Germany’s geothermal sector on the cusp of expansion, but obstacles persist - report

Germany could expand geothermal heating, but high drilling costs, operational risks and limited geological data have constrained progress, according to an analysis by law firm Taylor Wessing. Recent legislation and financing tools have opened what the firm calls a “window of opportunity”, though obstacles remain.

Heating accounts for more than half of Germany’s final energy consumption, meaning that a climate-neutral heat supply is crucial for meeting climate targets, yet lags in decarbonisation. Provisional 2025 data show renewables supplied about 19 percent of heat, compared with 55 percent in the power sector. 

Geothermal energy from deep rock formations could meet 25 percent of Germany's heat demand, according to a 2024 report by NGO Deutsche Umwelthilfe (DUH). But the technology, which taps into underground wells of warmth, currently contributes just 2 percent of Germany’s heat supply.

Still, deployment is picking up, according to Taylor Wessing. Germany operates 42 deep geothermal plants, with 16 more under construction. Exploration licences also increased from 82 in early 2023 to 155 projects in planning. The law firm points to growing momentum as policymakers seek to scale low-carbon heat.

A key measure is the Geothermal Acceleration Act, which aims to speed up geothermal, heat pumps, heat storage and associated infrastructure. The law grants projects overriding public interest status until 2045, simplifies permitting and eases planning rules, particularly in rural areas. Financing remains a core challenge due to uncertainty about the viability of wells and long development timelines, according to the analysis. But a new programme from KfW offers low-interest loans of up to 25 million euros per drilling project, while Munich Re provides risk coverage for unsuccessful wells.

Taylor Wessing highlights remaining gaps, including the lack of comprehensive geological data, regulatory complexity linked to overlapping mining and water law, and the need for stronger community engagement to secure public acceptance. 

Industry players welcomed the launch of the geothermal funding instrument via KfW in December 2025, part of the wider “Germany Fund” aimed at mobilising private capital for energy, raw materials and new technologies, saying it would “significantly advance the local heating transition”. However, they cautioned that the fund is “only a first step” toward meeting the country’s investment needs. Last year a group or researcher said heat from the earth’s crust will play a central role in making Germany’s heat supply climate friendly and municipalities should make use of it.