65% below 1990 levels by 2030 and
88% by 2040, on the path to achieving GHG neutrality by 2045. As of 2024, emissions
had fallen 48% from 1990 levels, indicating that steeper cuts are needed to meet the
targets.

As a member of the European Union, Germany is subject to EU climate policy and

regulation. Large combustion facilities in the power and industry sectors are part of
the EU Emissions Trading System (ETS), whereas non-ETS emissions (transport,
buildings, agriculture and waste) are subject to binding national GHG targets under
the EU Effort Sharing Regulation (ESR). For the European Union as a whole, the ETS
target is to reduce GHG emissions by 62% from 2005 levels by 2030, while the ESR
target is to reduce emissions by 40% from 2005 levels by 2030. Under the ESR,
Germany’s updated national target is to reduce emissions by 50% from 2005 levels
by 2030.
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 Germany 2025 Energy policy landscape

According to the Federal Environmental Agency, Germany’s emissions are below its
permitted annual emissions, reaching 649 Mt CO2-eq in 2024. The generation of
electricity and heat contributed 23% to GHG emissions in Germany. This significant
contribution is primarily due to the use of coal and natural gas in electricity generation.
Although the highest energy demand among end-use sectors is the buildings sector,
the transport sector is a larger contributor to GHG emissions, responsible for 22% of
emissions, due to its reliance on oil products. The buildings sector accounted for 15%
of total GHG emissions, while the industrial sector contributed the biggest share, 28%
in 2024.

GHG emissions decreased by 3% from 2023 to 2024. In the electricity and heating
sector, GHG emissions in 2024 fell by 11% compared to the previous year, mainly
due to a significant decline in coal-fired power generation, enabled by the steady
expansion of wind and solar power and increased electricity imports. Industry’s
emissions remained stable in 2024 compared to the previous year. The recent decline
of industry emissions was primarily driven by reduced output due to higher
manufacturing costs.

Greenhouse gas emissions and targets in Germany, 1990-2024

Mt CO2-eq Other
1 250
Agriculture
1 000
Buildings

750 Transport

Industry
-65%
500
Electricity and
heat generation
250 -88% Net Target
zero Net total
0 emissions
1990 2024 2030 2040 2045
IEA CC BY 4.0
Note: LULUCF = land use, land-use change and forestry. Data for 2024 are provisional.
Sources: IEA analysis based on UNFCCC (2023); Germany, Federal Environmental Agency (2025),
Greenhouse gas emissions (Accessed 21 March 2025).
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 Germany 2025 Energy policy landscape

In the buildings sector, 2024 emissions fell by 2.4% to approximately 100 Mt CO2-eq.
This reduction was aided by higher consumer prices and mild winter weather. In the
transport sector, approximately 144 Mt CO2-eq were emitted in 2024
(-1.5% compared to 2023).

The latest 2024 projection data from the Federal Environment Agency indicates that
2030 climate targets are within reach for the first time (the 2023 forecast, in contrast,
estimated an emissions gap). On a sectoral basis, the report found that the electricity
and heat, agricultural, and waste sectors would overachieve, while the transport
sector would exceed its emissions budget by 180 Mt CO2-eq and the buildings sector
by 32 Mt CO2-eq (cumulative for the period 2021-30). This would mean that Germany
is not on track to meet its EU ESR targets for 2030.

National targets for energy and climate change in Germany

2023 2030 2040 2045

Base
Status Targets
year

Total GHG emissions -46% 1990 -65% -88% Net zero

Non-ETS GHG
2005 -50%
emissions
Share of renewables
in gross final energy 21.6% 42.5%
consumption
Share of renewables
in gross electricity 52.5% 80%
consumption
Energy efficiency
-14% 2008 -26.5%
(TFEC reduction)
Note: TFEC = Total final energy consumption.
Sources: IEA analysis based on UNFCCC (2023); European Commission (2024); Germany - Final
updated NECP 2021-2030; Eurostat (2024); Germany, Federal Ministry for Economic Affairs and
Climate Action (2024), Time series on the development of renewable energies in Germany.
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 Germany 2025 Energy policy landscape

Climate policy framework

The Federal Climate Change Act is a central pillar of Germany’s national climate
change policy, legally enshrining the country’s climate targets, including the goal of
GHG neutrality by 2045. The government undertook a revision to the Climate Change
Act in 2024 that requires verification of compliance with climate targets on an
aggregate rather than a sectoral basis. The Climate Change Act sets the total annual
emissions budgets for each year from 2020 to 2030. Shortfalls or surpluses of the
annual emissions budgets are offset evenly against the remaining annual emissions
budgets until the next target year (2030 and 2040). The Climate Change Act also calls
for the government to adopt a climate action programme within 12 months of the start
of a new legislative term.

The 2023 Climate Action Programme outlines specific measures and actions across
various sectors – such as energy, transport, buildings and agriculture – to meet the
emissions reduction targets set by the Act. The programme also identifies funding
and financial mechanisms to support implementation of these measures. Many
initiatives within the current programme have already been implemented, including
the Germany Ticket public transport measure, the CO2-dependent truck toll,
accelerated procedures and designated areas for renewable energy expansion, and
subsidies for energy-efficient construction and renovation.

Germany’s Council of Experts on Climate Change has statutory authority to ensure

that Germany is on track to meet its climate targets by analysing emissions and
projection data. If it finds that projections for two consecutive years point to a failure
to meet the sum of annual emissions budgets to 2030, the government is required to
adopt corrective measures to ensure compliance with the total emissions budgets. In
a special report from June 2024, the Council found that Germany is not on track to
meet the sum of annual emissions budgets to 2030 and that the Federal Environment
Agency was likely underestimating emissions, especially noting the impacts of cuts to
the Climate and Transformation Fund as well as changing price expectations for
natural gas and EU ETS allowances. If the Council’s 2025 study also finds that the
2030 target will be missed, the government will have to strengthen its climate
measures by the end of the year. The Council represents an independent and
rigorous check on the government’s actions to help keep Germany on track toward
its climate targets on a regular basis.

The main instrument for financing the energy transition and climate protection efforts
in Germany is the Climate and Transformation Fund (KTF). The fund was recently
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 Germany 2025 Energy policy landscape

restructured in accordance with a 2023 ruling by the German Constitutional Court that
found parts of the KTF previously violated a constitutional limit on new debt of 0.35%
of annual GDP. The KTF is primarily financed by revenues from the EU ETS and the
national fuel emissions trading (CO2 pricing) system. The expenditures of the KTF
were reduced by EUR 12 billion in the 2024 budget, resulting in EUR 49 billion
available. Of the total EUR 49 billion, 40% is dedicated to supporting the heating
sector’s transition while 31% is allocated to reducing end-user energy costs (with
EUR 10.7 billion earmarked for removing the renewable energy surcharge from end
users and up to EUR 3.9 billion for electricity price compensation for energy-intensive
industries, as climate protection aid). Other key focus areas include promoting
semiconductors for digitalisation, expanding hydrogen use in industry and promoting
sustainable mobility.

Budget allocation of the Climate and Transformation Fund, 2024

EUR billion 5.1 49
2.4
3.5
4.8
14.5

18.7

Heat transition/ Reduce Micro- Hydrogen Electromobility Other Total

energy efficiency energy costs electronics
IEA. CC BY 4.0.
Source: IEA analysis based on Federal Ministry for Economic Affairs and Climate Action (2023),
The Climate and Transformation Fund 2024: Creating relief, securing future investments, shaping
transformation (Accessed on 31 March 2025).

Amid the 2022 energy crisis, Germany passed the so-called “Easter Package”, which
accelerated energy transition efforts as a means to tackle the energy crisis. The
central focus of the package is to increase the role of renewables in Germany’s
energy system with updated targets, measures to facilitate siting and removal of the
renewables surcharge on electricity prices.
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 Germany 2025 Energy policy landscape

Taxation and carbon pricing

Germany applies a tax on electricity as well as an energy tax, among other things, on
oil products, natural gas, coal and coke products. The Electricity Duty Act as well as
the Energy Duty Act offer tax relief in several areas in accordance with EU law, such
as on electricity generated and consumed in a decentralised manner as well as on
energy products used in electricity generation or co-generation, natural gas, and
liquefied petroleum gas used as motor fuels. Heating fuels and electricity used by
manufacturing industries also receive tax relief. Germany is supportive of ongoing
negotiations on a revised EU Energy Tax Directive to better align taxation with climate
and environmental objectives.

The Fuel Emissions Trading Act introduced a national emissions trading system for
sectors not covered by the EU ETS, such as transport and heating. During an
introductory phase, prices are fixed. They started at 25 EUR/t CO2-eq in 2021,
increased to 45 EUR/t CO2-eq in 2024 and rise to 55 EUR/t CO2-eq in 2025. After
2025, the pricing will shift to a market-based system, where prices will be determined
by supply and demand within a specified price corridor. Starting in 2027, these sectors
will fall under the EU ETS2 programme, a cap-and-trade scheme applied upstream
on fuel suppliers.

Energy research and development

Energy research and development play a key role in Germany’s energy transition
strategy. In 2023, the government allocated EUR 1.5 billion to energy transition
research funding, stabilising it at a higher level. The 8th Energy Research Programme
for applied energy research, adopted in October 2023, guides the Federal Ministry for
Economic Affairs and Climate Action’s (BMWK) energy research policy toward the
energy transition for the first time. The five missions that guide funding priorities are:
1) research into the energy system; 2) the heat transition; 3) the electricity transition;
4) hydrogen; and 5) the transfer of research findings into practice.

The Federal Ministry of Education and Research (BMBF) continues to support

application-oriented basic research as part of the federal government’s 7th Energy
Research Programme. Within this framework, the BMBF co-ordinates basic research-
orientated project funding for energy research as well as institutional funding for the
centres of the Helmholtz Association (with the exception of the German Aerospace
Center, which is funded by BMWK), the Fraunhofer Gesellschaft, the Max Planck
Society and the Leibniz Association. In addition, the BMBF promotes young scientists,
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 Germany 2025 Energy policy landscape

academic exchange and scientific/research co-operation at the EU and international

levels. The BMBF’s three hydrogen flagship projects contribute to the goals of the
National Hydrogen Strategy.

Skills and competencies for the energy transition

Like in all countries, Germany will need to ensure sufficient skilled workers in
occupations relevant to the energy transition. Toward this goal, Germany developed
a STEM (science, technology, engineering and mathematics) Action Plan 2.0 that
aims to strengthen STEM education through all stages of education. It is also updating
dual training regulations (workplace and school training) in vocational occupations,
including for instructors. Employees that are affected by structural change in the
economy, such as coal workers, can benefit from special skills retraining support.
There is also special funding available for training skilled workers in specific areas
important to the energy transition, such as heat pump installation.

End-use sectors
The buildings sector is the largest energy consumer, accounting for 42% of final
energy consumption in 2023. Industry accounted for 30% of energy consumption
while transport made up 28%. The decline in energy demand in Germany over the
last decade has primarily come from the buildings sector. In 2023, total energy
demand was 7 500 PJ, representing a 5% reduction compared to the previous year
and 14% compared to 2008.

In the recast Energy Efficiency Directive (EED), the European Union agreed to reduce
final energy consumption in the European Union as a whole by at least 11.7%
compared to projections of the expected energy use in 2030, supported by indicative
country targets. Since 2023, Germany has a dedicated Energy Efficiency Act that
contributes to implementing the EED. It sets the “energy efficiency first” principle and
establishes efficiency targets for primary and final energy consumption for 2030. The
targets require a reduction of 26.5% in final energy consumption and 39.3% in primary
energy consumption, both compared to 2008. In its updated National Energy and
Climate Plan, however, Germany concludes that there remains a gap to achieve the
2030 target and significant additional efficiency measures are needed.
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 Germany 2025 Energy policy landscape

Final energy consumption in Germany by sector, 2008-2030

PJ
10 000

-14% Transport
8 000
-26.5%
6 000 Industry

4 000
Buildings

2 000
Total TFEC
0
2008 2013 2018 2023 2030 target

IEA. CC BY 4.0.
Notes: Industry includes manufacturing and other sectors (agriculture, construction, mining and
quarrying). It does not include refinery and non-energy use (fuels that are used as raw materials
and are not consumed as fuel or transformed into another fuel).
Source: IEA (2025), World Energy Balances.

Buildings
Buildings represent around 19% of direct, energy-related GHG emissions in Germany
in 2022. Residential buildings accounted for 75% of the energy consumption in
buildings in 2022. Within this sector, 63% of the energy is used for space heating,
which still relies heavily on fossil fuels, primarily natural gas and oil.

Germany’s building stock is large, with 19.4 million residential units and 2 million
non-residential buildings. Moreover, its building stock is relatively old (68% built prior
to 1978, before the first ordinance on thermal insulation of buildings took effect) and
renovation rates are low. Ownership is heterogeneous, with a roughly even split
between owner-occupied and tenancy buildings (giving it one of the lowest home
ownership rates in Europe).

Decarbonising heating is crucial for achieving climate targets, and in recent years
Germany has taken several steps toward this end, including with a new Building
Energy Act and Heat Planning Act to provide clarity on the role for renewable energy
in heating. Heat pumps and district heating are the main options for replacing gas and
oil boilers. By 2030, Germany aims to have an 80% share of renewables in electricity
generation and 50% renewable and recycled heat in district heating. The federal
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 Germany 2025 Energy policy landscape

government also provides support for investments in clean heating technologies. With
measures implemented so far, Germany is making significant progress on energy
efficiency and climate mitigation, reaching around 40% emissions reductions in
buildings between 1990 and 2022. However, challenges remain to speed up the
transition (see Focus Area 2).

Energy use in residential buildings by subsector in Germany, 2022

0 400 800 1 200 1 600 PJ

Space heating

Water heating

Appliances

Cooking

Lighting

Cooling and others

Natural gas Electricity Bioenergy and waste District heat Oil Coal Other sources

IEA. CC BY 4.0.
Source: IEA (2024), Energy End-uses and Efficiency Indicators.

Energy performance in buildings

Increasing energy efficiency in buildings helps reduce emissions, improve energy
security and lower energy bills. While new buildings are covered by energy
performance requirements, improving the existing building stock is often more
challenging. The revised EU Energy Performance of Buildings Directive entered into
force on 28 May 2024 and helps increase the rate of renovation in the European
Union. The Directive defines an enhanced standard for new buildings to be zero-
emission and sets binding targets to lower the average primary energy consumption
of the residential building stock by 16% by 2030 compared to 2020.

Germany’s Building Energy Act contains requirements for the energy quality of
buildings and the creation and use of energy certificates. A 2022 amendment to the
Act raised the energy performance standard for new buildings, limiting primary energy
consumption in new buildings to 55% of a reference building, thereby promoting
energy-efficient heat pumps over traditional boilers. The Building Energy Act also sets
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 Germany 2025 Energy policy landscape

a target of 65% renewable energy in the heat supply for new buildings, which also
applies to existing buildings (in stages and with certain exceptions; see more in Focus
Area 2).

According to the Association of Energy-Efficient Building Envelopes, however, the

renovation rate in Germany is less than 1% per year, and the trend is declining
sharply, calling for further action.

District heating
District heating produced from renewable energy and waste heat is one of the main
options for replacing fossil fuel boilers in densely populated areas. It can be a cost-
and resource-efficient solution, mainly in densely populated areas where centralised
heating solutions are more practical and economical. Around 15% of Germany’s
apartments and 6% of residential buildings are connected to district heating networks,
and in the three largest cities – Berlin, Hamburg and Munich – district heating supplies
one-third of buildings. However, the adoption of district heating systems has
plateaued over the past decade. Germany has no price regulation for district heating
and municipalities rarely implement obligations to connect and use, which means that
the technology must be competitive with other heating options in terms of cost,
convenience and environmental benefits to attract consumers (see Focus Area 2).

Industry
Germany has a large industrial sector, with more than a quarter of its energy
consumption attributed to electricity. However, the sector remains heavily reliant on
fossil fuels, which accounted for 59% of its energy use in 2022 (of which natural gas
accounted for 34%). As one of Europe’s leading steel producers, Germany has a well-
established basic metals subsector, which is the main coal consumer in the industrial
sector. The country manufactures a wide range of steel products used in construction,
automotive, machinery and other industries.

Germany’s chemical industry is one of the largest in the world, producing a wide range
of chemicals, pharmaceuticals and biotechnology products. It is the second-largest
energy consumer in Germany’s industrial sector, accounting for 22% of the total
energy consumption in the sector. The chemical industry primarily uses natural gas
and electricity to power its operations.
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 Germany 2025 Energy policy landscape

The German refining industry is crucial for supplying energy and raw materials to
various sectors. Emissions in this sector result from the extensive use of oil, which is
processed into numerous products, including gasoline, diesel, jet fuel and various
petrochemicals.

Other subsectors also contribute to high energy demand and related emissions,
including the non-metallic minerals, paper, food and tobacco, and machinery industries.
The non-metallic minerals industry, mainly driven by cement and glass production, is
increasingly using more bioenergy to reduce emissions. In 2012, bioenergy accounted
for 18% of energy use, which increased to 27% by 2022. Biofuels, such as biomass and
biogas, are being used as alternative fuels in cement kilns.

Energy use in industry by subsector in Germany, 2022

0 100 200 300 400 500 600 700 PJ
Basic metals
Chemicals
Refinery
Non-metallic minerals
Paper and pulp
Food and tobacco
Machinery
Agriculture
Transport equipment
Other
Electricity Natural gas Coal Oil Bioenergy and waste Heat
IEA. CC BY 4.0.
Notes: This chart includes consumption in the refinery and steel industries that is not counted as
final energy consumption in the figure “Final energy consumption by sector in Germany”.
Non-energy used is not included.
Source: IEA (2024), Energy End-uses and Efficiency Indicators.

The EU ETS plays a crucial role in driving emissions reductions in Germany’s

industrial sector. The sector is a significant participant in the EU ETS, which covers
large emitters, including refineries, steel mills and chemical plants. The revised
EU ETS target of 62% emissions reductions by 2030 compared to 2005 levels will
further drive the need for companies to invest in emissions-reduction technologies
while still maintaining competitiveness.
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 Germany 2025 Energy policy landscape

The Energy Efficiency Act aligns with EU energy efficiency targets and aims to reduce
final energy consumption by 26.5% by 2030 compared to 2008 levels. The main
measures stipulated in the Act for industry to achieve these targets include conducting
regular energy audits, integrating certified energy management systems, and
reporting on energy consumption and efficiency improvements.

The federal government also offers EUR 1 billion in annual funding to promote energy
and resource efficiency in the commercial sector (EEW). The funding is offered along
modules that cover a range of measures from energy-efficient technologies such as
pumps, air compressors and electric motors to action to generate process heat from
renewable energy sources and electricity.

Further funding for the decarbonisation of industry is facilitated through the

Decarbonisation of Industry and Carbon Contracts for Difference
(Klimaschutzverträge) programmes, toward which several billion euros are
earmarked in the federal budget. Also, the Important Projects of Common European
Interest (IPCEI) Hydrogen programme, with its budget of EUR 14 billion, plays an
important role. Moreover, the Federal Funding for Industry and Climate Protection
scheme (Bundesförderung Industrie und Klimaschutz, with EUR 3.3 billion in funding
planned from the federal government) aims to enable innovative smaller and
medium-sized transformation projects to be implemented, regardless of sector or
technology.

To prevent carbon leakage and help German industry maintain competitiveness, the
government offers several support mechanisms to address electricity costs, including
an electricity price compensation for indirect carbon costs as part of the EU ETS and
an electricity tax reduction for companies in the manufacturing sector. The permanent
removal of the Renewable Energy Act levy on electricity also offered price relief for
manufacturers.

Carbon capture, utilisation and storage (CCUS)

The EU Directive on the Geological Storage of Carbon Dioxide provides a
comprehensive legal framework for the environmentally safe geological storage of
CO2. This directive is implemented through national regulations, ensuring that CCUS
projects comply with stringent environmental and safety standards. The Carbon
Dioxide Storage Act regulates the exploration, testing and demonstration of CO2
storage in Germany, outlining the conditions under which storage is permitted,
focusing on safety, public acceptance and environmental impact. Additionally,
Germany’s Climate Action Plan 2050 highlights the role of CCUS in decarbonising
the industrial sector, emphasising the need for innovation and research to advance
these technologies.
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 Germany 2025 Energy policy landscape

The federal government plans to establish the economic, legal and political framework
conditions for CCUS in Germany under a Carbon Management Strategy, for which
key points were established in 2024. Following a broad-based stakeholder dialogue
with representatives from civil society, academia and industry, the government has
agreed on removing current barriers blocking the use of CCUS and focusing public
funding on hard-to-abate emissions, mainly in industry.

Germany is involved in several projects and initiatives to advance CCUS technology.

The EUR 23 million project ALIGN-CCUS that ended on November 2020 aimed to
accelerate the rollout of CCUS by developing cost-effective and reliable CCUS
solutions, with German partners like RWE and Mitsubishi-Hitachi. Another notable
initiative is the Carbon2Chem project, led by a consortium of two main research
institutes (Max Planck Institute for Chemical Energy Conversion and Fraunhofer
Institute for Environmental, Safety and Energy Technology) and industry
(Thyssenkrupp as a major player in the steel industry), which focuses on converting
captured CO2 from steel production into valuable chemicals. By combining electrolysis
(Siemens Energy) and fermentation (Evonik), the Rheticus Project explores the
utilisation of CO2 and renewable energy to produce specialty chemicals through
biotechnological processes (federal funding expired in 2022).

Carbon capture, utilisation and storage project pipeline in Germany,

split by end use in 2030
Mt CO2
8

6 Hydrogen or
ammonia
4

2 Cement

0
2026 2028 2030

IEA. CC BY 4.0.
Note: Includes all operational, under construction and planned CO2 capture facilities with an
announced capacity of more than 100 000 t per year or 1 000 t per year for direct air capture
facilities.
Source: IEA (2024), CCUS Projects Explorer.
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 Germany 2025 Energy policy landscape

Despite advancements in CCUS technology, several challenges hinder its

widespread adoption in Germany, most notably that storage is currently prohibited by
law. The prohibition is due to be changed based on a forthcoming amendment to the
Carbon Dioxide Storage Act, which will allow CO2 storage in the Exclusive Economic
Zone onshore (through an opt-in clause at the discretion of the federal states).
Transport of CO2 will also be regulated with legal certainty. Public acceptance
remains a significant challenge, as there is scepticism regarding the safety and
environmental impact of underground CO2 storage. Building public trust through
transparent communication and stakeholder engagement is crucial. Economic
viability also poses a significant barrier, as the high cost of capturing and storing CO2
makes it challenging to achieve widespread adoption. Reducing costs through
technological innovation and achieving economies of scale is essential for broader
implementation.

Additionally, developing infrastructure for CO2 transport and storage requires

substantial investment and planning (currently expected from private funds).
Regulatory uncertainty, despite existing regulations, also necessitates ongoing policy
development to provide clear guidelines and incentives for CCUS adoption.

Transport
Transport is the third-largest energy-consuming sector in Germany, accounting for
approximately 20% of total energy demand. Although its energy demand is less than
that of the industry and buildings sectors, its GHG emissions are higher because it
remains heavily reliant on fossil fuels, with 95% of its energy demand coming from oil
products. In fact, nearly a quarter of Germany’s total GHG emissions come from the
transport sector, which have not registered significant emissions reductions in the
past few decades. The Federal Climate Action Act required that the transport sector
reduce its GHG emissions to 85 Mt CO2-eq by 2030, representing a 45% reduction
from 2022 levels (recently changed to a non-binding target). Therefore, further efforts
are necessary to achieve more rapid GHG reductions in the sector.
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 Germany 2025 Energy policy landscape

Transport sector energy consumption and emissions in Germany,

2010-2022 and target for 2045
140
+ 26% in vehicle kilometres
120
+ 2% in transport emissions
100
1990 index = 100
80
60
40
Target
20
0
1990 2000 2010 2022 2030 2045

IEA. CC BY 4.0.
Sources: IEA (2024), Emissions Factors and IEA (2024), Energy End-uses and Efficiency
Indicators.

Passenger transport accounts for 70% of energy consumption in the transport sector,
making it the leading GHG emitter among end uses. Cars using gasoline and diesel
are the predominant mode of passenger transport in Germany. Buses used in public
transport are mainly powered by diesel, while rail transport consumes most of the
electricity used in passenger transport.

EU CO2 standards for vehicles apply in Germany. For light-duty vehicles, relative to
a 2020 baseline (95 g CO2/km), new cars must see a reduction of 15% in 2025, 55%
in 2030 and 100% in 2035 (when all new car sales must be zero-emissions).
Heavy-duty vehicles must register reductions of 15% by 2025, 45% by 2030, 65% by
2035 and 90% by 2040.

To transpose the EU Renewable Energy Directive (RED II) requirements (minimum

29% renewables share in transport fuels or at least 14.5% reduction in GHG intensity)
into national law, Germany applies a GHG quota under which fuel suppliers must cut
the GHG emissions of their fuels. In 2020, fuel suppliers were required to reduce
emissions by 6% (from 2010), rising to 9.35% in 2024 and 25% in 2030. The quota
can be met with sustainable biofuels, renewable fuels of non-biological origin
(RFNBOs) and electricity. The programme includes multiplier effects for certain
compliance pathways, such as a triple effect for using RFNBOs and a quadruple
impact for electricity.
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 Germany 2025 Energy policy landscape

Decarbonising passenger transport is a critical part of Germany’s overall energy

transition strategy, with EVs playing a key role. In 2023, the share of EVs in
Germany’s vehicle stock was 5.4%, higher than the European median and countries
like France (4% share). Other European countries, such as Norway with 29% of the
total stock, Sweden with 11% and Belgium with 8.2%, are experiencing higher EV
penetration.

Energy consumption in transport by fuel in Germany, 2022

0 200 400 600 800 1 000 1 200 1 400 1 600 PJ

Passenger
transport

Freight
transport

Diesel Gasoline Electricity Jet fuel LPG Natural gas

IEA. CC BY 4.0.
Source: IEA (2024), Energy End-uses and Efficiency Indicators.

In Germany, EVs account for around 24% of sales. At the beginning of 2020, EV sales
started to rise, primarily driven by an increase in the environmental bonus, designed
to promote EV adoption. The programme offered up to EUR 4 500 for EV purchases,
which supported the deployment of an estimated 2.1 million EVs since 2016 (at a cost
of EUR 10 billion). The policy shift boosted the share of EV sales from 3% in 2019 to
14% in 2020. Sustained policy support from the government contributed to EV sales
growth in subsequent years, peaking at 31% of total car sales in 2022.

However, since the subsidy programme ended, the trend has slowed down. The
government’s announcement of the phase-out of incentives for plug-in hybrid electric
and a reduction of incentives for battery electric vehicles starting on 1 January 2023
created a pull-forward effect. This led to a rush of purchases before the incentives
were reduced, and a subsequent decline in market penetration in 2023. In December
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 Germany 2025 Energy policy landscape

2023, EV purchase subsidies were terminated entirely, leading to a decline in sales

in early 2024. As a result, the government’s target to put 15 million EVs on the road
by 2030 could be challenged.

Monthly electric vehicle sales share by powertrain type in Germany,

2019-2024
Share in total car sales Reduction of BEV incentives,
60%
Innovation phase-out of PHEV incentives
Environmental bonus
45% bonus increase End of BEV
incentives
30%

15%

0%
Feb

_
.
.
.
.
.
.
.
.
.
.
.
Dec
Jan
Jul

2019 2020 2021 2022 2023 2024

BEV PHEV
IEA. CC BY 4.0.
Source: IEA analysis based on European Commission, European Alternative Fuels Observatory
(2025), Germany (Accessed: 14 February 2025).

The development of a comprehensive, accessible charging infrastructure is vital for

successful EV adoption. Germany’s infrastructure is lagging the European median
and other leading European countries. The 2023 Climate Protection Programme
outlines measures to ensure the necessary deployment of charging points to meet
the government’s targets, such as a legal requirement for grid operators to expand
grids for the deployment of charging points and unlocking funding for municipalities.
Implementing these measures and monitoring their effectiveness is crucial to making
necessary adjustments and facilitating the penetration of EVs.

The government put forward a plan to address charging infrastructure for EVs. The
2023 Charging Infrastructure Master Plan II set out the timetable for expanding
charging infrastructure over the next few years. It comprises 68 measures across
funding, empowering communities, universal availability, integration into the power
grid, charging at buildings and heavy commercial vehicles. This Plan was designed
to close the gap between electric mobility and power grids, expanding the charging
infrastructure for heavy commercial vehicles and mobilising private investments.
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 Germany 2025 Energy policy landscape

Alongside the Master Plan for charging infrastructure, the government also has an
explicit strategy for commercial vehicles. The Overall Approach to Climate-Friendly
Commercial Vehicles shows how measures can be implemented in a targeted
manner. As a result, the co-funding of battery and fuel cell electric commercial
vehicles has been undertaken. Additionally, a tender for construction and operation
of the fast-charging infrastructure for heavy-duty vehicles officially started in
September 2024. The initial network will comprise around 350 locations with
4 200 charging points along motorways.

Finally, rail and public transport also offer considerable emissions reduction potential
for passenger transport. Germany has made progress since the last IEA Energy
Policy Review in upgrading its rail infrastructure and promoting more public transport.
Notably, the introduction in 2023 of the “Deutschlandticket”, which set a
EUR 49 introductory price (increasing to EUR 58 from 2025) for a monthly public
transport ticket that applies throughout Germany, has proven popular (up to about
13 million users per month). However, results continue to lag potential as rail and
public transport often remain costlier and less convenient from a consumer
perspective. As such, additional solutions to promote rail over road and air transport
can be beneficial, drawing on successful measures in other countries.

The Federal Ministry for Digital and Transport also promotes cycling and walking with
various funding and financing programmes, including an increased budget allocation
in the 20th legislative period of up to EUR 2.91 billion by 2030 for the promotion of
cycling.

Freight transport is primarily dominated by diesel trucks. More sustainable options,

such as rail, offer an energy-efficient alternative and account for most of the electricity
demand in this subsector. According to the 2023 Climate Protection Programme, the
government aims to increase rail’s share of freight transport to 25% by 2030. In
addition, Germany uses its extensive river network to transport heavy goods and bulk
materials by shipping, offering a lower energy intensity option, albeit still reliant on
heavy fuel oil and diesel.

One of the challenges in decarbonising heavy transport is technological development.

Battery technology for electric trucks is evolving, and the first hydrogen fuel cell trucks
are being tested in the market. Therefore, it is crucial to plan for a long-term electric
charging network and for the eventual role that hydrogen is expected to play.
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 Germany 2025 Energy policy landscape

Ratio of electric vehicles per charging point, 2012-2023

EV/charging point
25

20

15

10

0
2012 2023
Germany EU27 The Netherlands
IEA. CC BY 4.0.
Source: IEA (2024), Global EV Data Explorer.

Germany could also take greater advantage of the emissions reduction potential that
sustainable biofuels can bring to its transport sector. Sustainable biofuels can play a
particularly important role in decarbonising harder-to-abate transport sectors such as
trucking, shipping and aviation, but have also proven to hold considerable potential
to lower emissions from light-duty vehicles in the near term before electrification
becomes more mainstream. In particular, sustainable biofuels could bring cost
advantages relative to more expensive options such as e-fuels. Meanwhile, electric
trucks are gaining momentum globally, led by the People’s Republic of China
(hereafter, “China”), and EU CO2 standards for heavy-duty trucks targeting a 90%
emissions reduction by 2040 will further support growth in coming decades. In
Germany, as of April 2024, electric vehicles accounted for 2.1% of the commercial
truck fleet.

Electricity
Despite significant growth in renewables, the German electricity system remains
reliant on fossil fuels. Renewable electricity generation has increased substantially in
the past decade, with wind growing by 137% and solar by 95% between 2013
and 2023. By 2023, renewables accounted for 52.5% of gross electricity consumption
and reached 54% in 2024. However, fossil fuels still contributed to nearly half of
electricity generation in 2023, with coal making up 30% and natural gas 16%. Nuclear
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 Germany 2025 Energy policy landscape

energy accounted for 6% of electricity generation in 2022, but the German nuclear
fleet was completely shut down in 2023.

Continued reliance on fossil fuels made electricity and heat generation the largest
contributor to energy-related GHG emissions in Germany, accounting for 39%
in 2022. Decarbonising electricity is, therefore, crucial for Germany to achieve its
climate targets. While Germany has a plan to exit from coal no later than 2038, natural
gas plants are expected to play a continued role in the power sector. A previously
planned Power Plant Strategy, which aimed to hold auctions for 12.5 GW of new
hydrogen-fired and natural gas-fired plants that could later (2035-40) be converted to
run on hydrogen, was set aside in November 2024. However, the government still
plans to implement a capacity mechanism by 2028 to support additional dispatchable
capacity, including power plants, storage and demand response.

Electricity generation by fuel in Germany, 2005-2023

Fossil fuels and nuclear (TWh) Renewables (TWh)
350
300
250
200
150
100
50
0
2005 2010 2019 2023 2005 2010 2019 2023
Coal Oil Hydro Wind
Natural gas Nuclear Solar Bioenergy
IEA. CC BY 4.0.
Sources: IEA (2025), World Energy Balances.

Electricity generation capacity in Germany increased by 45% between 2013

and 2023, driven primarily by a significant expansion in renewable energy. However,
due to lower utilisation rates over the period, total generation has been relatively
steady. During this decade, wind capacity grew by 36 GW and solar capacity
increased by 46 GW. This growth was largely driven by two key factors: 1) the need
to compensate for the loss of nuclear energy; and 2) policy support for renewable
technologies.
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 Germany 2025 Energy policy landscape

Electricity capacity additions by technology in Germany, 2018-2023

Share by technology Variation, 2018-2023 (GW)
100% 40
Other
80%
30 Solar
60% Wind
20
40% Nuclear
10 Natural gas
20%
Coal
0% 0
2018 2023 Additions Reductions
IEA. CC BY 4.0.
Source: IEA (2025), Electricity Information.

Germany is located in the centre of the European electricity market and therefore
well-connected with its neighbours, including Austria, Belgium, Czechia, Denmark,
France, Luxembourg, the Netherlands, Poland, Sweden and Switzerland. Recent
additional projects include NordLink (1.4 GW capacity), which became operational in
2021, connecting Germany with Norway’s system. The NeuConnect Interconnector
(1.4 GW of capacity) between Germany and the United Kingdom is due to come
online in 2028.

Germany became a net importer of electricity in 2023. Lower electricity generation

costs in its partner countries, especially the Nordic countries (which are less reliant
on gas-fired generation), along with high carbon pricing under the EU ETS helped
Germany to significantly increase its imports compared to previous years. This trend
was further influenced by the nuclear phase-out and ongoing phase-down of coal
plants, which lowered domestic electricity generation relative to demand. The
situation highlights the increasing importance of the European electricity market for
Germany through the energy transition. Traditionally, Germany’s main export markets
are Austria, Czechia and Poland, while its top importers are Austria, Czechia, France.
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 Germany 2025 Energy policy landscape

Electricity trade in Germany, 2019-2023

TWh
80
60
40 Total imports
20
0 Total exports
-20
-40 Net trade
-60
-80
2019 2020 2021 2022 2023

IEA. CC BY 4.0.
Source: IEA (2025), Electricity Information.

There are four transmission system operators (50Hertz, TenneT, TransnetBW and
Amprion) in Germany with responsibilities for distinct control areas, though the entire
country falls under a single wholesale bidding zone. It also has around
870 distribution system operators (DSOs) of varying size. Both wholesale and retail
electricity markets in Germany are competitive. On the wholesale market, utilities can
procure electricity under long-term contracts or on future or forward markets.
Germany’s future markets are among the most liquid in Europe. Short-term contracts
are traded on various spot markets, the most liquid of which are the day-ahead and
intraday markets. Utilities also compete in retail markets, and both household and
industry end users are free to choose from different suppliers on either fixed or
variable pricing structures.

Fuels
Oil
Having only limited domestic production, Germany imports its crude oil from a
diversified pool of countries. Russian crude oil imports, which accounted for 34% and
25% of total national imports in 2021 and 2022, respectively (along with refined
product imports), were almost entirely cut and replaced in 2023, mainly by increased
imports from the United States, Norway and Libya.
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 Germany 2025 Energy policy landscape

Crude oil and oil products net trade by country in Germany, 2019-2023
Crude oil net imports (kb/d) Oil products net trade (kb/d) Other
1 800
Netherlands
1 500 Belgium
1 200 UK
Kazakhstan
900
Libya
600 Norway

300 US
Russia
0
2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 Net trade

IEA. CC BY 4.0.
Source: IEA (2025), Oil Information.

Germany houses Europe’s largest refining capacity, with 15 oil refineries. In this
regard, its downstream oil industry plays an important role in security of supply,
supplying end users and in job creation and regional economic development. The
sector is also instrumental for supplying the petrochemicals industry. Based on a
reduction in demand due to the economic situation, refining capacity is expected to
drop from 101 Mt in 2023 to 90 Mt in 2025.

Oil products demand by product and sector in Germany, 2023

Oil products demand by product (2023) Oil products demand by sector (2023)
Other
Jet and Transport
Diesel Industry
kerosene

Naphtha Buildings
and other

Electricity and
Other gasoil heat generation
Motor gas International bunkers

IEA. CC BY 4.0.
Source: IEA (2024), Oil Information.
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 Germany 2025 Energy policy landscape

Natural gas
Natural gas is a significant part of Germany’s energy mix, accounting for 26% of final
energy consumption in 2022, primarily used for electricity generation and heating in
buildings. Domestic production of natural gas is limited, meeting only 6% of demand
in 2023. It has been declining over the years, from 8.7 bcm in 2015 to 4.4 bcm
in 2023, with a heavy reliance on imports to meet demand.

The natural gas price crisis following Russia’s invasion of Ukraine caused domestic
demand in Germany to drop by 18% from 2021 to 2023. In response, Norway
emerged as Germany’s primary supplier of natural gas, while liquefied natural gas
(LNG) imports were quickly ramped up, accounting for 8% of total imports in 2023.

Natural gas imports by country in Germany, 2019-2023

bcm
100 Other

80 US (LNG)

60 Netherlands

40 Belgium

20 Norway

0 Russia
2019 2020 2021 2022 2023
IEA. CC BY 4.0.
Source: IEA (2025), Natural Gas Information.

With an annual capacity of 5 bcm, the Floating Storage and Regasification Unit at
Wilhelmshaven became the first German LNG terminal to start operations in
December 2022, providing a rapid response to supply diversification. Other important
LNG projects include the ENERGIE terminal in Mukran, which received its operating
licence in mid-2024 and will supply up to 13.5 bcm of natural gas into the German
pipeline network, and the Brunsbüttel land-based terminal, which is being developed
to provide long-term LNG import capacity and aims to begin regular operations as
early as 2027. The government expects land-based terminals to be converted to
receive imports of hydrogen and its derivatives over time. The requirements for this
conversion were legally formulated in the 2022 LNG Acceleration Act, which sets
clear timelines (end of LNG imports by the end of 2043) and specific technical
specifications for the conversion to hydrogen.
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 Germany 2025 Energy policy landscape

Germany’s traditional natural gas infrastructure is a complex network of pipelines,

storage facilities and distribution systems designed to deliver natural gas across the
country. Key pipelines include Nord Stream 1, which transported Russian gas through
the Baltic Sea; the Yamal-Europe Pipeline, now primarily used to transport natural
gas from Germany to Poland; the Trans Europa Naturgas Pipeline, connecting the
German and Dutch gas grids; and the Europipe I and II pipelines, which import natural
gas from Norway’s North Sea fields into Germany.

With around 40 gas storage facilities holding more than 24 bcm, Germany has the
largest natural gas storage capacity in the European Union. The onset of Russia’s
war of aggression against Ukraine and the cessation of Russian gas deliveries via the
Nord Stream 1 pipeline necessitated the rapid filling of these reservoirs to prevent a
gas shortage. The storage facilities are particularly important for energy supply during
the winter months, as they help meet peak demand in cold weather and thus
contribute to energy security. Current law requires gas storage facilities to be 80% full
by 1 October, 90% full by 1 November and 40% full by 1 February.

Natural gas prices in Germany doubled following Russia’s invasion of Ukraine. The
ongoing geopolitical crisis and resulting disruptions in Europe’s natural gas market
have strained both households and industries. While there has been a slight
downward trend in prices over the past few months, competition in the gas market
remains crucial for achieving further reductions as procurement conditions improve.
Additionally, diversifying supply sources with LNG could help stabilise end-user
prices, but Germany remains exposed to international market conditions for gas.

Natural gas prices by end user in Germany, 2020-2024

EUR/MWh
150

100

50

0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2020 2021 2022 2023 2024
Residential users Industrial users
IEA. CC BY 4.0.
Source: IEA (2024), Energy Prices.
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 Germany 2025 Energy policy landscape

Coal
Although on a downward trend, the share of coal in Germany’s total energy supply
in 2023 remains high, at 18%. Over a quarter of electricity came from coal-fired
generation, as the government targets to phase it out of the generation mix by 2038.

Germany is a lignite coal producer. In 2023, the volume of production was over
100 Mt, representing three-quarters of coal supply. The remainder is imported, in the
form of hard coal. Russia was the largest importer until 2022, but imports fell by 96%
in 2023. Instead, Germany now mostly imports coal from the United States, Australia
and Colombia. Production has almost halved in the past ten years, reflecting a shift
in the supply mix.

Recommendations
1. Ensure long-term policy and regulatory stability
to support a secure and affordable clean energy
transition as the key engine of German economic
growth.
As energy prices have risen in recent years, the argument that energy transitions
undermine affordability and competitiveness has gained traction in the German public
debate. In reality, however, there is an increased urgency for an energy transition, not
only to address the climate imperative. Notably, Russia’s invasion of Ukraine and the
ensuing energy crisis served as stark reminders of risks related to fossil fuel
dependency. At the same time, the energy transition also provides an opportunity for
German industry to gain competitive advantages in the clean energy industries of the
future. Toward this end, amid the 2022/23 energy crisis, the German government
correctly recognised that an acceleration of the energy transition offers the best longer
term opportunity to regain competitiveness while bolstering energy security and
keeping energy costs low. A number of strategies have been put in place to advance
the energy transition, including plans to decarbonise the heating sector, expand
renewable generation capacity, establish a national carbon pricing system and
accelerate hydrogen development. The next stage of Germany’s energy transition will
be to support affordable electrification, underpinned by sectoral roadmaps that also
clarify technological alternatives where electrification is not feasible. To realise the
tremendous opportunities that the energy transition will bring Germany, continuity in
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 Germany 2025 Energy policy landscape

the policy and regulatory environment will be crucial to providing a stable, long-term
investment environment. The government should continue to progress the future
electricity market design proposals and ensure that there is a clear and stable
investment framework for renewable electricity generation and supporting
technologies as coal is phased out over the coming years. Likewise, long-term
stability in funding and price signals will also be necessary to support certain
technologies, including heat pumps, district heating and electric vehicles. Germany
should also ensure sufficient, strong backing to energy-related research and
innovation to maximise opportunities for industrial competitive advantages. Clear and
transparent communication on the costs, benefits and time frames of the energy
transition will also help ensure public support for the energy transition and the policies
that support it.

2. Significantly ramp up efforts to decarbonise the

transport sector.
Germany’s transport sector is a clear sectoral laggard from an emissions reduction
perspective. To reduce emissions in line with climate targets, the strong dominance
of oil will need to be drastically cut by a range of policy measures. To start, Germany
should significantly ramp up efforts to upgrade rail and public transport infrastructure
to support modal shifts away from the heavy reliance on road transport, which
accounts for nearly 95% of domestic transport emissions. This should be supported
by long-term and stable funding packages.

In the road transport segment, EVs are expected to play the largest role in
decarbonisation. The government concludes that to meet the sector’s climate target,
basically all new cars should be electric by 2030. However, Germany removed its
previous purchase incentives for EVs at the end of 2023, following the court ruling on
KTF funding, and EV sales have recently slowed down. The government should
provide alternative long-term budget-neutral measures to accelerate EV uptake, for
example, a bonus-malus tax structure for vehicle purchases that incentivise sales of
low-emissions alternatives over fossil fuel vehicles. New measures should target not
only privately purchased cars, but also leasing and company cars, which account for
the majority of cars in the German market. EV sales should be complemented by
faster deployment of charging infrastructure, building off the Charging Infrastructure
Master Plan (and ensure sufficient planning co-ordination with the electricity system).
Germany should also explore options to increase the role of sustainable biofuels in
transport. While its GHG quota policy is an effective way to increase the share of
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 Germany 2025 Energy policy landscape

renewables in transport fuels, the government should ensure even treatment of

compliance options. More specifically, it should increase transparency around the
rationale for multipliers or consider alternative options such as linking support to
consistent, third-party certified GHG life cycle assessments of different types of
renewable fuels. More broadly, the transport sector would also benefit from closer
co-ordination across ministries with jurisdiction in this area, complemented by stable
financial support.

3. Clarify the role natural gas is expected to play

through the energy transition.
Natural gas still retains a large role in Germany’s energy system, accounting for
roughly a third of final energy consumption, with large shares in the electricity, industry
and buildings sectors. However, Russia’s invasion of Ukraine and the ensuing energy
crisis in Europe highlighted the considerable risks that stem from natural gas import
dependency. Even with more import diversification through LNG, Germany still
remains exposed to high natural gas prices amid periods of tight global supply. In line
with emissions targets, the government’s gas diversification strategy was based on
the ability to convert LNG import terminals to receive hydrogen down the road.

Germany could benefit from a broader strategy on the role of natural gas in the energy
transition, including time frames and expected prices, to underpin its policies
supporting the development of renewable energy. Such a strategy should also
address the financial impacts of decommissioning natural gas infrastructure that
cannot efficiently be repurposed, to avoid such impacts from creating the wrong
incentives for future-proof investments.

On the demand side, while Germany has recently developed a clear roadmap to wind
down natural gas dependency in its buildings sector through heat pumps and district
heating, the industry and power sectors still face uncertainty on the role of natural gas
through the energy transition. The industry sector, in particular, is facing growing
threats to competitiveness, in part stemming from high natural gas costs. A more
concerted effort to promote energy efficiency and electrification (see the
recommendation on lowering electricity prices) in the short term, along with increasing
the penetration of hydrogen and CCUS in the longer term, represent viable pathways,
but at present, the continued dependency on natural gas remains without a clear end
in sight (though the EU ETS will erode its role over time). Additional clarification on
the natural gas exit ramp for the industry sector, including time frames, would provide
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 Germany 2025 Energy policy landscape

industry with the certainty needed to make future-proof investments, including in

required import infrastructure (for both natural gas and hydrogen) and industrial
clusters.

In the power sector, unlike coal, Germany does not have a discrete policy or roadmap
to exit from natural gas generation, though the target of 100% fossil-free generation
by 2035 suggests that the exit will need to take place over the coming decade. The
EU ETS will be the primary driver for declining natural gas generation. At the same
time, these plant closures (alongside rising demand) are raising concerns about
generation adequacy. The government’s previously planned Power Plant Strategy
attempted to address this issue by tendering 12.5 GW of new natural gas-fired power
plant capacity that could later run on hydrogen. In this way, the construction of new
hydrogen-ready gas-fired capacity could avoid a fossil fuel lock-in that is not at odds
with the electricity generation target, as long as the fuel switch takes place on time.
This indicates that hydrogen will play a role in Germany's future power system but
clarification is needed to what extent, given other competing uses in the next ten
years, raising some questions around the viability of hydrogen-ready gas plants.
Moreover, a broader look at adequacy is needed to include other flexibility options
such as industrial demand response, storage and interconnections (see
recommendations on electricity), which may displace the need for additional
generation capacity. While gas plants might very well continue to play a role in grid
balancing beyond the 2035 time frame, investors need more long-term clarity on the
future role of natural gas in the electricity mix. With this in mind, the government
should move ahead with the future electricity market design proposals, including a
capacity mechanism, and explain how these planned capacity auctions might impact
the need for additional dispatchable generation capacity (see the electricity section
for more details).
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 Germany 2025 Focus areas

Focus areas
1. Electricity system optimisation
Germany is making impressive strides in its energy transition, rooted in its
Energiewende strategy from 2010 that laid the groundwork for an energy system
transformation early on. Nowhere is this progress more evident than in the electricity
sector, where Germany has witnessed a rapid shift away from fossil fuels and nuclear
toward renewable energy. Recent measures to accelerate the country’s permitting
system for renewables as well as the attractive incentives for investments in
renewable installations have been a lynchpin of the successful shift, and Germany
continues to benefit from strong growth in both wind and solar power.

Nonetheless, the energy transition has not come without its costs. A number of
nuclear closures have been concentrated in the energy-hungry southern states, while
most wind power is located in the resource-rich northern regions, creating a regional
supply-demand imbalance that has led to pronounced grid congestion and hefty
associated costs. The costs have contributed to high consumer prices for electricity
that serve as a disincentive for electrification and could erode public support for the
energy transition.

Therefore, Germany is at an important crossroads in its energy transition. To fully

realise a successful transition, including a move toward electrification of end uses
such as transport and heating, the German electricity system will need to further
evolve. Not only will the government need to ensure an enabling environment for
additional growth in renewables generation capacity, but likewise to ensure sufficient
investments and policy/regulatory settings to support much-needed grid investments
and flexibility resources. Together, generation, grids and flexibility will all play vital
roles in achieving a more efficient, secure and affordable electricity system.
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 Germany 2025 Focus areas

Load growth
According to the System Development Strategy, gross electricity demand in Germany
is expected to grow to more than 950 TWh in 2035 and up to 1 100-1 300 TWh
in 2045 (relative to 525 TWh in 2023). Industry demand is expected to grow from
214 TWh to 250-320 TWh in 2035 and 300-400 TWh in 2045. These numbers are
based on comprehensive long-term scenarios covering the electricity, gas and
hydrogen systems.

Generation
Germany’s electricity mix has already experienced transformative changes in recent
years, driven by the overarching Energiewende strategy. In particular, the country’s
nuclear capacity completely closed in 2023, and coal-fired generation capacity
experienced a marked reduction. At the same time, the country has seen a major
surge in renewables capacity, notably wind and solar PV. New renewables capacity
will be the main driver to underpin the country’s target to source 80% of electricity
from renewable sources by 2030 and 100% by 2035. The government estimates that
the target will translate into a requirement for 600 TWh of domestic renewable
electricity by 2030 (relative to 2022 volumes of around 245 TWh), from the following
sources: onshore and offshore wind, solar PV, imported electricity, and power plants
using green hydrogen. At the same time, clarity on the pathway to exit from fossil
fuels is also needed.

Coal
While coal remains a significant part of the German electricity mix, its capacity has
fallen by 34% since 2012. Its share of the 2023 generation mix stood at 27%,
compared to 46% in 2012. The decline to date has mainly been driven by market
conditions and EU ETS prices. The German government’s goal is to phase out
coal-fired generation by 2038 at the latest, though it expects EU ETS prices to push
an exit sooner.

Following up on recommendations from a society-wide consultation process, in 2012,

the German government formally enshrined a coal phase-out into law. The law
provides a detailed roadmap for the phase-out, with separate plans for lignite and
hard coal along with compensation to coal plant owners for closures and up to
EUR 41 billion in support for coal-dependent communities. The exit from lignite will
have more significant economic impacts given the outsized role that lignite mining
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 Germany 2025 Focus areas

plays in certain regions, whereas Germany closed its last hard coal mine in 2018.
Relative to 15 GW each of lignite and hard coal capacity in 2022, the plan calls for
8 GW of remaining hard coal and 9 GW of lignite by 2030, both winding down to zero
by 2038 at the latest. The government reached a separate agreement with the
industrial and coal-producing region of North Rhine-Westphalia and coal plant
operator RWE to phase out lignite-fired generation by 2030. The plan calls for regular
reviews every three years to determine whether the final exit date can be brought
forward to 2035.

Natural gas
In contrast to coal, natural gas has maintained its share in Germany’s generation mix,
averaging around 15% over the past decade. Notably, as variable renewables have
assumed a dominant role in the fuel mix, natural gas has played an increasingly
critical role in balancing the grid. In fact, Germany saw growth in natural gas
generation capacity of 11 GW over the period 2010-23. Natural gas is also the
predominant fuel (accounting for around half) in co-generation plants. Moreover, the
permanent closure of the final nuclear plant and forthcoming coal closures are
expected to increase reliance on natural gas for electricity generation in the short
term. The government committed to introduce a capacity mechanism to support
investments in dispatchable capacity.

Renewables
The growth of renewables in Germany’s electricity system is a clear success story for
the country. Impressively, for the first time, Germany saw renewables produce more
than half of power generation in 2023.

Early growth in the sector was driven by the Renewable Energy Sources Act (EEG),
which in 2000 established 20-year feed-in tariffs along with guaranteed grid
connectivity and preferential dispatch. An EEG surcharge on electricity consumers
financed the subsidies. As costs escalated, the support programme shifted in 2017 to
one based on competitive auctions. Today, the auction system continues to produce
strong results for renewables capacity growth, as cost reductions and favourable
terms will support the sector’s expansion in the coming years too.
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 Germany 2025 Focus areas

Renewable electricity generation (2006-2024) and forecast (2030) in

Germany
TWh Onshore wind
500 100%

400 80% Offshore wind

300 60% Solar PV

200 40%
Other renewables
100 20%
Share of renewables in
0 0% electricity generation
2006 2012 2018 2024 2030 (right axis)

IEA. CC BY 4.0.
Note: Other renewables includes hydro, bioenergy and geothermal.
Sources: IEA (2024), World Energy Balances and IEA (2024), Renewable Energy Progress Tracker.

Wind
Onshore wind has to date experienced the strongest growth based on favourable
economics, though future expansions will be constrained by available funding under
the EEG as well as limited locations for new installations. In this context, the
repowering of older, smaller facilities to upgraded wind parks with larger capacities is
expected to be a notable source of growth. Nonetheless, the sector continues to see
strong growth, with the Federal Network Agency (BNetzA) auctioning 12 GW of
capacity in 2024, and the November auction receiving a record number of bids
(1.5 times oversubscribed). The improved auction outcomes in 2024 relative to 2023
were partly attributable to permitting reforms the government undertook to implement
EU emergency regulations on permitting that call for a provision to override public
interest opposition to accelerate wind projects. Overall, the government targets an
expansion of onshore wind capacity to 115 GW by 2030 and up to 160 GW by 2040
(relative to 61 GW in 2023).

Beyond onshore wind, offshore wind represents an important growth opportunity that
may require additional policy or regulatory support to be realised. The government
has targets to realise 30 GW of offshore wind capacity by 2030, 40 GW by 2035 and
70 GW by 2045 (relative to 8.9 GW as of June 2024), based on competitive auctions
outlined under the Offshore Wind Energy Act. Amendments to the Act further support
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 Germany 2025 Focus areas

the sector through accelerated planning and approval processes as well as

improvements in tender design. Successful bidders also secure grid connections as
part of the auction process. The government planned to auction 8 GW of capacity
in 2024. While the government is helping to finance an expansion of the Port of
Cuxhaven, which supports the import of wind components, more systematic upgrades
to ports along with broader supply chain infrastructure is likely required to bolster the
sector’s ambitions. Grid connection delays for offshore wind projects also remain an
impediment and could slow capacity additions.

Solar
Solar PV is also a central pillar of Germany’s goal of meeting 80% of electricity
production from renewable sources by 2030. Revisions to the EEG in 2022 included
a target to achieve a total capacity of 215 GW by 2030 (from around 83 GW in 2023).
The country has experienced a renewed surge in solar PV investments in recent
years, notably rooftop solar. As a result, despite being far from a sunny country,
Germany has positioned itself as a leading country for solar power. The country’s
solar growth has been driven both by auctions for installations larger than 1 000 kW
of capacity and by support schemes such as feed-in tariffs for smaller, decentralised
systems.

In response to weaker market conditions for solar investments in 2022, the

government introduced reforms in 2022 and 2023, including streamlining permitting
and lifting auction ceiling prices (by 25%) to reflect higher capital costs, which resulted
in renewed momentum for solar auctions. As a result, the December 2023 auction for
ground-mounted solar projects was oversubscribed more than three times its 1.6 GW
of capacity.

The 2022 revisions to the EEG also included higher feed-in tariffs for rooftop solar
installations, which have led to a pronounced boom in investments. The government
also simplified grid connection requirements for residential systems, further
supporting their growth. More recently, in 2024, the government passed Solar
Package 1, based on the BMWK’s 2023 Solar Strategy, which included higher feed-in
tariffs for commercial and industrial projects. It also simplified rules and improved
incentives for balcony solar installations (including to facilitate installations by tenants)
as well as community solar projects. Importantly, the favourable conditions for rooftop
solar have been matched by swelling popularity for solar technology, especially
following the energy crisis in 2022.
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 Germany 2025 Focus areas

Affordability and competitiveness

Ensuring the affordability of electricity through the energy transition will be a
paramount objective for Germany. Not only will keeping prices low for households be
imperative to ensure fairness and equity during the transition, but it will also inform
support for the transition itself.

In response to the energy crisis due to Russia’s invasion of Ukraine, the German
government in 2022 took the decision to do away with the surcharges on electricity
supply to households to finance support for renewables. The EEG surcharge (which
made up around a fifth of consumer prices) had led German consumers to pay among
the highest electricity prices in Europe. Instead, renewables support measures are
now being covered by the general state budget. The removal of the surcharge will not
only provide relief to German households (estimated savings are roughly
EUR 200 per household annually) but also help bring down the relative cost of
electricity vis-à-vis fossil fuels to promote greater electrification, especially in heating
and transport.

Electricity price components for households consuming 3 500 kWh

per year in Germany, 2018-2024
EUR/kWh
0.5 Renewable
Energy Sources
0.4 Act surcharge
Procurement and
0.3 supplier cost

0.2 Grid fee

0.1
Taxes, levies and
other surcharges
0
2018 2019 2020 2021 2022 2023 2024

IEA. CC BY 4.0.
Source: IEA analysis based on German Association of Energy and Water Industries, BDEW
electricity price analysis March 2025 (Accessed: 31 March 2025).
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 Germany 2025 Focus areas

Moreover, the German economy is built on a large export-orientated industry sector,

many of which are global leaders in their fields and major job creators in the country.
Energy prices – and especially electricity prices (as more electrification and
low-carbon hydrogen become mainstays of the future energy system) – will be a key
determinant of the future competitiveness of German industry. Already, pursuant to
the 2022 energy crisis and consequent gas and electricity price increases, the country
is facing a decline in industrial activity, and several firms have indicated they are
considering cutting output or relocating facilities abroad.

Average electricity price for industry users in selected countries, 2023

UK
Italy
Germany
France
Spain
OECD
Korea
Sweden
Canada
Finland
USA USD/MWh
0 50 100 150 200 250 300 350

IEA. CC BY 4.0.
Source: IEA (2024), Energy Prices.

In 2024 the government brokered a deal with power suppliers to cap prices for certain
large businesses, but such types of temporary support measures are not sustainable
over time. Moreover, a constitutional court ruling on debt limits will further hamper the
government’s ability to offer public support to mitigate price impacts. In fact, a 2023
government proposal to subsidise electricity prices was eventually scrapped following
opposition from the Ministry of Finance and the court ruling. Rather, Germany will
need to address economic inefficiencies in its electricity system and optimise its
utilisation to bring down overall costs while ensuring security of supply. A clear plan
for bringing down system costs will not only support needed investments across the
electricity system, it will also provide clarity to German industry and support a
continued, strong industrial sector.
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 Germany 2025 Focus areas

Electricity prices
Reduced supply of Russian gas following Russia’s invasion of Ukraine led to
unprecedented electricity prices in 2022. Wholesale electricity prices in Germany
peaked in August 2022 at 699 EUR/MWh, more than five times the price in August
2021. In response to the crisis, Germany accelerated the deployment of renewable
energy projects as part of a broader strategy to reduce reliance on imported fossil
fuels, supported by the European Commission’s REPowerEU plan. Since the peak in
electricity prices in the third quarter of 2022, the share of solar and wind generation
has increased by 45%. These measures, along with the diversification of gas supply
(and a softening of gas prices), have contributed to the reduction in wholesale prices
since 2022. The surge in renewables generation has also led to an increase in price
variability. The number of periods of negative electricity prices during periods of high
output has increased, exacerbated by the inflexibility of traditional power plants,
especially nuclear and coal-fired plants, to be easily turned off or ramped down.
Negative electricity prices signal the need for more flexibility in the system and
encourage shifts in consumption patterns. They can also serve as a deterrent to new
investment in power generation if investors perceive a risk of insufficient returns.

Cumulative hours of negative electricity prices by month in Germany,

2021-2024

350 Hours 2024

300
250
2023
200
150 2021
100
50 2022

0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

IEA. CC BY 4.0.
Source: IEA analysis based on ENTSOE (2024), Transparency platform, collected through the Real-
Time Electricity Tracker.
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 Germany 2025 Focus areas

Regional imbalances and grid congestion

The regional imbalance between higher shares of wind capacity located in northern
Germany and major demand centres located in the south and west of Germany
persist. The imbalance has been exacerbated by the closure of power plant capacities
(nuclear, coal and gas), concentrated in the high-demand southern and western
regions, the continuous increase of wind capacities in the north, and increasing cross-
zonal trade requirements. The result is a continued geographical mismatch between
generation capacity and demand, which the transmission grid struggles to keep up
with, even in the face of expansions and debottlenecking efforts in recent years. The
ensuing grid congestion and transfer losses prevent the system from maximising its
efficiency and lead to curtailment in the north and redispatch measures in the south.
The losses can cost end users sizeable sums and insufficient grid capacity also
creates loop-flow challenges for Germany’s neighbours. The loop-flow challenges
have been mitigated by investments in phase-shifting transformers and by higher
trade requirements.

Estimated electricity balance by federal state in Germany, 2022

Negative North Positive
electricity electricity
balance balance

South

IEA. CC BY 4.0.
Note: Bubble size indicates the annual electricity consumption per federal state.
Source: IEA analysis based on data from the statistical offices of the German federal states and
LAK Energiebilanzen.

Grid congestion in Germany has rapidly increased in recent years, with associated
costs more than tripling between 2019 and 2022. The issue has become a major
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 Germany 2025 Focus areas

problem for the system, driven by three interrelated factors: 1) insufficient

transmission capacity to transport the high volumes of renewable generation from the
north to consumption centres in the south; 2) the closure of power plants in the south;
and 3) the policy decision to maintain a single price zone while increasing cross-zonal
trade. The costs for congestion measures such as redispatch, countertrading and the
use of grid reserves peaked at EUR 4.25 billion in 2022, especially due to rising fuel
prices in the wake of the energy crisis in Europe. These measures result in additional
costs for consumers, who bear the financial burden through increased grid charges.
Preliminary estimates suggest a decline of redispatch costs in 2024 well below 2021
levels.

Costs of grid congestion management measures in Germany, 2018-

2023
EUR billion
4.5

1.5

0
2018 2019 2020 2021 2022 2023

IEA. CC BY 4.0.
Source: IEA analysis based on Federal Network Agency (2024), Grid congestion management
(Accessed: 24 October 2024).

Curtailment of renewable electricity has become a key measure adopted to address

grid congestion. Curtailed renewable energy increased to 10 TWh, accounting for
53% of total electricity curtailed in 2023. While smaller scale grid expansions have
helped reduce onshore wind curtailment, major grid investment decisions to
strengthen the north-south corridor are still pending. This delay increased
curtailments of offshore wind farms, as most wind capacity is in the north while major
industries and load centres are in the south. This geographical mismatch between
renewable generation and consumption results in higher curtailment, especially when
limited interconnection capacity prevents exporting renewable electricity. In
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 Germany 2025 Focus areas

November 2023, the government introduced a “use instead of curtail” regulation that
incentivises additional electricity demand by offering excess generation to specific
consumers in certain regions facing high curtailment probabilities. Nonetheless,
curtailment challenges persist.

Renewables curtailments for grid congestion management in

Germany, 2019-2023
TWh
6 60% Offshore wind

4 40% Onshore wind

Solar
2 20%

Share of VRE in total

curtailment (right axis)
0 0%
2019 2020 2021 2022 2023

IEA. CC BY 4.0.
Note: VRE = Variable renewable energy.
Source: IEA analysis based on Federal Network Agency (2024), Grid congestion management.
(Accessed: 24 October 2024).

To support more efficient operation of the electricity system, BMWK released

proposals in August 2024 for an electricity market design of the future, based on the
findings of the 2023 Platform Climate-Neutral Electricity System. The options laid out
in the report are based on four fields of action: 1) the renewables investment
framework; 2) the investment framework for dispatchable capacity; 3) locational
signals; and 4) demand flexibility.

Transmission grid
Insufficient power grid capacity remains a notable impediment to Germany’s energy
transition. A key solution to alleviating its regional power imbalances and addressing
grid congestion is to increase transmission grid capacity, especially from the north to
the south. The government recognises the impediment and has been taking
measures to remedy it, though delays remain a bottleneck to projects.
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 Germany 2025 Focus areas

Germany’s transmission system operators (TSOs) have planned major expansions of

power transmission lines under successive network development plans to transport
abundant wind energy in the north to power consumption centres in the south.
Originally due to be completed before the last nuclear plants shut down at the end of
2022, permitting and construction delays have meant that projects are running years
behind schedule. For example, the Ultranet line to connect offshore wind in the
North Sea to industrial demand centres in the south is estimated to require around
13 500 permits. The first sections of the A-Nord, Ultranet, SuedLink and SuedOstLink
projects have now all completed their permitting process and are under construction.
The remaining sections will follow successively through the end of 2025.

In 2023, BNetzA announced a plan to significantly expedite the issuance of permits

for grid infrastructure, so that by the end of 2024 it would have approved a total of
2 800 kilometres (km) of lines and a total of 4 000 km by the end of 2025, a sizeable
jump from previous years. To date, progress has been limited to individual sections
of a line rather than across larger areas. In total, around 16 000 km of new
high-voltage lines or reinforcements are expected to be built across Germany in the
coming years, according to the regulator, based on national law. Germany improved,
among other things, a mechanism that allows for early construction of sections of a
line before the final planning approval decision for an entire project is handed down.
For instance, the early construction approval for the A-Nord pipeline allowed for
construction of the Lower Saxony 2 segment of the line to begin seven months earlier
than planned.

As in other countries, there has been strong local opposition to power lines in
Germany, in some cases manifesting as citizens’ protests mobilising large segments
of local populations. To minimise the risk of local opposition, most high-voltage direct
current lines are planned for underground construction, despite significantly higher
costs compared to overhead lines. For example, planning discussions for the
Suedlink transmission project to send wind power from the north to the south of
Germany began in 2014. Originally conceived as an overhead line project, it was
forced to shift to underground cables in the face of strong local opposition. The
change is estimated to have tripled the pipeline’s costs and led to a three-year delay.
The project is now planned for completion in 2028, though additional delays are
possible.
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 Germany 2025 Focus areas

Bidding zones
Unlike some other European countries with regional supply and demand disparities,
such as Norway and Sweden, Germany is not divided into bidding zones. Rather, the
entire country falls under a single bidding zone, together with Luxemburg, which
keeps wholesale prices uniform throughout the country. This situation, compared to
a situation with several bidding zones, benefits consumers in Germany’s southern
and western industrial heartlands, where most demand is concentrated, while most
wind energy is generated in the north.

In August 2022, ACER decided to undertake a Bidding Zone Review in France,

Germany, Italy, the Netherlands and Sweden to assess the current status quo relative
to alternative bidding zone configurations. For Germany, in light of the considerable
congestion on its transmission grids, ACER determined that four different
configurations are to be assessed: two different configurations to split into two bidding
zones, one configuration with three bidding zones and one configuration with four
bidding zones. ENTSO-E is undertaking the review. EU regulation states that bidding
zones should be structured based on systematic congestions in the transmission grid,
while the review will determine whether alternative configurations increase
operational efficiency and cross-zonal trade opportunities. The TSO review is due to
be completed in spring 2025, with a government decision on the recommendations
due six months later. Implementation of bidding zone configuration changes, if any,
is subsequently expected in 2027, at the earliest.

The debate over splitting Germany’s bidding zone is not new as regional imbalances
have led to redispatch and curtailment measures for some time (and were also salient
in the IEA’s previous Energy Policy Review in 2019). However, political opposition to
splitting Germany into more than one bidding zone remains strong. While northern
states favour a split to take advantage of abundant wind resources that would likely
result in lower power costs (and have been frustrated by the slow pace of grid
expansions to alleviate the issue), southern and western states (Baden-Württemberg,
Bavaria, Hesse, North Rhine-Westphalia, Rhineland-Palatinate and Saarland) are
strongly against a split, mainly due to the higher prices that might result. Moreover,
power plant closures in southern regions in recent years could exacerbate the
potential price increase that a bidding zone split would create in the south.

Germany might need to reconsider the economic efficiency of applying only a single
bidding zone across the entire country. The ongoing investigation by TSOs and the
final recommendations will be based on detailed technical assessments. Therefore,
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 Germany 2025 Focus areas

the government should not take a political decision to preclude any bidding zone
splits, instead heeding the advice of the review and maintaining an open mind about
the possibility of implementing differential pricing across Germany to address the
inefficiencies and hefty costs that come with grid congestion. Germany could look to
Italy’s bidding zone structure, where power producers face differentiated prices based
on generation capacity and demand (thereby still providing price signals to generation
investments), while consumer prices are levelled under a single national price.

System flexibility
Germany can also look to ramp up efforts to support flexibility measures to improve
the operational efficiency of its electricity system, including incorporating storage,
distributed resources, demand-side management (DSM) and digital upgrades.

Equally important, as EVs and heat pumps become bigger parts of the energy
transition, Germany will need to undertake major upgrades to distribution networks
and align transmission and distribution network planning.

Storage
As Germany’s power system shifts toward greater dependence on variable renewable
generation, especially in a world of 80% renewables by 2030, the country will need to
complement generation growth with flexibility resources. In this regard, storage will
increasingly become a cornerstone of the German electricity system, from both
pumped storage and batteries. Pumped storage has played a role in Germany’s
power system for a long while, though its future expansion potential is limited owing
to constraints on suitable locations. Heat storage within heat networks that are used
in combination with large-scale heat pumps can also improve flexibility in the
electricity system. In the future, hydrogen storage can also play an important role in
electricity system balancing. BMWK released an electricity storage strategy in 2023
to lay out a framework for development of the storage market in Germany on the
pathway to a carbon-free electricity sector by 2035.

Germany recently demonstrated progress on expanding the role of storage in its

energy system, led by household storage systems. Consumer trends that favour
decentralised power generation, heat pumps and EVs are the main drivers. High
electricity prices are also an important factor. In fact, 80% of rooftop solar installations
in Germany in 2023 were accompanied by storage. As a result, Germany saw a 46%
increase in energy storage in 2023 relative to the previous year, according to the
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 Germany 2025 Focus areas

storage industry organisation BVES. Around 1.8 million single-family homes had
energy storage systems in place by the end of 2024, or around 15% of the market
segment. Nonetheless, Germany will need to see still higher volumes of storage
deployed to ensure security of supply through its electricity transition, especially
utility-scale storage.

Utility-scale batteries are already an important provider of ancillary services in

Germany’s electricity market, notably frequency response and reserves, supported
by reforms that allow battery storage assets to access the markets for these services.
Batteries also played an important role in alleviating grid congestion in Germany as
grid boosters. Under the 2019 grid booster initiative, the regulator approved 950 MW
of storage assets as part of the TSOs’ 2030 network development plan, and a total of
450 MW are already under construction in the control areas of two TSOs. Beyond
frequency control services and grid boosting, another driver for utility-scale storage in
Germany is the Innovation Tender for co-located generation and storage assets and
optimising energy consumption at industrial sites. The elimination of double charging
of taxes and grid tariffs for storage has also lent important support to the market.
Large-scale battery capacity in Germany at the end of 2023 was 1.5 GW, with several
new projects also under construction.

Large-scale battery storage capacity (2020-2024) and planned capacity

(2025-2026) in Germany
GW
4

0
2020 2021 2022 2023 2024 2025 2026
IEA. CC BY 4.0.
Note: The planned capacity is the capacity already registered in the German market database.
Source: IEA analysis based on RWTH Aachen University (2025), Battery charts (Accessed 28
January 2025).
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 Germany 2025 Focus areas

Flexible demand
In addition to storage, flexible demand has an important role to play in balancing
Germany’s renewables-dominated electricity system, today and especially in the
future. To support consumer participation in the electricity market more actively, a
combination of incentives, enabling infrastructure and price signals all contribute.

DSM is still in its early days in Germany. It involves managing demand to boost the
flexibility of the system by treating demand as a service for grid balancing. The
German energy agency Dena notes that the industry sector, which consumes 44% of
the country’s electricity, offers DSM potential of around 5-15 GW. However, in
Germany, the Electricity Grid Charges Ordinance imposes a constraint on flexible
demand by offering grid fee reductions to baseload energy-intensive demand,
impeding DSM opportunities. Dena – in collaboration with state governments in
Bavaria and Baden-Württemberg, which have outsized exposure to the nuclear
phase-out – is carrying out pilot programmes on DSM for industry to support broader
application of DSM.

Given the impressive growth that Germany is experiencing in rooftop solar PV (plus
storage) deployment (along with EVs and heat pumps), so-called prosumers
represent an important resource that can help the country improve the flexibility of its
electricity system. However, Germany does not appear to be maximising this
potential. Notably, regulatory and bureaucratic hurdles appear to be constraints, as
does lack of information. In particular, the high regulatory burdens placed on
prosumers as designated “energy suppliers” serves as an impediment. The individual
use of aggregation services to allow consumers (and prosumers) to collectively
provide services is also limited.

Germany is also pursuing pilot projects to use demand-side flexibility from heat
pumps to bolster grid security. The German manufacturer Viessman, along with TSOs
50Hertz and TenneT, launched a pilot project to aggregate heat pump flexibility
across participating Viessman customers and offer the savings to the TSOs to
manage grids during peak loads. The pilot’s target is to incorporate 100 heat pumps.
Nonetheless, several barriers remain to widespread application, including complex
certification standards and insufficient remuneration for residential demand‐side
flexibility in system balancing and ancillary services markets.
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 Germany 2025 Focus areas

Germany has a very high share of consumers with flat electricity tariffs, so a shift
toward time-of-use or dynamic tariffs would not only support flexibility but could also
result in direct cost savings for consumers, beyond system-level benefits.

Smart meters are a key enabler for encouraging flexibility in demand. Toward this
end, Germany has struggled with its smart meter rollout for years due to legal and
bureaucratic challenges, lagging behind many other European countries in this
regard. Digital security and privacy protection concerns, in particular, are salient in
Germany. With its decentralised energy transition, Germany is aiming to replace
large-scale generation plants with millions of renewable energy systems. This is only
possible if generation and consumption can be digitally controlled and networked
while ensuring IT security and data protection. The European Commission recently
made it clear through the Cyber Resilience Act that, in view of system risks, smart
meters must meet the highest cybersecurity requirements (classification in the “critical
category” in Annex IV). Initially, Germany had imposed a three-manufacturer rule that
required certification by at least three independent manufacturers of smart meters to
ensure competition in the smart meter market. Afterwards, a lawsuit by several
companies against a previous decision of the Federal Office for Information Security
to allow the start of the rollout led to a significant delay. Consumer protection groups
also voiced opposition to the rollout based on concerns over higher electricity prices.

To speed up digitalisation efforts, the parliament adopted a federal law in 2023 that
renews actions on digitalisation and a smart meter rollout. Importantly, the law would
enshrine the smart meter rollout timetable into law by 2030 and do away with the
three-manufacturer certification given the maturity of the smart meter market as well
as the prerequisite of an administrative decision to start the rollout. The law would
instead allow for immediate rollout of certified meters, with more sophisticated
applications allowed under subsequent updates. Costs will also be distributed in a
way that sees network operators bearing the brunt, keeping consumer fees low. It
also requires all electricity suppliers to offer dynamic pricing by 2025 (currently
required only for those supplying at least 100 000 customers). As of Q3 2024, more
than 1 million smart meters were in use in Germany, which is around four times the
level at the end of 2022.

Another important piece to encourage behind-the-meter flexibility is improving the

integration of consumer systems onto the distribution grid. In the German context,
ensuring that distribution grids are fit-for-purpose through the energy transition will be
at least as important as expanding transmission grids. To this end, not only will the
government need to address regulatory impediments for consumers, but it will also
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 Germany 2025 Focus areas

need to facilitate upgrades by (numerous and varied) DSOs. Importantly,

decentralised flexibility on distribution grids can also go a long way to addressing
congestion on transmission grids. For their part, DSOs started compiling regional
scenarios for the energy transition in 2023 across six planning regions to increase
co-ordination among network operators. The scenarios, which are updated every two
years, form the basis for distribution network development plans. Network operators
estimated that EUR 110 billion would be required over the decade 2023-33, which will
be passed on to consumers through grid fees. The government has recently
implemented an EU directive on flexible connection agreements to integrate more
renewable energy into distribution grids in areas with limited grid capacity.

Recommendations
4. Prioritise actions to lower electricity retail prices.
German consumers face among the highest electricity prices in Europe. Already, the
government has taken a significant and welcome step toward alleviating prices by
removing the EEG surcharge. Energy-intensive industrial consumers also receive
various forms of relief and compensation for electricity prices. Nonetheless, high
prices persist across all consumer segments. Not only do high electricity prices impact
affordability and competitiveness, but they also serve as a major obstacle for the
electrification needed to realise energy transition goals. To start, the government
could consider lowering taxes on final electricity prices to support affordability,
competitiveness and electrification outcomes.

Moreover, compared to other countries, Germany faces relatively high grid fees. This
is partly due to legacy costs of past grid expansion investments to accommodate the
shifts in power generation that the country has experienced. On top of this, regional
imbalances and still insufficient grid capacity create large inefficiencies and hefty
congestion management costs that are also reflected in grid fees. Moreover, as
Germany looks to a massive new expansion of both the transmission (including to
accommodate offshore wind) and distribution grids, over EUR 400 billion in new costs
will have to be socialised through grid charges. Therefore, a priority for the German
government should be to explore all possible options to quickly soften the impact of
grid charges on consumers, working with the regulator (which oversees grid fees).
For example, the government could consider absorbing some of the charges into the
state budget, which would help alleviate near-term challenges. Innovative frameworks
such as the amortisation account used to finance the Hydrogen Core Network could
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 Germany 2025 Focus areas

be explored to finance new electricity lines too (both public and private financing). To
avoid further increases in grid costs, the IEA also encourages the government to look
at ways to use the existing grid as efficiently as possible.

5. Create clearer locational signals to improve

system operation and reduce the need for new
grids.
Building new grid lines takes lots of time and money. To manage the energy transition
with rapid growth in variable renewable generation, distributed renewable resources
and significant electrification of end-use sectors, the existing grid infrastructure needs
to be used as efficiently as possible. This requires a more concerted effort to ensure
that electricity assets are sited where they best serve grid needs and align with future
grid development plans. One method for doing this is to ensure that new grid
connections are located in places that support efficient grid operation now and in the
future. The government should explore the possibility of including locational signals
for new renewable power generation in forthcoming renewables auctions, while being
careful to avoid barriers to the deployment of new renewable energy sources.
Batteries and electrolysers will also increase significantly in the coming years and can
play an important role in balancing the electricity system and improving grid use.
Germany subsidises these technologies by exempting them from grid connection
fees. For new connections, the support should be tied to locational needs, so that new
connections only receive grid fee concessions in locations that the system operator
deems suitable to optimise grid operation.

The industry sector can play a role in locational flexibility. Currently, a sizeable
disincentive for flexible industrial demand (beyond structural ones) is the Grid
Charges Ordinance that offers grid discounts to large consumers for steady, baseload
demand. While removing the concession could further erode the competitiveness of
an already ailing sector, the government should still explore options to offer incentives
to these consumers to manage demand in ways that support grid-balancing needs.

Finally, locational signals can also be provided by bidding zones in the electricity
market. Having multiple bidding zones can attract new investments in areas suitable
for the electricity system and provide benefits to efficient electricity market operation
such as reduced redispatch and curtailment costs. Such a split could also present
attractive opportunities to site new green industrial facilities in more parts of Germany,
a prospect that is currently hamstrung by the prevailing configuration. Potential price
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 Germany 2025 Focus areas

impacts and related mitigation measures for industries also need to be considered.
Therefore, Germany should adopt an open-minded approach and take evidence-
based decisions regarding a potential bidding zone split.

6. Hasten the smart meter rollout to unlock the

enormous potential of demand-side flexibility
and distributed generation.
Germany has not to date taken advantage of the considerable flexibility solutions that
demand-side management could provide to efficient power system operation. For
households, as behind-the-meter resources (solar panels, heat pumps, electric
vehicles) continue to surge, they represent an important opportunity to support
efficient power system operation. In this regard, the government should quickly
remove barriers to participation by households and aggregators that can unlock these
services, including lowering regulatory hurdles or increasing incentives. For example,
the government could look into grid fees of behind-the-meter home batteries and
vehicle-to-grid charging. The rollout of smart meters will be a key enabler of demand
response. Though recent reforms have set out a plan for ramping up smart meter
deployment, the timelines should be accelerated, including by putting in place more
measures to push smaller DSOs to ramp up deployment. Beyond just installing smart
meters, regulations should also support access to and use of smart meter data for
both consumers and grid operators. A shift toward time-of-use pricing and dynamic
tariffs could also bring important cost savings for electricity consumers.

An important element to encourage behind-the-meter flexibility is improving the

integration of consumer systems into the distribution grid. In the German context,
ensuring that distribution grids are fit-for-purpose through the energy transition will be
at least as important as expanding transmission grids. Moreover, efficient investment
in distribution systems can, to some extent, reduce the need for transmission
expansions. To this end, not only will the government need to address regulatory
impediments for consumers, but it will also need to facilitate upgrades by (numerous
and varied) DSOs, leveraging recent efforts at regional scenario planning. In addition,
regulation to allow smart meters to be used by grid operators to control distributed
photovoltaic supply should also be considered.
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 Germany 2025 Focus areas

7. Jump-start the expansion of large-scale storage

in optimal locations.
Considering the extent of variable renewables generation in Germany’s electricity
system, which already exceeded 60% in 2024 and is planned to be 80% in 2030, the
country has relatively low levels of large-scale electricity storage (1.7 GW with
2.2 GWh in January 2025). Notably, battery storage can offer near-term solutions to
grid management and flexibility services that grid expansions would take years (and
substantial costs) to achieve. Recent reforms to allow storage to participate in
frequency response and services markets bolster the market case for investments as
will other efforts such as the grid booster initiative, innovation tenders and using
storage for energy management at large industrial sites. Capacity under these
programmes should be expanded and their applications broadened (to cover both
grid stability and market participation) to promote faster deployment and ensure that
there is a route to market for the required level of storage to support electricity system
needs. The government could look to the Italian model under which the TSO TERNA
will run utility-scale storage tenders targeting locations that are optimal for the system,
as well as Ireland’s Electricity Storage Policy Framework and related measures that
support flexibility in systems with high levels of variable renewable generation. To
further deliver on a more rapid buildout of storage assets, the government should also
fast track the implementation of measures identified in its electricity storage strategy
and accelerate grid connections to unlock projects in optimal locations awaiting
connection (around 24 GW are considered to be viable out of a total of 160 GW
requests) and remove barriers to the further construction and operation of pumped
storage units. Supporting and investing in research on emerging storage technologies
and boosting target volumes for long-duration energy storage will also be important
enablers for increasing system stability and adequacy.

2. Decarbonising heating in buildings

It is clear that Germany will not meet its climate targets without accelerated action to
decarbonise heating in buildings. The main driver for emissions in the sector is fossil
fuel use in space and water heating. Besides a drop in oil consumption and a small
increase in the use of bioenergy, the energy mix used for heating in buildings has not
changed much in the last decade. In 2022, natural gas supplied 45% of energy used
for space heating in Germany. Biogas, with more limited availability, will not be able
to replace the current use of natural gas in heating, so an alternative solution to move
away from the gas grid is needed. Furthermore, heating oil accounted for 24% of
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 Germany 2025 Focus areas

energy consumption in residential space heating, indicating that large numbers of

individual oil boilers will need to be replaced for Germany to decarbonise its
residential heating sector. Decentralised heat pumps and district heating are the main
options to replace fossil fuel boilers, but both account for relatively small shares of
Germany’s heating demand today.

Buildings sector heat sources in Germany, 2012-2022

PJ
2 500 Electricity

2 000 District
heating
1 500
Bioenergy

1 000
Oil
500
Natural gas
0
2012 2022
IEA. CC BY 4.0.
Source: IEA (2024), Energy End-uses and Efficiency Indicators.

Replacing fossil fuels in heating also improves energy security. High dependence on
natural gas became an apparent energy security and affordability concern during
Russia’s invasion of Ukraine and the following energy crisis. As a response to the
energy crisis, Germany took several steps to prevent gas shortages, including
developing new LNG and regasification infrastructure and implementing short-term
energy-saving measures. Relying too much on fossil fuel imports has proven both
risky and costly, and Germany is now taking additional steps towards decarbonising
its heating systems, through both legislation and subsidies.
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 Germany 2025 Focus areas

Policy spotlight: Long-term legislative framework for

decarbonising heating
Germany established a clear legal framework for decarbonising heating in buildings
by 2045. In September 2023, parliament approved the amended Buildings Energy
Act, which requires new buildings as of 1 January 2024 to use at least 65% renewable
energy in heating. For existing buildings, fossil fuel heating systems can still be
installed but must meet renewable blending quotas starting in 2029. However, once
a municipal heating plan is ready, by no later than mid-2028, all newly installed
heating systems will be required to reach at least 65% renewable heat. Furthermore,
the new legislation mandates that, as of 2045, all buildings must be heated in a
climate-neutral way using only renewable energy.

Complementing the new Buildings Energy Act, the government introduced the Heat
Planning Act, which also came into force in January 2024. The Act requires
municipalities and regions to develop municipal heating plans that lay out how to
make their local heating infrastructure climate-neutral, including where district heating
solutions would be efficient. Large cities with more than 100 000 inhabitants have until
30 June 2026 to provide these plans, while smaller towns have a later deadline of
30 June 2028. A simplified heat planning procedure is possible for municipalities with
fewer than 10 000 inhabitants. With this new legislation, Germany goes further than
what is required in the EU Energy Efficiency Directive, which requires cities with
populations over 45 000 to develop heating and cooling plans.

The overall framework, which sets clear targets and timelines for transitioning heating
systems to low-emissions options, is a major accomplishment. Given that households
typically use their heating systems for more than two decades, clarity on long-term
legal expectations will help steer purchase decisions in the right direction. Likewise,
the policy guidance provided by the two pieces of legislation also gives signals to the
heat pump industry and district heating companies to undertake investments to ramp
up capacity, infrastructure and supply chains.
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 Germany 2025 Focus areas

Communication on heating strategies

The process for putting the Building Energy Act and Heat Planning Act into place was
challenging. The initial proposal for the amendment of the Building Energy Act from
April 2023 included a requirement on all new heating systems to use at least 65%
renewable energy as of 1 January 2024. This was criticised for being costly for many
households, and the proposal was further debated within the government. The final
law that was passed softened the requirement to only apply to new buildings, until the
preparation deadline for municipal heating plans (mid-2026 and mid-2028). This
means that new oil and gas heating systems can continue to be installed for several
years, which has been criticised by various experts and environmental organisations
for not being ambitious enough for Germany to meet its climate targets.

Despite the challenges in getting the new regulation in place, it is still an achievement.
Compared to the initial proposal, the final act will not achieve the same emissions
reductions by 2030, but it sets Germany on the long-term transition toward carbon
neutrality by 2045. However, heat pump sales and investments in district heating
networks must accelerate, and recent market developments show lagging uptake.
The government needs to focus on getting the right incentives in place for investments
in new heating equipment and infrastructure while building trust with the population
to participate in the energy transition. Moreover, the government will also need to
more clearly communicate to the public the impact of fossil fuels prices from the
German carbon price (and the ETS2 from 2027), which will steadily increase the costs
of running fossil fuel boilers.

Heat pumps
Heat pump deployment has increased for several years, and it is the primary heat
source in new buildings. The market for heat pumps grew by over 50% per year
in 2022 and 2023, driven largely by record high gas prices as well as 2022 reforms to
shift green levies away from electricity prices. In 2023, around 350 000 heat pumps
were sold, and Germany is targeting 500 000 new installations per year as of 2024.
Almost two-thirds of the residential buildings built in 2023 will use heat pumps as their
primary heating source and over three-quarters of new building permits issued
in 2023 would use heat pumps.

However, recent trends show a drop in heat pump sales, and Germany is behind on
its targets. The market struggles with unfavourable electricity prices compared to
natural gas and lack of consumer confidence, partly due to the lengthy process to
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 Germany 2025 Focus areas

arrive at a political framework for decarbonising heating. Sales of fossil fuel boilers
increased in late 2023, as natural gas prices softened, and many people decided to
replacement existing boilers ahead of the proposed amendments to the Building
Energy Act; this trend continued in the first two months of 2024. After that, the whole
market for heating devices dropped probably due to uncertainties on the Building
Energy Act and previous pull-in effects in 2023. Recently published figures from the
Association for Efficiency and Renewable Energies for 2024 show that 193 000 heat
pumps were sold in 2024, compared to 356 000 in 2023, far short of the targeted
number of 500 000.

Heating system sales by type in Germany, 2020-2024

Thousand units
1 000

800
Heat
600 pumps

400 Fossil fuel

heating
200 systems

0
2020 2021 2022 2023 2024

IEA. CC BY 4.0.
Source: IEA analysis based on Association for Efficiency and Renewable Energies (2025), Heating
systems: Sales fell by half in 2024 (Accessed: 30 January 2025) and Sales of heating systems
decline sharply: Heat transition stagnates (Accessed 31 October 2024).

Several potential barriers to heat pump adoption exist 1. These include high upfront
costs for equipment and installations, uncompetitive electricity prices, other non-cost
hurdles to consumer adoption (such as complexities in multi-family buildings) and
insufficient installation capacity. Germany has taken steps to address these issues,
though more systematic action will be required across all areas to improve results.

1
See Chapter 3 of IEA (2022), The Future of Heat Pumps.
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 Germany 2025 Focus areas

Financial support
Germany supports heat pump deployment with financial incentives to address higher
upfront costs. Through the Federal Funding for Efficient Buildings, the government
provides financial support for investments in climate-friendly heating systems. A
homeowner can be reimbursed for 30-70% of the investment costs, with higher
shares for low-income households and if the replacement takes place before 2029.
As of 1 September 2024, the subsidy was available to all building owners, including
landlords of condominiums and municipalities.

Moreover, to address the split incentive challenge between tenants (who are not
incentivised to take on upfront installation costs) and landlords (who do not benefit
from lower energy bills), Germany is allowing landlords to pass through 10% of a new
heating system’s costs onto a tenant’s rent, with a limit of 0.50 EUR/m².

Nonetheless, bureaucratic hurdles to the complex documentation required to access

available funds along with information asymmetry to households have served as
notable obstacles.

Uncompetitive electricity prices

Energy prices and taxation still seem to favour fossil fuel alternatives over heat
pumps. German households paid the highest electricity price among 27 EU member
countries in the second half of 2023, and the seventh-highest share of taxes and
levies on electricity. By comparison, for natural gas prices, German households pay
around the median among EU countries. The average household electricity price in
the second half of 2023 was 0.40 EUR/kWh, compared to around 0.12 EUR/kWh for
natural gas.

Even with the high efficiency of heat pumps compared to fossil fuel boilers, the price
differential between electricity and natural gas still makes gas boilers a financially
attractive option for German consumers. Even though heat pumps might have lower
total costs over their life cycle compared to gas-based heating systems, this is not
clear to consumers and does not seem to convince homeowners to make heat pump
investments today. The German Heat Pump Association wants to see a reduction of
the electricity tax to the minimum under European law to create a more level playing
field for heat pumps. Industry experts estimate that electricity prices should be no
more than 2.5-3 times those of natural gas to encourage heat pump sales.
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 Germany 2025 Focus areas

Quarterly electricity and natural gas prices for residential users in

Germany, France and Spain, Q1 2020-Q2 2024
Germany France Spain
EUR/MWh
450
400
350
300
250
200
150
100
50
0
2020 2024 2020 2024 2020 2024
Electricity Natural gas
IEA. CC BY 4.0.
Source: IEA (2024), Energy Prices.

Non-cost barriers and supply chains

Non-cost barriers to heat pump adoption can include lack of information and
complicated approval processes. Consumer platforms, such as the One Stop Shop
service in Ireland, can make it easier for homeowners to invest in home energy
improvements, including heat pumps. Providing online comparison tools is another
way to simplify the process for consumers by making information on heat pumps and
installer options more accessible.

A shortage of qualified installers is another potential barrier to heat pump deployment.

The German Heat Pump Association developed qualification measures for trainees
and for professional installers. Similarly, the German Central Association Plumbing,
Heating, Air Conditioning (ZVSHK) launched a three-year project with the aim to
significantly shorten the installation times for heat pumps, to better meet growing
market demand with available skilled workers. Incorporating heat pumps into existing
certifications for plumbers and electrical engineers, who have similar skills, could also
help solve the issue. Additionally, BMWK set up a funding programme subsidising
training measures for planners and installers of heat pumps.

The growing heat pump market can bring business opportunities as well as supply
chain challenges. Supply chain bottlenecks affecting components such as copper or
computer chips can lead to increased manufacturing costs and a slower deployment
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 Germany 2025 Focus areas

rate for heat pumps. However, there are also business opportunities for the German
industry that supplies heat pumps or parts used in heat pump manufacturing. Heat
pump manufacturers such as Daikin and Stiebel-Eltron as well as the country’s largest
semiconductor producer Infineon have made announcements for large investments
to expand production capacity.

Germany’s distribution grids will also require updating to accommodate heat pump
uptake. Given that the country’s heating has historically been sourced mainly from
fossil fuel boilers, local distribution grids are, in many cases, not equipped to manage
the surge in electricity demand that will come from heat pumps (combined with EVs).
As a result, forthcoming municipal heating plans will need to be co-ordinated with
DSOs to ensure a smooth integration and optimisation of demand-side resources to
manage local grids.

The district heating market

The significant growth potential of district heating can play an important role in
decarbonising heating. The government presented ambitions for adding 100 000 new
district heating connections per year. According to the industry association AGFW,
up to 20 million of Germany’s roughly 43 million households could be connected to
district heating networks by 2045 if the government introduces the right subsidies and
framework conditions. However, the significant upfront investment and complex
stakeholder engagement and co-ordination required for infrastructure and the high
dependence on urban planning are major challenges for market development.

Decarbonising district heating supply

District heating systems must phase out the use of fossil fuels and support waste heat
integration to provide the low-emissions heat needed to decarbonise heating. The
share of renewable energy used in the district heating supply in Germany is increasing
and the new Heat Planning Act set a legal requirement for each district heating
network to use at least 30% renewable or unavoidable waste heat by 2030, with
exceptions for some district heating networks that need to reach this level by 2035.
By 2040, the share of renewables or unavoidable waste heat in each district heating
network must be 80%, compared to a national average of around 35% today.
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 Germany 2025 Focus areas

District heating generation by energy source in Germany, 2024

Renewable waste
Non-
renewable
Coal, 14%
waste, 9% 8%
Oil,
1%

Natural gas, 49% Biomass, 10% Waste heat, 8%

Geothermal and solar thermal, 1%
IEA. CC BY 4.0.
Note: Data are preliminary.
Sources: IEA based on German Association of Energy and Water Industries (2024), Energy supply
in 2024 (Accessed 1 April 2024).

While the Heat Planning Act sets a framework for clarifying the need for new district
heating systems, investors may require stronger incentives to make the necessary
infrastructure investments to realise the heating plans. In 2022, the government
launched the Efficient Heat Networks scheme to support investments in expanding
and decarbonising pre-existing district heating networks and erecting new district
heating networks that use at least 75% input from renewable sources or waste heat,
to increase the use of renewable energy and waste heat in the heat supply. In the
draft budget plans from August 2024, the government allocated EUR 3.4 billion
between 2025 and 2029 to the Efficient Heat Networks scheme. However, one
consultancy report done on behalf of the district heating industry associations claims
that the planned expansion of district heating in Germany will require EUR 43.5 billion
in investment by 2030, and needs state support of EUR 3.4 billion per year.
Furthermore, the support needs to have a long-term perspective and provide the
necessary stability for market actors taking investment decisions.

Planning district heating

District heating is a collective infrastructure solution that requires large investments
and many connected customers to be cost-effective. A benefit of district heating is
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 Germany 2025 Focus areas

that it can use available heat sources more efficiently than individual heating systems,
including residual waste heat from industries, wastewater treatment, data centres and
other facilities. Mapping out such heat sources and the demand for heat in a country
is an important step to be able to develop resource-efficient and cost-effective heating
solutions.

With the new Heat Planning Act, German municipalities are required to present
municipal heating plans. Energy Cities, a European network, gives this legal
framework the highest score in terms of how it implements the EED requirements.
However, Germany scores lower in terms of the support framework to implement the
regulation, as it varies significantly across the country. For the heat plans to be a
successful tool in developing district heating networks and decarbonising heating,
municipalities need to have sufficient knowledge and resources. To that end, in July
2024, Germany initiated a stakeholder dialogue on heat planning with the objective
to identify measures on both the local and regional levels for enabling municipalities
to develop well-considered heating plans.

Status of municipal heat planning (2024) and target (2028) in Germany

100%
No plan in
place yet
6 942
In process 50%
3 652

Plan finalised
160
0%
2024 2028

IEA. CC BY 4.0.
Note: Each grid represents 1% of all German municipalities required to develop a municipal heating
plan.
Source: IEA analysis based on KWW (2025), Overview of municipal heat planning available
(Accessed 27 January 2025).

Although the heat plans are done on a municipal level, state and federal co-ordination
will also be needed to avoid sub-optimised solutions. Tools and examples from other
countries can also be used for inspiration. Denmark has done similar heat planning
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 Germany 2025 Focus areas

since the first Danish heat supply law in 1979, which resulted in a significant share of
district heating in residential heat supply. Germany can continue to build on the
Competence Center for Heat Transition, which is an established platform at the
federal level to support municipalities with guidelines, best-practice examples,
trainings and networking opportunities. Germany also needs to ensure that
municipalities are equipped with the necessary skills and expertise to develop
strategic heating plans.

To further speed up planning processes for district heating, representatives from

associations of towns and municipalities, cities, and counties have asked for district
heating networks to be classified as an “overriding public interest”. This was
implemented through the Heat Planning Act, which states that construction and
operation of district heating networks and associated installations are of overriding
public interest.

Regulatory framework
The German district heating market has no price regulation, and consumers are
bound to natural monopoly suppliers, often on long-term contracts. While prices for
other sources of heating declined in 2024, district heating prices increased
significantly. The recent price developments in the district heating sector have led to
legal proceedings by the Federation of German Consumer Organisations and
investigations by the Federal Cartel Office.

The Monopolies Commission, an independent expert committee advising the German

government on competition and regulation, has proposed changes to improve
competition on the heating markets. In its Competition 2024 report, it compared price
data in 85% of Germany’s district heating networks and found evidence of a low level
of competition between district heating and other heating systems. The Monopolies
Commission recommended the introduction of a central transparency platform where
consumers can compare prices. It also recommended further developing the existing
price regulation framework so that district heating prices better reflect developments
in the general heating market. Alternatively, the Commission suggests a price cap
regulation to limit district heating prices.

The government is currently working on a revised regulatory framework for district

heating to increase the transparency of pricing models and price setting. The German
Association of Energy and Water Industries (BDEW) recently launched a district heat
price comparison platform to increase price transparency. A similar industry initiative
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is the Swedish Price Dialogue, which has been in place since 2011 and gathers large
shares of the district heating industry and the biggest customers to discuss price
changes on the district heating market.

Recommendations
8. Co-ordinate and advance municipal heat
planning to enhance the value for stakeholders.
With the Heat Planning Act, Germany made tremendous progress toward providing
clarity on the energy transition needed in the heating sector. In 2026-28, close to
11 000 municipalities will present plans for how to decarbonise their heating systems.
This presents a critical opportunity for the government, consumers and industry
stakeholders to take stock of the situation and take strategic decisions on policy
development and investments. It equally presents an opportunity to engage with
consumers and with citizens more actively in the energy transition. Notably, the plans
are expected to provide important bottom-up clarity on the optimal mix for energy
efficiency, electrification, district heating (including the role of waste heat) and other
direct renewable heat. The government should capitalise on this opportunity by
supporting and co-ordinating timely development of the plans at the federal level and
ensure sufficient resources for all levels of government to develop, assess (where
necessary) and implement the plans. Similarly, regional co-ordination on
implementation of the plans can be necessary for optimal resource allocation. The
heat planning should also be aligned with other energy system planning, such as
regional electricity network development plans. Following an assessment of the first
round of plans, the government might consider making the updated plans (due after
five years) more binding to drive investments. Furthermore, the government may
consider aligning the plans with existing funding schemes directed at heating
technologies and explore possibilities to use heat plans as the basis for large-scale
technology procurement. Lastly, the effort to develop the plans should also be used
as an opportunity to consider plans for cooling networks, whose needs will grow in
the coming years.
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9. Send clear signals that heat pumps and district

heating paired with energy efficiency will be the
primary option to decarbonise heating in
buildings.
As a starting point for decarbonising individual homes, the government should support
energy efficiency upgrades in conjunction with the rollout of heat pumps and
connections to district heating. Toward this end, the government should back the role
of energy advisors in helping homeowners undertake renovations and install heat
pumps (or other renewable heating systems). Electricity will be the most efficient and
scalable option for decarbonising heating, especially in decentralised heating
systems. The strategy to expand heat pumps should be mindful of the valid
affordability concerns of homeowners. Therefore, complementary to its messaging
around heat pumps being the preferred technology option for decarbonising heating,
the government should clarify to consumers the policy measures that will help support
the deployment of heat pumps to alleviate household concerns over upfront and
operating costs. Though the government does not promote the use of hydrogen in
home heating systems under its hydrogen strategy, the “technology-neutral”
approach applied in the Buildings Energy Act can be perceived as sending mixed
signals about the possible application of hydrogen in home heating, thereby delaying
the investment case for switching to heat pumps today. As such, the government
should pursue clear and explicit messaging that electrification will be the viable
pathway for future decentralised heating systems. Relatedly, to avoid a lock-in effect
to fossil fuel boilers, the government should also communicate to households the
longer term business case for heat pumps and connections to district heating in a
context where CO2 prices for heating fuels will rise (under the ETS2) and electricity
prices are expected to fall (including through government efforts to alleviate fees and
taxes).

3. Expanding the role of hydrogen

As a major industrial powerhouse, hydrogen will be a core pillar to meeting Germany’s
climate targets. Already, Germany is the largest consumer of hydrogen in Europe,
mainly used by refineries and chemicals producers. Hydrogen will play a bigger role
in Germany’s future energy system, including for decarbonising certain segments of
the industry and heavy transport sectors, where electrification is either infeasible or
too expensive.
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 Germany 2025 Focus areas

Toward this end, the German government laid out detailed strategies and plans to
develop a hydrogen sector, covering the full range of the hydrogen value chain.
Fostering demand in key end uses will be a crucial starting point, and financial support
measures will be necessary to achieve this. Moreover, while Germany will support a
certain amount of domestic renewable hydrogen production to nurture the early years
of hydrogen development, the bulk of its consumption will need to be met by imports,
given limitations on renewable electricity supply. Therefore, creating enabling
conditions for imports, including supporting infrastructure, will be an overriding
imperative.

Germany is off to a good start and already has a detailed strategy with clear targets
and timelines. The next step for Germany is to ensure that policy measures lead to
timely investments that jump-start the hydrogen sector in the 2030 time frame. In
addition, where Germany has taken a broad stroke approach to promoting all parts of
the hydrogen value chain, it will need to take a closer look at its specific competitive
advantages in relation to other producers and end users.

National Hydrogen Strategy

Germany set a clear strategy for hydrogen and introduced policy to support its
development. The government adopted the National Hydrogen Strategy in June 2020,
with a focus on low-emissions hydrogen deployment to reduce process-related
emissions in the steel and chemicals industry as well as to replace fossil fuels in
certain parts of the transport sector. The strategy – toward which the government
allocated EUR 7 billion of public funds in June 2020 – notes the opportunity that
hydrogen offers to promote Germany’s industrial capabilities and boost its export
competitiveness. It focused on establishing the first phase of a renewables-based
hydrogen rollout by 2023, laying out an action plan to motivate private sector
investment in production, transport and consumption. It also highlights the role that
international co-operation will play, especially among European countries, including
through the creation of common sustainability and certification standards. The
government also launched a National Hydrogen Council in 2020, which comprises a
cross-section of relevant stakeholders (companies, research institutions,
environmental organisations and trade unions) to offer independent assessments and
advice to the government on the development of a hydrogen economy.

In 2023, amid the energy crisis, the strategy was updated and made more ambitious
to ramp up the development of a hydrogen economy. The National Hydrogen Strategy
Update strengthened the target for domestic installed electrolyser capacity to 10 GW
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 Germany 2025 Focus areas

by 2030, compared to the previous target of 5 GW. The 2023 Update also outlines
goals for infrastructure, demand and regulation. In line with those goals, BNetzA
approved in October 2024 a plan for a hydrogen core network of 9 040 km pipelines
with total investment costs of EUR 18.9 billion by 2032. The Plan consists of
repurposed and new hydrogen pipelines and includes the IPCEI of the European
hydrogen programme. The update also aims to stimulate demand for hydrogen in
various end-use sectors, especially industry and heavy transport, as well as to
support Germany in becoming a leading provider of hydrogen technologies by 2030.
It also calls for the creation of an appropriate regulatory framework at the national,
European and international levels to support the development of a well-functioning
global market.

To realise the 2030 goals under the updated strategy, the government has committed
to an implementation plan along four focus areas: 1) ensuring sufficient availability of
hydrogen; 2) developing hydrogen infrastructure; 3) implementing hydrogen
applications (e.g. industry, transport); and 4) creating effective framework conditions.
As part of this effort, the government is examining current regulatory barriers and
identifying legal options for simplification and acceleration of permit issuance across
the hydrogen value chain.
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Policy spotlight: Hydrogen auctions

To accelerate the development of a hydrogen market, Germany launched the
H2Global mechanism in 2022. H2Global operates as a double auction through an
entity (Hintco, a subsidiary of H2Global Foundation) that serves as an intermediary
between buyers and sellers who face challenges connecting during the early phases
of market development. First, an auction procures ten-year contracts for hydrogen on
the global market, then a second auction resells the hydrogen at competitive prices
to EU buyers, usually under one-year contracts. The government subsidises the cost
differential between the two auctions. The first auction for ammonia, synthetic
methanol and synthetic kerosene from renewable hydrogen took place in late 2022
with a budget of EUR 900 million for deliveries at the end of 2024. The government
plans an additional EUR 3.5 billion in funding for future auctions for hydrogen and its
derivatives over the period 2027-36. The programme represents one of the strongest,
market-based policies to support hydrogen trade in the world, and can serve as an
example to other countries.

Germany’s auction programme is closely integrated with the European Union.

In 2023, the government reached a deal with the European Union to link the H2Global
mechanism with the external leg of the European Hydrogen Bank. Under the deal,
H2Global will be open to all EU governments that wish to participate in its hydrogen
tenders. It will also co-operate with the European Hydrogen Bank on joint European
tenders in the external leg to improve the buying power for European importers on
the global market (the first auction in April 2024 in the internal leg allocated EUR 720
million to seven European projects). Furthermore, in November 2023, Germany and
the Netherlands signed an agreement to provide EUR 300 million each in a joint
tender for renewable hydrogen starting in 2027. Germany is also signing deals under
H2Global further afield. A recent memorandum of understanding with Canada
(EUR 200 million) and a joint declaration of intent with Australia (combined
EUR 400 million) are testament to the programme’s growing popularity with partner
suppliers.
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Demand outlook
Germany foresees accelerated demand growth for hydrogen by 2030 and 2045. The
2023 National Hydrogen Strategy Update forecasts that, relative to 2023 demand of
around 55 TWh, Germany’s demand for hydrogen will roughly double to 95-130 TWh
per year by 2030, and again nearly triple to 350 TWh in 2045. The figures align with
forecasts released by the National Hydrogen Council, which in 2024 upgraded its
estimate of hydrogen demand to 94-125 TWh by 2030, mainly from the steel and
chemicals industries as well as heavy-duty transport, a sizeable jump from the
previous year’s forecast.

Hydrogen demand projections by sector in Germany, 2030 and 2045

2030 max 2045 max 2030 min 2045 min
Mt
10
15
8

0
Chemical Steel Other Heavy-duty Aviation Other Heat Electricity
Industry Transport .

IEA. CC BY 4.0.
Source: IEA analysis based on National Hydrogen Council (2024), Update 2024: Greenhouse gas
savings and the associated hydrogen demand in Germany (Accessed 28 January 2025).

Certain hard-to-abate end-use sectors are expected to see the strongest demand for
hydrogen. In particular, the National Hydrogen Strategy Update expects the industry
sector to be the dominant source of hydrogen demand in the 2030 time frame,
followed by transport. The strategy notes that widespread use of hydrogen is not
foreseen in the heating sector, though Germany will continue to pursue legal and
technical options to repurpose gas distribution networks for hydrogen and to develop
decentralised hydrogen boilers. The update outlines short-term (2023), medium-term
(2024-25) and long-term (up to 2030) measures to support hydrogen in each end-use
sector.
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A major cause of industrial emissions in Germany is the use of fossil fuels (especially
natural gas) in industrial processes. While electrification may be viable for lower
temperature process heat, it is either not feasible or not economical for
high-temperature applications, which is particularly salient in the steel and chemicals
sectors. Hydrogen will, therefore, play an essential role in decarbonising industrial
process heat, which is a key focus area for the government’s National Hydrogen
Strategy. Hydrogen can also be used to replace fossil fuels as feedstock in industrial
processes, such as steel production from iron ore, which conventionally uses coal to
react with oxygen molecules, resulting in process-related CO2 emissions.

The Hydrogen Strategy notes the need for financial support during the early stages
of market development along with fostering markets for low-carbon products to
encourage demand. Short-term government support measures include: financial
assistance to companies to cover the higher costs of low-emissions technologies
(e.g. via the Carbon Contracts for Difference programme), funding through the IPCEI
Hydrogen programme and support through the Federal Fund for Industry and Climate
Action.

In total, a budget of EUR 14 billion has been allocated to the IPCEI Hydrogen
programme. Until the end of 2024, after state aid approval of all four “waves” by the
European Commission, a large majority of the German projects (4 technology
projects, 24 infrastructure projects, 3 mobility projects) were awarded funding. Also,
six projects received funding based on the Climate Environment and Energy Aid
Guidelines and General Block Exemption Regulation (including four projects aimed
at converting steel plants to run on hydrogen).

Complementing the financial mechanisms, BMWK set out a strategy to support the
development of lead markets for climate-friendly basic materials (starting with steel
and cement) by establishing definitions and stimulating demand through public
procurement. Rising EU ETS prices, especially leading up to and after the phase-out
of free emissions allowances to industrial participants, will also be a major driver.

Transport is also expected to be an important application for hydrogen, and therefore

a driver for ramping up the hydrogen economy. While passenger and heavy-duty road
transport is largely expected to be decarbonised through electrification, shipping and
aviation are expected to rely on hydrogen and hydrogen-based fuels. To support the
development of a hydrogen market for the transport sector, the government plans to
issue a master plan with detailed actions and timelines for hydrogen and fuel cell
technology in transport. EU regulations are anticipated to support market
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development in Germany, such as tightening CO2 emissions reduction targets for

heavy-duty commercial vehicles. Based on the requirement to cut CO2 emissions by
90% in 2040 from 2019 levels, the National Hydrogen Council estimates Germany
would see around 300 000 hydrogen trucks on its roads, resulting in 88 TWh of
hydrogen demand. Still, battery electric trucks are expected to remain the dominant
technology for zero-emission heavy-duty vehicles, with a predicted market share of
48% of new registrations in Germany in 2030. Hydrogen-powered vehicles with fuel
cells and combustion engines are projected to be just under 20%. In addition, the
National Hydrogen Strategy Update notes that the inclusion of sub-targets for
hydrogen in the revised EU RED II will be an important driver. Regulatory frameworks
are expected to support the development of electricity-based power-to-liquid (PtL)
aviation fuels and refuelling infrastructure for liquid hydrogen (such as a PtL paraffin
quota at the EU level and sub-quotas in the ReFuelEU Aviation and ReFuelEU
Maritime initiatives). The government also plans to offer support through various
funding programmes, including for technological research, innovation and
deployment across the transport value chain. Already, Germany has seen an uptick
of interest in fuel cell electric vehicles for trucks and buses, along with hydrogen
fuelling stations.

Hydrogen is also expected to play an important role as an energy carrier in a

renewables-based power system. In particular, it can provide a crucial function in
storing and transporting energy from renewable sources. As coal and natural
gas-based electricity generation are phased out of the system, hydrogen power plants
are also expected to play a role in addressing short-term and seasonal balancing
needs in the electricity system. Therefore, new natural gas-fired plants are meant to
be outfitted to convert to hydrogen use at a later date. In 2022, the government
amended the Combined Heat and Power (CHP) Act so that new co-generation plants
with at least 10 MW of capacity must demonstrate hydrogen-readiness at relatively
low costs. The Renewable Energy Sources Act includes a similar requirement for
biomethane-fired plants that are funded from 2023. BMWK forecasts that the
electricity and heat sectors will drive approximately 80-100 TWh of hydrogen demand
by 2045.

Relative to other sectors, hydrogen is expected to play a more marginal role in heating
for buildings, where more economical options exist. The National Hydrogen Strategy
Update notes that direct use of hydrogen for space heating will only take place after
2030, though hydrogen boilers or hydrogen co-generation systems might be
necessary for decentralised buildings. It also recognises that the potential for using
waste heat from electrolysers should be considered in the siting of electrolysers.
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Supply outlook
Germany has established ambitious targets for hydrogen production, but the bulk of
demand will be met by imports. The National Hydrogen Strategy Update increased
the target for domestic electrolyser capacity from 5 GW to 10 GW by 2030. The
intention of domestic production capacity is to stimulate the creation of a market for
low-emissions hydrogen and meet demand with short transport routes. Germany is
off to a good start in this regard, being one of the frontrunners in Europe from a
production perspective. Meanwhile, the National Hydrogen Council estimates that its
projected range of 2030 demand would require 39-52 GW of electrolyser capacity,
coming from either domestic sources or abroad.

In the 2030 time frame, various types of low-emissions hydrogen will be considered.
Whereas the original strategy only focused on hydrogen produced from renewable
energy, the update takes a broader technology approach, making room for other
types of low-emissions hydrogen (including using natural gas with carbon capture and
storage [CCS]) to help speed up the development of a hydrogen market. However, a
certain amount of so-called grey hydrogen (produced from natural gas without CCS)
is expected to continue to play a role in the 2030 time frame, especially in the
chemical sector. Direct financial support, however, will only be available to
renewables-based hydrogen, while other types of hydrogen would be supported in
end uses.

The government has laid out a clear plan for support measures that will help meet the
2030 electrolyser target of 10 GW. This includes support for research and
development along with direct funding for electrolysers, as well as implementation of
EU directives (notably the amended RED II) to stimulate demand and debottleneck
planning and approval processes. In particular, state tenders and the IPCEI Hydrogen
programme are expected to play large roles. Moreover, offshore wind energy
development is also expected to supply electrolyser capacity. Specifically, the Wind
Energy at Sea Act includes a provision for 500 MW of electrolyser capacity to be
tendered annually over the period 2023-38 to produce low-emissions hydrogen that
supports the electric grid.

However, production capacity is still lagging behind targets. According to a recent

report by E.ON, final investment decisions are not keeping pace with planned
projects. The report notes that to realise the 2030 target, all announced projects would
need to materialise as planned. However, to date only 19 final investment decisions
have been taken out of 88 planned projects, amounting to just 1 GW of electrolyser
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capacity. Some of the challenges highlighted include continued uncertainties over

certifications and standards as well as insufficient funding, along with a lack of storage
and transportation infrastructure. Though the government is taking action in all these
areas, an acceleration of investments in production capacity is needed to meet the
targets.

Imports will play an outsized role in Germany’s hydrogen supply, accounting for
around 50-70% of supply in 2030, and more thereafter. In the 2030 time frame, the
government expects most hydrogen and derivatives imports to arrive via ship, while
beyond 2030, pipelines are foreseen to play a bigger role. Infrastructure development,
therefore, will be crucial to support the ramp-up of imports into Germany (see below).
The National Hydrogen Strategy calls for the development of a hydrogen import
strategy (see below), whose aim is to set up diversified import strategies and avoid
new dependencies.

International partnerships on hydrogen supply will need to be stepped up to meet

domestic needs. Toward this end, Germany has already entered into a number of
agreements and partnerships with several countries, including Australian Canada,
Norway and the United Arab Emirates. However, the global market for hydrogen
imports will likely be highly competitive for the foreseeable future. While some
expected large producers will consume most of what they produce (China, the
United States), others will look to capture more value through the supply chain,
preferring to export sponge iron for steel production or ammonia for chemical
production rather than hydrogen. Hydrogen imports will mostly take place through
pipelines, whereas hydrogen derivatives can rely more on seaborne trade. Given the
high costs associated with hydrogen pipelines, realistic hydrogen import options for
Germany will be closer to home (mainly within Europe), while derivative imports could
come from further afield. However, even within Europe, plans for hydrogen pipelines
are facing challenges, as evidenced by Equinor’s September 2024 decision to
suspend a connection project to Germany due to high costs and inadequate demand.

In July 2024, the Federal Cabinet approved an import strategy for hydrogen and
hydrogen derivatives. A core pillar of the import strategy is to ensure sufficient
domestic demand to support production elsewhere. Moreover, the strategy also
places a strong emphasis on international partnerships, especially within the
European Union and its neighbouring countries (such as Norway, the United Kingdom
and North African countries). It also calls for the development of a trans-European
pipeline network. It notes the importance of geopolitical conditions, which underpin
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the need to ensure a diversified portfolio of reliable suppliers, including from

developing and emerging countries to support their economic development.

Infrastructure
One of the largest enablers of a hydrogen market will be supporting infrastructure.
Therefore, infrastructure forms a central pillar of both Germany’s hydrogen strategy
and its import strategy. The government is taking steps to accelerate the deployment
of infrastructure. A draft of the Hydrogen Acceleration Act passed in May 2024 lays
out the legal framework for accelerating the development of hydrogen production,
storage and import. It notably includes measures to streamline and fast track planning
and approval processes for hydrogen infrastructure. The Act is expected to be
adopted in the upcoming legislative term.

Pipelines
The existing gas network is a good starting place to efficiently build up hydrogen
infrastructure. The government considers repurposing of existing natural gas
pipelines to be the most cost-effective and fastest option for building out a hydrogen
network. Already, the Energy Industry Act provides a regulatory framework and
compensation mechanism for repurposing gas lines, which will be adapted based on
implementation of the EU regulatory framework for gas and hydrogen. However, the
hydrogen network will not be built to mirror the extensive natural gas network, but
rather to consider the creation and location of hydrogen hubs (with supply facilities
and offtakers) that might warrant dedicated infrastructure.

With the Hydrogen Core Network, the German government aims to connect key
hydrogen supply, demand and storage locations. In a major step forward, BNetzA,
based on a law establishing a legal and regulatory framework for the development of
a domestic hydrogen network, has approved the plan for a hydrogen core network of
9 040 km of pipelines with total investment costs of EUR 18.9 billion (including under
the IPCEI hydrogen programme) and planned construction by 2032. The core network
will consist mainly of repurposed gas pipelines (60%) and include 15 interconnection
points. The feed-in capacity would be 100 GW and the feed-out capacity 87 GW.

As a next stage, the precise construction path of the Hydrogen Core Network will be
further developed with a comprehensive network development planning exercise. It
will be carried out in an integrated process with natural gas network development
planning to account for interactions and synergies across the systems. It will also
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closely link to the planning process for electricity grids, to ensure sufficient grid
capacity for electrolysers and efficient use of hydrogen storage to provide flexibility.

The Energy Industry Act (EnWG) established integrated network development

planning for natural gas and hydrogen and the necessary legal and regulatory
framework has been put in place. As part of an integrative process, TSOs and
regulated operators of hydrogen transport networks draw up a scenario framework
every two years and, based on this, a network development plan for gas and
hydrogen.

If the scenarios indicate delayed demand for hydrogen and consequently that some
pipelines might be needed later than expected, a flexibility option allows BNetzA to
postpone the commissioning of individual lines that have already been approved as
part of the core network, until 2037. The flexibility option is not meant to be a
postponement of the Core Network, but rather to offer the possibility of putting lines
that have already been approved into operation later. The aim of the flexibility option
is to avoid potential vacancies and thus keep grid fees low, which is a basic
prerequisite for a successful hydrogen market ramp-up. This enables a demand-
orientated network expansion that evolves with the market ramp-up, into which
current findings and market developments can be incorporated.

European connections will be the priority. Following the buildout of the German core
hydrogen network in 2032, Germany’s hydrogen strategy plans for connections to
EU countries through the European Hydrogen Backbone. The first phase of the
Backbone will be underpinned by infrastructure projects financed with the IPCEI
Hydrogen framework, which includes ten German hydrogen pipelines. A planned
pipeline between Germany and Denmark is still moving forward, after the timeline was
pushed back by three years to 2031 (a first buildout is now re-scheduled for 2030).
Germany has also signed declarations of intent with the Netherlands for cross-border
hydrogen infrastructure (as well as a joint tender for hydrogen procurement through
H2Global). In addition, Germany is at various stages of discussions and partnerships
for offshore pipelines with the United Kingdom, Baltic countries and Iberian countries.
However, despite an agreement reached between Germany and Norway in 2023,
Equinor cancelled a planned pipeline to send up to 10 GW of hydrogen to Germany
annually due to insufficient demand. Germany is also thought to have considerable
potential for hydrogen storage for Europe in its vast salt caverns, together with its
sizeable natural gas storage facilities that could be repurposed for hydrogen storage.
German company Uniper is currently undertaking a trial project for hydrogen storage
in a former salt mine, with plans to expand capacity to up to 600 GWh by 2030.
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Policy spotlight: Hydrogen infrastructure financing

An amendment to the Energy Industry Act, finalised in April 2024, establishes the
regulatory framework for financing the Hydrogen Core Network, in particular to steer
the way that construction and operating costs are passed on to users. It allows
network operators to charge lower fees to the limited number of initial system users
and make up the lost revenues through a special amortisation account, managed by
a special purpose vehicle that includes all core network operators. A state-owned
bank (KfW) provides a credit line for the amortisation account to cover for the initial
losses. As use of the network increases, so does the income from the grid fees. Any
additional revenue generated will be returned to the amortisation account and will
offset the initial shortfall in revenue by 2055 at the latest. If the amortisation account
is not balanced by 2055 for reasons that cannot be foreseen today, a subsidiary state
guarantee will take effect. The federal government will then make up the remaining
shortfall and the operators of the hydrogen core network will contribute a deductible
of up to 24% to make up the shortfall. The amortisation account is set up to have a
long amortisation period, until 2055, to ensure full financing from grid fees even if the
hydrogen ramp-up is delayed. Depending on market progress, the government has
the option to terminate it from the end of 2038 and the subsidiary state guarantee will
take effect.

In the pursuit of efficiency, the integrated network development planning process for
natural gas and hydrogen takes place every two years. This allows for use of the
flexibility option to postpone individual pipelines of the Hydrogen Core Network to
avoid potential vacancies and thus keep grid fees at a low level, which is a basic
prerequisite for a successful hydrogen market ramp-up.

The chosen financing model represents an innovative approach to financial risk

sharing in the early years of market development by enabling private investment in
infrastructure in a period marked by uncertainty about the pace of the hydrogen ramp-
up. It attempts to alleviate the first-mover disadvantage by providing government-
backed guarantees of stable returns.

The EU Gas and Hydrogen Internal Market Package, adopted in May 2024, will further
establish the legal framework for building and financing hydrogen pipelines. To date,
there has not been an uptick in the construction of hydrogen pipelines following the
passage of a regulatory framework, though there was notable growth in planned
investments in 2024.
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Shipping
Germany also expects to receive imports from outside of Europe, by ship, especially
for hydrogen derivatives. Seaborne hydrogen derivatives will be particularly salient in
the early years before a pure hydrogen economy takes off. For this purpose, terminal
capacity to receive imports needs to be increased. Germany’s planned new onshore
LNG import terminals are also designed to accept deliveries of hydrogen derivatives.
Germany’s 2024 National Port Strategy is aligned with the National Hydrogen
Strategy and designed to upgrade the nation’s port infrastructure, which is seen as
losing competitiveness. However, industry stakeholders criticised the plan for lacking
clear targets and timelines as well as financial support to co-finance infrastructure
expansions and upgrades.

Germany is already seeing growing ammonia demand in the industrial sector. As a

result, several projects for ammonia import are planned in Germany, which are
expected to be operational between 2027 and 2030. Norwegian company Yara
International opened a terminal with up to 3 million tonnes ammonia import capacity
per year in Brunsbüttel in October 2024. If not used directly, then equipment
(crackers) is required to convert ammonia to hydrogen (conversion losses can be
significant). The same applies for methanol, while liquid hydrogen transport costs are
assumed to remain prohibitively high for the foreseeable future.

Electricity
Meanwhile, a cornerstone of domestic hydrogen production will be the availability of
renewable electricity. Toward this end, the government put renewed focus on the
framework for renewable electricity generation through 2022 updates to the EEG and
intends to follow up with additional measures to streamline and expedite permitting
processes for both generation and grid infrastructure (see Focus Area 1).

Hydrogen market development will need to closely align with the electricity system.
The National Hydrogen Strategy highlights the need for siting electrolyser capacity
where it serves the complementary needs of the electricity system to enable hydrogen
to play a key role in balancing a renewables-based power grid. While most surplus
renewable electricity is generated in northern Germany, however, the bulk of
hydrogen demand will be concentrated in industrial hubs in the south, possibly
creating a mismatch between supply and demand for hydrogen (as already exists for
electricity). Pipelines to move hydrogen from the north to the south may be no easier
to site than those for electricity, which have been riddled with setbacks, delays and
cost overruns.
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 Germany 2025 Focus areas

Research, innovation and skills

The National Hydrogen Strategy notes the role that research, education and
innovation will play in developing a hydrogen sector. More recently, the National
Hydrogen Strategy Update also included a focus on research, innovation and skills.
In particular, it calls for close co-ordination in the development of policies on research,
energy, industrial, transport and environmental policies. The Strategy commits to
continuing and expanding research efforts on hydrogen production, storage, transport
and use in industrial applications and infrastructure, including applied energy
research and energy transition living labs. Among these, its notes key initiatives such
as H2Giga for hydrogen production, H2Mare for offshore hydrogen development, and
TransHyDe for hydrogen transport and infrastructure, as well as funding for research
and development in the transport sector under the National Innovation Programme
for Hydrogen and Fuel Cell Technology, the “HyLand – Hydrogen Regions in
Germany” programme, the Hydrogen Innovation and Technology Centre (ITZ), and
the PtL development platform. The plan emphasises the need to provide sustained
support for basic and applied research to accelerate the transition from research to
production phases for technologies to ensure German competitiveness internationally
(under the “Made in Germany” banner). A planned hydrogen technology and
innovation roadmap is meant to tie all innovation resources together under an
umbrella strategy. Germany also plans to continue international co-operation on
hydrogen technologies, within the European Union and beyond.

Energy-related research, design and development investment in

Germany, 2016-2022
EUR million (2021 prices and PPP)
1 800

1 500 Cross-cutting
technologies
1 200
Hydrogen
900

600
Other
technologies
300

0
2016 2019 2022
IEA. CC BY 4.0
Note: PPP = purchasing power parity.
Source: IEA (2024), Energy Technology RD&D Budgets.
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 Germany 2025 Focus areas

The government is also planning to issue a strategy to plan for requisite skills for the
hydrogen buildout. The package will include measures to promote more STEM
professionals along with short-term retraining efforts for workers and medium-term
programmes to increase university funding and promote the immigration of skilled
workers (especially young professionals). Germany also plans to support
capacity-building efforts to boost education and skills development outside of
Germany, notably in sub-Saharan Africa.

Recommendations
10. Focus efforts to stimulate targeted,
low-emissions hydrogen demand.
Germany’s updated Hydrogen Strategy takes a comprehensive approach to fostering
the development of a hydrogen economy, and the H2Global mechanism and
amortisation account to finance the Hydrogen Core Network are innovative
frameworks. However, final investment decisions by potential end users are lagging
due to concerns about sufficient supply at affordable prices. At the same time,
domestic production projects are failing to materialise as they lack strong commitment
from offtakers. Additional measures are needed to jump-start investments in the
market ramp-up phase, notably in the area of demand creation.

Germany is right to focus its efforts at hydrogen demand creation on industry, where
some sectors have few decarbonisation alternatives. The government should closely
co-ordinate with the country’s industry sector to align strategies and policies with
industry expectations and plans for sectoral decarbonisation. Germany can build
upon successful existing programmes. Importantly and uniquely, Germany’s Carbon
Contracts for Difference cover not only capital expenditures but also operating
expenditures, which has been key to the programme’s successful uptake and
deployment. Germany should move forward with a hydrogen-specific carbon contract
for difference and consider allocating additional funding toward it.

The public sector could play an important role in supporting hydrogen demand by
introducing “lead markets” for climate-friendly basic materials, establishing definitions,
aligning on standards and criteria for materials produced with renewable or
low-emissions hydrogen. Public procurement tied to this could create dedicated
demand for products such as climate-friendly (“green”) or low-emissions steel and
cement in the early years of market development, when broader demand is limited,
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 Germany 2025 Focus areas

notably through large infrastructure spending from state entities (e.g. rail
infrastructure). The final price impact on some end-use products that use green
materials – such as cars using green steel – is limited, so standards and targeted
fiscal measures could promote more private demand too.

Germany should, in its strategies and communication to the public, maintain a clear
focus on the use of hydrogen over time, where no suitable alternatives exist, as it will
likely remain a scarce resource. In addition to its use in certain industrial sectors,
hydrogen can provide seasonal storage and much needed flexibility in Germany’s
future electricity system. At a later stage, hydrogen derivatives will play an important
role as maritime and aviation fuels. The IEA is, however, less convinced of a
significant role for hydrogen in Germany’s wider transport sector, and even less in
space heating.
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 Germany 2025 Annexes

Annexes
Acknowledgements
The IEA review team visited Berlin on 25-29 November 2024 and met with
government officials and public and private sector stakeholders across the energy
sector. This report is based on information from these meetings, the review team’s
assessment of Germany’s energy policy and detailed research by the IEA. The review
team members were Wieger Wiersema (the Netherlands, team leader); Peter Deleu
(Belgium); Samantha Kagan (United Kingdom); Cecilia Kellberg (Sweden);
Philip Newsome (Ireland); Ana Maria Sanchez Infante (European Commission); and
Paolo Frankl, Divya Reddy and Oskar Kvarnström from the IEA.

Divya Reddy managed the review and is the main author of the report, with significant
support form Oskar Kvarnström. The report benefitted from reviews and insights from
IEA staff, including José Miguel Bermudez Menéndez, Elizabeth Connelly,
Chiara Delmastro, Paolo Frankl, Roland Gladushenko, Dagmar Graczyk, Timur Gül,
Rena Kuwahata, Kieran McNamara, Uwe Remme, Tiffany Vass and
Jacques Warichet. Fabian Burkard and Anders Caratozzolo designed and prepared
the energy data sections of the report, dedicated analysis, figures and tables,
supported by Jairo Plata, Alessio Scanziani, Christina Hounisen and Samuel Talbot.
Roberta Quadrelli, Zakia Adam and Stève Gervais provided support on statistics and
data. Isabelle Nonain-Semelin and Astrid Dumond managed the editing and
production processes. Clara Vallois managed the translation process. The graphic
design of the report was done by Poeli Bojorquez. Jennifer Allain edited the report.
Nicolette Groot supported the organisation of the review team’s visit.

The IEA is especially grateful to Michael Hackethal, Hannah Schindler and

Lisa Bauschke from the German Federal Ministry for Economic Affairs and Climate
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 Germany 2025 Annexes

Action for their tireless efforts co-ordinating the review visit, prompt responses to the
team’s many requests, and patience throughout the weeks leading up to and during
the review. The team also expresses its gratitude to State Secretary Berthold Goeke
and Director General Ursula Borak for their helpful overview comments to kick off the
review and to Deputy Director General Vera Rodenhoff for openly receiving the
team’s recommendations at the end of the review week.

The IEA also thanks the numerous individuals from the following organisations who
provided valuable insights for the report: Federal Ministry for Environment, Nature
Conservation and Nuclear Safety; Federal Ministry for Digital and Transport Affairs;
Federal Ministry for Housing, Urban Development and Building; Federation of
German Industries; German Chemicals Industry Association; German Steel
Association; German Association of Industrial Energy Consumers; German National
Hydrogen Council; German Renewable Energy Federation; German Association of
Local Public Utilities; German Electro and Digital Industry Association; Machinery and
Equipment Manufacturers Association; 50Hertz; Amprion; German Heat Pump
Association; Federal Association for Energy-Efficient Building Envelopes; Central
Association of German Chimney Sweeps; German Energy Consultants Network;
Federal Association of Building Energy Consultants Engineers Craftsmen; German
Sustainable Building Council; German Association of Energy and Water Industries;
German Energy Efficiency Association for Heating, Cooling and CHP; Federal
Association of German Housing and Real Estate Companies; German Association of
the Automotive Industry; German Railway Industry Association; German Aviation
Association; Federal Association for Freight Forwarding & Logistics; German
Transport Forum; Association Fuels and Energy; German Shipowners’ Association;
Elli (Volkswagen Group); Climate Alliance Germany; Foundation for Environmental
Energy Law; Agora Verkehrswende; Agora Energiewende; Wuppertal Institute for
Climate, Environment and Energy; and German Institute for Economic Research.
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 Germany 2025 Annexes

Abbreviations and acronyms

BMBF Federal Ministry of Education and Research
BMWK Federal Ministry for Economic Affairs and Climate Action
BNetzA Federal Network Agency
CCS carbon capture and storage
CCUS carbon capture, utilisation and storage
CHP combined heat and power
CO2 carbon dioxide
DSM demand-side management
DSO distribution system operator
EED Energy Efficiency Directive
EEG Renewable Energy Sources Act
ESR Effort Sharing Regulation
ETS Emissions Trading System
EU European Union
EUR euro
EV electric vehicle
GHG greenhouse gas
IEA International Energy Agency
IPCEI Important Projects of Common European Interest
KTF Climate and Transformation Fund
LNG liquefied natural gas
PtL power-to-liquid
PV photovoltaics
RED II EU Renewable Energy Directive
RFNBO renewable fuel of non-biological origin
STEM science, technology, engineering and mathematics
TSO transmission system operator

Units of measurement
bcm billion cubic metres
EJ exajoule
g CO2/km gramme of carbon dioxide per kilometre
GW gigawatt
GWh gigawatt hour
kb/d thousand barrels per day
km kilometre
kW kilowatt
kWh kilowatt hour
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 Germany 2025 Annexes

Mt million tonnes
Mt CO2-eq million tonnes carbon dioxide equivalent
MWh megawatt hour
PJ petajoule
TWh terawatt hour

See the IEA glossary for a further explanation of many of the terms used in this report.
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International Energy Agency (IEA)

This work reflects the views of the IEA Secretariat but does not necessarily reflect
those of the IEA’s individual Member countries or of any particular funder or
collaborator. The work does not constitute professional advice on any specific issue or
situation. The IEA makes no representation or warranty, express or implied, in respect
of the work’s contents (including its completeness or accuracy) and shall not be
responsible for any use of, or reliance on, the work.

Subject to the IEA’s Notice for CC-licenced Content, this work is licenced under a
Creative Commons Attribution 4.0. International Licence.

Unless otherwise indicated, all material presented in figures and tables is derived
from IEA data and analysis.

IEA Publications
International Energy Agency
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Contact information: www.iea.org/contact

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Germany 2025
Energy Policy Review

Government action plays a pivotal role in ensuring secure and

sustainable energy transitions and combatting the climate
crisis. Energy policy is critical not just for the energy sector but
also for meeting environmental, economic and social goals.
Governments need to respond to their country’s specific needs,
adapt to regional contexts and help address global challenges.
In this context, the International Energy Agency (IEA) conducts
Energy Policy Reviews to support governments in developing
more impactful energy and climate policies.

This Energy Policy Review was prepared in partnership between

the Government of Germany and the IEA. It draws on the IEA’s
extensive knowledge and the inputs of expert peers from IEA
Member countries to assess Germany’s most pressing energy
sector challenges and provide recommendations on how to
address them, backed by international best practices. The report
also highlights areas where Germany’s leadership can serve as
an example in promoting secure clean energy transitions. It also
promotes the exchange of best practices among countries
to foster learning, build consensus and strengthen political will
for a sustainable and affordable clean energy future.