Q&A: Germany to lower energy transition ambitions following “reality check” report

The report focused mainly on the electricity sector, saying the energy transition must continue to meet climate targets, including rapid renewables expansion. Reflecting broad consensus, it also urged greater focus on cost efficiency.

The authors said Germany was on track to reach its target of 80 percent renewable electricity by 2030 even if the rollout slightly lagged behind targets, since overall electricity demand is likely to grow more slowly than previously expected.

Germany’s international climate commitments and the constitutional target of greenhouse gas neutrality in 2045 made decarbonisation a fundamental requirement of the monitoring process, the authors said. Affordability and supply security, by contrast, were treated as “target values” subject to political decisions.

The report focused on six key areas of the energy transition:

1. Power demand
2. Supply security
3. Grid expansion
4. Renewables expansion
5. Digitalisation
6. Hydrogen ramp-up

Key findings included:

• Electricity demand will show “robust” growth in all analysed scenarios, though the pace remains uncertain
• Renewables expansion “at a high level” remains essential
• Transmission and distribution grids must expand to integrate growing renewable energy supply and meet electricity demand
• Secure supply and storage capacity will be required regardless of demand growth
• Cost efficiency should play a greater role in policymaking, but is often overlooked in other studies
• Lower costs and a more secure supply can be achieved by combining conventional plants, renewables, storage and load management
• Hydrogen is essential for achieving climate targets in all scenarios, but current costs  exceed companies’ willingness to pay
• A gap between the requirements of greenhouse gas neutrality and actual power and hydrogen trends means “further measures are needed to achieve the climate targets”
• Smart metering must be accelerated to reap the benefits of digitalisation
• The economy ministry’s ‘System Development Strategy’ for a climate neutral energy supply by 2045 should guide coherent policy and ensure consistent cost assessment

“The German energy transition is at a crossroads,” the economy ministry said in a list of conclusions based on the report. “While the successes achieved so far in expanding renewable energies are obvious and a great achievement for Germany, the next steps will be much more difficult,” the ministry warned.

While the expert report stopped short of recommending a slower expansion of renewables, the government said in its response that it will “adjust” some targets, including for offshore expansion. Future renewable additions should be “grid friendly” to ensure all kilowatt-hours of electricity produced can be used, and new capacity is added where it makes sense, Reiche said, adding that renewables already generate too much electricity at times, while requiring fossil fuel backup when the wind doesn’t blow and the sun doesn’t shine. This would result in high system costs borne by consumers and undermining competitiveness.

“German energy policy must be realigned. Pragmatism, market-based rationality, innovation-friendliness and broad technological openness are essential to securing prosperity, jobs and climate targets for the next generation,” said the ministry.

Reiche, who had previously described renewables targets as “completely unrealistic, completely exaggerated”, said support would be cut “to the absolutely necessary level.” Fixed feed-in tariffs for smaller PV installations and remuneration during negative power prices will be scrapped. She said overly complex regulations like the EU definition of “green hydrogen” will be “removed and replaced by pragmatic criteria. Low-carbon hydrogen will be treated equally.” The country will also replace its current hydrogen electrolyser expansion target of 10 gigawatts by 2030 with “flexible targets” based on actual projects that would use the hydrogen, and lower offshore wind targets, the ministry said, without giving details.

The ministry also promised to increase EU cooperation to cut costs. “We will overcome energy policy divides in the EU and leverage the undeniably high cost-reduction potential of a better-integrated European energy system.”

The previous government in 2022 decided to align renewables expansion with the Paris Agreement goal of limiting global warming to 1.5°C. It introduced the target of covering 80 percent of electricity consumption from renewables by 2030 and set ambitious capacity targets for wind and solar power by 2030 and 2040.

It remains to be seen how exactly the ministry aims to translate these conclusions into legislative reforms and new policy.

Especially chancellor Merz’s conservatives sharply criticised the previous government’s energy policy during the election campaign, suggesting a fundamental change of course. But given that many of the energy transition’s targets are legally binding, and that businesses insist on planning security, immediate change has been slow, often focusing on rhetoric rather than substance.

However, there is broad agreement that Germany, like the rest of Europe, must modify the rules and regulations governing its energy system and adapt it to a growing share of intermittent renewables. This requires investments in grids, storage, backup capacities, interconnectors, and incentives to make demand more flexible.

In the run-up to the report, energy industry representatives had called for reforms, but opinions varied on their scope. "We are quick to expand photovoltaics, but less so when it comes to wind energy and power grid expansion. And unfortunately, we are extremely slow in introducing smart meters; we have been lagging behind for years in the construction of backup power plants,” said Stefan Kapferer, CEO of grid operator 50 Hertz. 

Guaranteed feed-in support payments for renewable energy projects have been at the heart of Germany's energy transition since their introduction in 1990, and have been emulated across the globe. Renewables are now the cheapest way to generate electricity, and the fastest growing power source, sparking a debate about whether state support is still necessary. As the share of renewables grows (55% of electricity consumption in 2024), the country must still work out how to reduce integration costs while encouraging investments. The previous government started to prepare an electricity market reform, but only minor parts were implemented.

Germany’s electricity demand has declined in recent years due to efficiency gains, slower-than-expected electrification, and falling industrial production. A report published earlier this year by consultancy McKinsey also said that Germany’s future electricity demand would likely remain below current estimates. It suggested that adapting the speed of grid and renewable expansion accordingly could slash transition investment costs. Energy companies and grid operators reached similar conclusions.

Overall, there were relatively few objections to the “reality check” report itself. Instead, criticism largely focused on the government’s conclusions, with environmental groups arguing these endangered climate targets.

Energy-intensive sectors, long lobbying for cost cuts, welcomed the report and the government proposals. The country’s most important industry group, BDI, said the report had been necessary “to get the energy transition on track in terms of climate protection and competitiveness”. It called the ministry proposals “the foundation for significant efficiency improvements in the energy system, which must now be tackled swiftly.” Chemical industry association VCI agreed, saying the focus of the renewable rollout should shift from quantity to quality.

Utility association BDEW criticised the report’s focus on electricity and the lack of a clear commitment to hydrogen. “This leaves out relevant developments and opportunities in gas and heat supply,” the group argued.

Many critics focused on the ministry’s reaction to a lower electricity demand forecast. They called on the government to push industry decarbonisation, electric cars, and heat pumps – all of which raise demand – rather than slowing renewables and accepting lagging electrification. 

Energy transition think tank Agora Energiewende said future electricity demand would depend on the government’s ambition to achieve the climate targets and integrate low-carbon technologies in the economy. Lowering expansion targets based on a reduced power demand forecast for 2030 would be “short-sighted, expensive, and send the wrong signal to the economy,” Agora said, arguing slowing wind and solar expansion would push up power prices by 2030. Tapping cost-saving potential in grid expansion would be a more effective way to make the energy transition more affordable, the think tank concluded.

Industry-affiliated initiative German CEO Alliance for Climate and Economy called the lower electricity consumption forecast an “alarming signal” that implied deepening deindustrialisation. In a similar vein, the German Renewable Energy Federation (BEE) said preserving Germany’s industry will require a sharp increase in electricity demand. The expansion of renewables must therefore continue unabated, also to accommodate demand from new AI data centres, said BEE President Simone Peter. “It is not a question of whether, but how the energy transition will be further implemented."

The BDEW warned that electricity demand forecasts were “only a snapshot” that could quickly become outdated by higher economic growth or a faster uptake of certain technologies. “From the perspective of the energy industry, there is no change in the considerable need to expand renewable energies,” said BDEW head Kerstin Andreae, adding that the capacities currently planned will definitely be needed.  

Solar power industry group BSW Solar said the monitoring report did not recommend cuts to solar PV expansion, but Reiche’s plan to abolish support for roof-mounted installations would effectively cut growth, contradicting the report’s call for policy consistency.

Environmental NGO Greenpeace said the government wanted the energy transition to be cost-effective, but was ignoring long-term costs and climate damage. “Instead of vigorously pushing ahead with the urgently needed transformation, the monitoring report threatens to become a lever for energy policy setbacks,” Greenpeace warned.

NGO Environmental Action Germany (DUH) accused the ministry of pursuing a “fossil agenda instead of a reality check” by betting heavily on gas power plants that still need to be built.

Even before the report release, many NGOs had warned that the government was planning to use the report as an excuse to slow renewables expansion.