Policy Brief Germany – July 2023
We’ve witnessed a turbulent and partly controversial final sprint of the governing so-called traffic light coalition (SPD/Greens/FDP) before the parliamentary summer break. Especially in energy policy, eventful weeks and months lie behind us. The heating law of Economics Minister Robert Habeck triggered serious upheavals that once again put the cohesion of the coalition to a severe test and even forced the Federal Constitutional Court to intervene. Another core issue of the government’s work has been the expansion of renewable energies. It is the central measure with which the government wants to put the country on course to achieve its ambitious climate goals. Increasing the share of renewable energies, especially wind and solar energy, is necessary to electrify large parts of the energy system that are currently still powered by fossil fuels. Only recently, Chancellor Olaf Scholz announced that he would be monitoring the expansion of renewables to make sure it stays on track for the 2030 targets. But what is the status quo of the expansion of solar and wind energy in Germany and what are the ways by which the government intends to reach its goals?
Status Quo on Solar Energy
In 2022, solar energy accounted for 10.9% of the electricity generated in Germany.[1] In May 2023, the number of solar panel systems in Germany reached three million with a total installed capacity of more than 70 gigawatts (GW). The Federal Government considers photovoltaics (PV) as one of the most cost-effective energy sources. It is set to become one of the key sources of electricity generation in the future. Current trends support this view: On 27 May, Germany hit a new record high of more than 40,000 megawatts (MW) in solar output.[2] Germany has become the leading PV market in Europe this year.
To help achieve Germany´s 2030 renewable power targets, the Renewable Energy Act (EEG) envisages 215 GW of installed photovoltaic capacity by 2030. In other words, within a few years, Germany intends to triple the annual output of photovoltaics from around 7 GW in 2022 to 22 GW per year.
A Strategy for Solar Power
After two solar summits and several exchanges between representatives from politics and industry, a new PV strategy was presented in May. With it, the Ministry of Economic Affairs and Climate Action (BMWK) aims to deliver a breakthrough in technology expansion and to optimise the entire energy supply system. The strategy also intends to re-establish large-scale solar power module production capacities in the country, after having neglected this energy field in the past. The strategy covers, among many things, faster planning and approval procedures for PV systems on open land, a community building supply model to enable tenants to use solar power, simplified grid connections of ground-mounted and roof-mounted systems and changes to tax laws in the PV sector. Crucial to the above, however, are the subsequent laws and their translation into the respective federal state laws, as the agencies that approve PV systems are ultimately bound by the laws of their respective federal state. The strategy also leaves open what will happen if goals are not achieved, if deadlines are not met, if requirements are not fulfilled, or if adaptation deadlines in state and sectoral legislation are not met.
The new solar strategy has been welcomed by the industry. Yet, they are calling for the government to ensure access to resources and hardware components necessary for the large-scale roll-out. In addition, they urge that dependence on imports be reduced and that sufficient skilled labour must be available. Another challenge will be renovating the current energy system, which is mainly designed to run on fossil fuels. Equally important is deciding which lands will be dedicated to the use of solar energy. New technologies such as agri-PV could help alleviate conflicts over land use but are often still in early stages of market entry and not yet able to contribute on a larger scale.
Some measures handled in the strategy will be transferred to the legislative process in the form of a Solar Package I, for which there is already a first draft, and which is currently being finalised by the ministries. Among other things, the draft is designed to make subsidies for ground-mounted systems more uniform, to simplify the construction of roof-mounted PV systems, and to simplify and enable so-called landlord-to-tenant electricity supply. In addition, plug-in solar devices are to be permitted for use more easily.
Upon completion of the legislative process for Solar Package I, the BMWK will start work on Solar Package II, to clarify further measures of the photovoltaic strategy, e.g. how to increase acceptance, harmonize with EU and tax law, resolve supply chain and production issues, or secure skilled labour.
Status Quo on Wind Energy
In 2022, the share of wind power in Germany’s electricity mix accounted for 24.1%. This represents an increase of 9.4% compared to the previous year.[3] The installed capacity in the onshore wind power sector amounted to about 58 GW in 2022, which corresponds to a share of onshore wind energy in German electricity generation of 18%.[4] A delay in wind power development is often the result of lengthy approval and planning procedures, conflicts with residents and nature conservation issues, and a lack of sufficiently usable land. In the offshore sector, the installed capacity is 8.1 GW, with 7 GW installed in the North Sea and 1.1 GW in the Baltic Sea.[5]
Onshore and Offshore Wind Energy
For onshore wind energy, the German government has set itself the goal of reaching an installed capacity of around 115 GW by 2030. Various measures have been taken to achieve this. The Onshore Wind Energy Act, which came into force on 1 February 2023, sets targets for designated land areas, namely 1.4% by 2027 and 2% by 2032 at state level. However, there is a notorious difference in speed between the northern and southern states, with the latter lagging behind, partly due to legislation at state level impeding swift expansion. In addition, planning and approval procedures need to be accelerated and an amendment to the Federal Nature Conservation Act is planned.
To tackle this situation the BMWK presented a new onshore wind strategy in May. Various stakeholders agreed on a package of measures to accelerate the expansion of wind capacity in Germany. Among other things, it deals with the preservation of existing plants and the acceleration of repowering, but also with the short-term mobilization of more land and the facilitation of securing land. Social support for wind power is also to be beefed up and the transport of wind turbine components and other large and heavy goods facilitated. Here, too, the implementation of the drafted measures in respective state laws will be of crucial importance. Conflicts could arise, for example, over the short-term mobilization of more land and the facilitation of securing land, as federal states impose their individual regulations, for example regarding distance rules.
On the other hand, for the offshore wind sector, the German government has set itself ambitious targets with the Offshore Wind Energy Act. This law stipulates an increase in the installed capacity of offshore wind energy to at least 30 GW by 2030, to at least 40 GW by 2035 and to at least 70 GW by 2045. Challenges for wind energy expansion are accelerated contract awards for grid connections. In addition, smaller areas for turbines with a capacity of 500 MW or more are to be put out to tender. An offshore realization agreement has been reached with the coastal states and grid operators.
The wind industry associations have largely welcomed the outcome of the second wind summit. In their view, though, it is crucial that the measures adopted are backed up by concrete timetables, approval procedures are accelerated, and that the expansion of the electricity grids, which are of paramount importance, are sped up. The German Association of Energy and Water Industries (BDEW) is calling for an even faster expansion of wind energy, pointing to the need to approve more areas, speed up the transport of wind turbines and recruit tens of thousands of skilled workers.
Implications for Businesses and Future Challenges
The plans to drastically ramp up the development of renewables have significant implications for all of society as well as for German industry. The ambitions, according to supporters, have the potential to unleash a wave of opportunities, driving job creation, fostering technological innovation, and placing Germany among the world leaders in solar and wind energy. The resulting surge in demand for renewables is expected to not only allow for the growth of existing companies but also to create a favorable environment for new ones, thus increasing competition and strengthening the local value chain. Such a creation of domestic added value would also positively affect acceptance among the wider public – a fatally neglected but crucial aspect of the expansion of renewable energy and thus of central importance for the energy transition. This would also further reduce Germany’s dependence on imported fossil fuels, enhancing energy security and minimizing the economic risks associated with volatile international energy markets. For these developments to take place on the necessary scale, however, effective support measures are needed to find competitive answers to the efforts of foreign economies, such as the American Inflation Reduction Act (IRA).
The expansion of wind energy, and more precisely the measures compiled in the onshore wind strategy could also have a significant impact on local industry, provided that these measures are implemented in a timely and pragmatic manner. Measures such as mobilizing land at short notice, simplifying and accelerating approval procedures, and simplifying and accelerating repowering projects open new low-bureaucracy growth and expansion opportunities for both the onshore and offshore wind industry. They would carry a range of positive implications, benefiting various stakeholders including turbine manufacturers, enterprises in the maritime sector and suppliers.
However, the federal government’s ambition to transition the energy supply of a highly industrialized country categorically and rapidly to renewables also poses enormous challenges. This is because the plans collide with an economy that runs on enormous energy consumption and the competitiveness of which depends on low energy prices. A major future challenge is therefore to ensure competitive prices and security of supply. Moreover, alongside many profiteers, there may also be many losers from these rapid changes. The traffic light coalition must find ways of designing the energy transition in a socially responsible way, leaving no one behind. The current mood in the country sheds light on the magnitude of the political challenges: Citizens’ feelings of not being involved in the democratic process, of being sidelined and patronised has come to light in unprecedented ways in recent months for example, in debates about the heating law. At the same time, the coalition partners often disagree quite publicly over the road ahead. One of the biggest challenges for the future success of the traffic light coalition is thus to find understanding, a middle ground and broad support from citizens.