Stakeholders say German gov't drawing questionable conclusions from energy transition “reality check”

After months of speculation, Germany’s economy ministry has presented a highly anticipated energy transition monitoring report that is has been labelled as a “reality check” and guide for a future energy policy that puts a stronger focus on cost-efficiency in the decarbonisation of the country’s energy system.

Germany’s industry – including industrial trade union IGBCE, industry association BDI and chemical industry association VCI – welcomed the “new pragmatism” and focus on competitiveness. “In addition to expanding renewable energies, affordability must be a key focus if Germany wants to remain an industrial location,” said the Association of German Engineers (VDI).

However, economy minister Katherina Reiche from the conservative Christian Democratic Union (CDU) drew criticism from her coalition partners, the Social Democrats (SPD). Germany’s environment minister, Carsten Schneider, said that electricity demand – particularly in transport and building sectors – must increase significantly to achieve climate targets. “We must not create any artificial barriers to a reliable supply of renewable electricity for industry, transport and heating,” he warned. Meanwhile, SPD energy policy spokesperson Nina Scheer said that “an increase in cost efficiency should not be confused with absolute cost reduction.”

Other critics warned that the economy ministry had drawn the wrong conclusions from a solid assessment of the challenges that Germany faces as it phases out fossil fuels. While the experts commissioned with drafting the report had made several "good and concrete" proposals, the political conclusions drawn by the economy ministry "remain vague," said Thomas Losse-Müller, co-director of the Climate Neutrality Foundation.

No clear path forward

While some stakeholders welcomed the focus on tackling issues such as leveraging the potential of efficiency and flexibility, they were concerned about the next political steps. Minister Reiche released a 10-point plan with proposals following the report's publication, but so far has not made any concrete policy proposals. The minister still needs to find support within the government’s coalition parties before laws are changed.

“The monitoring shows what everyone already knew. The energy transition can and must become more efficient,” said the German Engineering Federation (VDMA), which among other industries represents manufacturers of renewable energy installations. “However, neither the report nor the ten key measures proposed by the ministry provide a clear concept for the future,” it added.

This view was shared by the Association of Energy Market Innovators (bne). “Many of the industry's good proposals – particularly on digitalisation, flexibility and market-based promotion [of renewables] – were confirmed by [the report’s authors] as urgently needed,” bne wrote. “Contrary to the monitoring, a number of conclusions drawn by the economy ministry are at risk of hindering even the scaled-back electrification targets.”

"A solid basis for discussion"

Reiche's ministry did not present specific new targets or law amendments, but rather mentioned it would review and cut subsidies for renewables “to the absolutely necessary level”, lower the sustainability requirements for hydrogen production, and adapt capacity targets for offshore power. However, the timetable and specific measures remain unclear.

Renewable energy industry association BEE said that the report clearly showed that there is no need to restructure the energy transition, although it conceded that “greater focus must be placed on the overall system with flexibilisation, digitalisation and more regional control for better market integration of renewables.”

“The results and measures presented provide a solid basis for discussion,” said energy provider Vattenfall. “What is important now is clarity for investments in the energy transition.”

Media commentators were more critical of the minister's handling of the monitoring report's results: “We don't need to slow down the pace of the energy transition, but rather speed up the development of a suitable system,” wrote Süddeutsche Zeitung journalist Michael Bauchmüller in a comment piece, referring to the expansion of grids, storage and backup capacities. Casting doubt on the pace of the energy transition would be drawing exactly the wrong conclusion, he wrote.

In an opinion piece for Der Spiegel, author Markus Becker wrote that Reiche would "use the report to justify an energy policy that has become outdated." By arguing that the energy transition was at a "crossroads," the minister suggested that the transformation could fail entirely "if the steps that she proposes are not taken," Becker said. These include a massive expansion of gas-fired power production capacity and an end to support for certain renewable power installations. Large-scale batteries as a backup option instead of gas plants are ignored just like the fact these fossil plants also will have to rely on support if operators are supposed to hold them in stand-by for most of the year, he argued.   

Changing support models for renewables

The monitoring report's conclusions also point at action needed to tackle sensitive political issues such as emissions from mobility and heating, which have been slow to come down. Critics including energy providers and consultancy analysts, including Octopus Energy Germany, naturstrom AG, and the Climate Neutrality Foundation, said the government is playing down its role in the success of rolling out low-carbon technologies such as heat pumps or electric vehicles to trigger electricity demand growth. 

Chancellor Friedrich Merz's government aims to promote the "market-efficient" use of renewable installations and allocate new capacity "in a way that benefits the system" in future. The previous government under chancellor Olaf Scholz was already paving the way for this with an electricity market reform, which it could not finish as Scholz's coalition collapsed. 

This means, for example, that renewables are installed to generate electricity at times when it is particularly valuable, which can be achieved with solar panels directed towards the morning or evening sun rather than the more effective midday sun or wind turbines equipped with blades designed for low wind speeds. Renewable power support schemes currently do not factor in price signals to reduce production when there is oversupply.

To drive down costs and make the most of the rising share of clean and cheap electricity, Germany must find a way to ensure that future clean capacity benefits the overall electricity system, while also making it more flexible and able to cope with more renewables and rising electricity demand.