Diversifying Germany’s Energy Supply

A series of measures including a gas price cap will help bring down gas prices, support gas procuring companies and protect business, industry and private households. Funding for the proposed gas price gap will be made available from the country's EUR 200 billion energy defense shield.

96 billion euro support package

The German government has passed a two-stage model worth EUR 96 billion to be deployed in December 2022 and from January 2023 on through to April 2024 to ease the impact of high gas prices for residential as well as commercial customers.

Measures include:

• December 2022: One-off payment to private households as well as small and medium-sized enterprizes with an annual gas consumption of up to 1.5 million kilowatt hours. 
• January 2023: For large industrial customers, a gas price cap should apply from January 2023 at a procurement price rate of 7 cents per kilowatt hour at seventy percent of usage.
• March 2023-April 2024: Gas price cap for private households as well as small and medium-sized enterprises with an annual consumption of up to 1.5 million kilowatt hours should be introduced to reduce the gas price to 12 cents per kilowatt hour from January 2023 through to April 2024 at eighty percent of usage. The gas price cap will be implemented retroactively in order to provide support for the months of January and February 2023.

An electricity price cap to help reduce electricity costs will be introduced in March 2023 as part of the country’s EUR 200 billion energy relief package. The electricity price cap will be implemented retroactively in order to provide support for the months of January and February 2023.

Midsized and large companies active in industry will see electricity prices capped at 13 cents per kilowatt hour applicable to 70 percent of the previous year’s consumption level.

Private households and small and medium-sized enterprises will see electricity prices capped at 40 cents per kilowatt hour applicable to 80 percent of the previous year’s consumption level.

The electricity price cap provides relief through lower deductions during the year. Refunds will be made when paying annual bill for any additional electricity saved.

Germany remains committed to its ambitious energy vision to make the country climate neutral by 2045. The country has set 2038 as the latest date for coal phase out – with a total phase out potentially possible by the end of the decade. Solar energy will be expanded to 215 GW by 2030. And two percent of Germany’s land area reserved for wind energy purposes.

Renewable Energy Act 2023

The German Bundestag has passed significant amendments to the Renewable Energy Sources Act (EEG). The "EEG 2023" will replace the current EEG 2021 and come into force on January 1, 2023.

A number of first regulations of the EEG amendment have already come into force:

• The "renewable energy first" principle that the use of renewable energies is in the overriding public interest and serves public safety has been in effect since July 29, 2022.
• Higher compensation rates have also been applicable to all new rooftop PV installations since July 30, 2022.
• Adjusted subsidy rates are currently still subject to approval by the EU Commission under state aid law. The new subsidy rates can be applied as planned to systems commissioned after July 30, 2022, as soon as the relevant approval has been obtained.

Energy efficiency and renewable heat

More than one third of all final energy use in Germany is consumed in buildings to provide, for example, heating, cooling and hot water. The federal government wants Germany’s building stock become climate neutral by 2045. Two funding programs play a key role in providing funding to private as well as industrial clients, setting strong market incentives. 

Federal Funding for Efficient Buildings (BEG)

The Federal Funding for Efficient Buildings (BEG) program combines a number of existing incentives programs to promote energy efficiency and the use of renewable energy sources in the building sector. Central to this is the use of new heating systems, optimization of existing heating systems, measures on the building envelope, and the use of optimized systems technology.

The BEG consists of three subprograms:

• Residential buildings (BEG WG)
• Non-residential buildings (BEG NWG)
• Individual measures (BEG EM)

They have been available for implementation  since July 1, 2021. From 2023, funding is to be provided for each funding event either as a direct investment grant from the Federal Office for Economic Affairs and Export Control BAFA or as a low-interest promotional loan with a repayment grant from Germany's promotional bank KfW. All building measures that improve energy efficiency are eligible for funding. The following table provides an overview of eligible building measures and the maximum possible funding rates available (conditions apply, for full information refer to the Federal Office for Economic Affairs and Export Control BAFA).

A 50 percent subsidy rate on expert planning or construction supervision is granted for all building measures.

Federal Funding for Efficient Heat Networks (BEW)

The federal funding program for district heating’s transition to renewable energy sources has been in place since September 2022. The BEW promotes the constructions of new heating networks with high renewable energy share as well as the decarbonization of existing networks.

In the period up to and including 2026, around EUR 3 billion will be made available for renewable heat generation using geothermal energy, solar thermal energy, large-scale heat pumps, and further heat network infrastructure. The BEW provides incentives for the building of new heat networks where renewable energy and waste heat sources will constitute a share of at least 75 percent, as well as the decarbonisation of existing networks.

Climate-neutral heat supply plays a key role in achieving climate targets. Greenhouse gas-neutral district heating networks are crucial for the climate-neutral transformation of heat supply, as they not only reduce dependency on fossil fuels but also enable the efficient supply of heat to consumers using renewable energies.

Securing critical infrastructure

The Federal Ministry for Economic Affairs and Climate Action is to be given new powers in situations where companies are at risk of not being able to meet needs in future, thereby impairing supply security. In such cases, critical infrastructure companies in the energy supply sector will be placed under trust management for a limited period of time. The amendment also provides for the possibility of expropriation as an option of last resort.

Price adjustment options

Should the Bundesnetzagentur determine that gas imports are to be significantly reduced, all energy suppliers along the supply chain affected by this decision will be entitled to adjust the gas prices they charge to an appropriate level. This will provide financial security to importers. Consumers will have an extraordinary right of cancellation where price adjustments of this kind are made.

Liquid Natural Gas (LNG) acceleration 

The Federal Ministry for Economic Affairs and Climate Action has made funding of almost EUR 3 billion available to put four floating LNG terminals into operation.

The “LNG Acceleration Act” has been created to increase security for national energy supplies by maintaining has supplies from other countries. The Bundestag passed the Act on May 19, with the Bundesrat confirming the new regulations with its formal approval on May 20. The new legislation allows for land-based and floating LNG terminals and the required connections to be constructed in quick time thanks to swift approval, tender and review procedures. Sites currently being considered include Brunsbüttel, Wilhelmshaven, Stade/Bützfleh, Hamburg/Moorburg, Rostock/Hafen, and Lubmin.

The new gas power stations and infrastructure have been planned for successive switch over from fossil gas to carbon-neutral products including hydrogen. Building LNG infrastructure is a short-term solution to facilitate alternative ways of importing gas. The Federal Government has, for that reason, specifically planned for the infrastructure to be suitable for hydrogen use.

In accordance with German climate targets, the approvals for the LNG facilities are to be limited in duration to no later than 31 December 2043. Continued operation of these facilities will only be possible after that point if they are used for climate-neutral hydrogen and its derivatives. This ensures that it will still be possible to achieve the goal of climate neutrality by no later than 2045.

Preserving gas storage facilities

Gas storage facilities may only be decommissioned subject to approval. Any temporary or permanent decommissioning of gas storage facilities, parts of such facilities or their connection to the public grid will have to be approved in advance by the Bundesnetzagentur.

Digital platform for natural gas

A digital platform for natural gas will be established to ensure that supply of gas is secure in the future – even in the event of a crisis. It will be possible to offer and allocate volumes of gas by means of an efficient, digitalized process.

Maintenance of Substitute Power Stations Act

The Maintenance of Substitute Power Stations Act aims to establish a gas substitute reserve for the period up to March 31, 2024. The act ensures that gas will be saved in the event of an impending shortage. Instruments within the act allow gas power plants to be withdrawn from the power market to save gas in electricity production. Reserve power coal and oil plants are to be allowed a temporary return to the electricity market up to March 31, 2024.

Oil and coal-fired power plants are to be upgraded so that they are ready for the market at any time. This applies in particular to coal-fired power plants that were to be decommissioned in 2022 and 2023 as part of the coal phase out plans. Power plants that have served as a grid reserve are also to be used for production. Coal-fired power plants from the safety reserve (which to date have only been allowed to be ramped up again in extreme emergencies) form part of the newly created supply reserve as of October 1.

Germany’s coal phase-out goal and climate targets remain in place. The power plants are operational but not active on the electricity market – meaning that additional carbon dioxide emissions will only occur in the event of an emergency.