Germany aiming for 100% renewable power by 2035

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The new German coalition government may be planning to totally phase fossil fuels out of the country’s power mix by 2035, which would be five-10 years sooner than previously anticipated in the case of gas, according to leaks from the economy and climate ministry.

An alternative reading of reports of the leaked draft paper would be that Germany targets a 100% renewable share of demand by 2035, a less ambitious plan that will nevertheless require a ramp up of capacity installations relative to our expectations in the early 2030s.

Parliamentary state secretary Oliver Krischer tweeted on Sunday evening that amendments to the country’s renewable energy sources act (EEG) were complete. “We will have enough renewables to meet demand as early as 2035,” he stated.

In this analyst update, we analyse both readings of the target, as well as other reports of the draft paper, which quantifies Germany’s new 2030 onshore wind capacity target for the first time at 110GW, and details renewable tender programmes out to 2035.

Background

• Germany’s longstanding policy to replace fossil fuels with renewables, hydrogen, and demand response is called the Energiewende. The policy has been criticised for risking power supply stability and its reliance on natural gas as a bridging fuel.
• Last year, elections took the centre-right CDU and CSU parties out of government, with the Greens and the pro-business FDP replacing them in coalition with the centre-left SDP.
• The coalition agreement accelerated Germany’s coal exit from 2038 up to 2030. It also set the following targets for renewable power capacity (full analysis here):
  • Solar: 200GW by 2030
  • Offshore wind: 30GW by 2030, 40GW by 2035 and 70GW by 2045
  • No definitive target for onshore wind, but implied 90-120GW in 2030 depending on the demand level
• The deal did not refer to a phase-out date for gas, but some reports suggested this could be set for 2040. The country’s climate-neutrality aim is 2045.

Targets and tenders

• Onshore wind
  • Reports indicate a capacity target of 110GW by 2030, which is slightly lower than the maximum amount we estimated at the time of the coalition agreement. It is higher though than our Base Case estimate for 90GW by 2030.
  • To achieve the target, Germany will increase tender volumes to 10GW every year from 2027-2035. Reports suggest that volumes will scale up sequentially from the levels set for 2022, which we estimate at 4GW.

Note: assumes a three-year build time and fully subscribed future tenders

• Offshore wind
  • A 30GW target for offshore wind by 2030 was known at the time of the coalition agreement last year. We had forecast Germany getting most of the way there with 25GW by 2030. We may revise this up in light of a large increase in tender volumes proposed in a draft amendment to the wind energy act seen by ICIS.
    • 2023: up from 900MW to 6-7GW
    • 2024: up from 2.9GW to 5-6GW
    • 2025: up from 4GW to 5-6GW
    • 2026: 5-6GW announced (no figure given previously)
    • 2027 onward: 4GW annually (no figure given previously)

Note: assumes a five-year build time and fully subscribed future tenders

• Solar
  • A 200GW target for solar by 2030 was known at the time of the coalition agreement. Again, we had forecast Germany getting most of the way there with 150GW in our Base Case.
  • Similar to onshore wind, the act will increase solar tenders to 20GW annually from 2028-2035, with reports suggesting that volumes will be scaled up from the level in 2022, which we estimate at around 6GW.

Note: assumes a two-year build time for ground-mounted and innovative solar projects, one year for rooftop, and fully subscribed future tenders

• Power mix
  • There is a lack of clarity in wider reporting, potentially exacerbated by translation issues, as to whether Germany is targeting a 100% renewable share in supply or demand by 2035.
  • A 100% renewable power mix would be the far more ambitious target, as it would mean retiring (or converting) all of Germany’s legacy gas-fired capacity by 2035, alongside earlier retirements for nuclear, coal, and lignite.
  • Another interpretation would be that Germany is aiming for 100% of its electricity demand to be met by renewables by 2035, with legacy gas capacity remaining online.

Other changes

• Introducing a contracts-for-difference (CfD) subsidy replacing feed-in tariffs initially for ground-mounted solar but spreading to offshore wind, whereby installations do not benefit if wholesale prices rise above the awarded payment level.
• Increased subsidies for solar on private residences.
• Citizens wind and solar projects to be partially exempt from the tender system.
• Abolishing the solar breathing cap, which adjusts feed-in tariffs up or down based on whether annual capacity increases exceed a level around 2.5GW (well below recent growth rates).

Analysis

• Out to 2030, the leaked document appears mainly to be confirming tender volumes for the plan that we felt was unachievable back in December due to the scale of the additions required in such a short timeframe.
• It does scale up the ambition for the 2030-2035 period, whether the 100% renewable target refers to supply or demand (detailed analysis in sections below).
• Even aside from this, the plan is still lacking a lot of key details. Key among these are:
  • How the government intends to cut bureaucratic barriers that slow down the commissioning of new renewable capacity, particularly onshore wind.
    • The government failed to amend planning laws in time to include onshore wind repowering in this package of measures.
    • Onshore wind tenders were 94% subscribed last year, but this dropped as low as 50% as recently as 2019, amid permitting and grid capacity issues.
  • Plans for rapid grid expansion to accommodate the high volume of renewables, particularly the additional offshore wind that is necessarily concentrated in the north of the country where power demand is lower.
• Meanwhile, some new announcements will actually work against capacity buildout. For instance, replacing feed-in tariffs with CfDs will reduce the financial upside for investors to benefit from periods with higher wholesale prices.
• The key change in the other direction is hardened political will, and potentially greater public buy-in with national security at stake. It appears that the situation in Ukraine has prompted this early leak of amendments to the EEG which outlines an ambition to diversify away from energy imports from an antagonistic Russia. “This not only benefits climate protection but also makes us independent of Putin’s gas, oil, and coal,” stated Krischer.

Scenario 1: 2035 demand met by 100% renewables

• This would mean that gas could still be running in 2035, but annual renewable generation in Germany would meet or exceed annual demand, with significant net exports.
• Based on the capacity pathways implied by the reported tender volumes, combined onshore wind, offshore wind, and solar output would reach 742TWh in 2035. Adding our 2035 generation forecasts for hydropower and biomass to this brings total renewable output (and therefore implied demand) to 820TWh.
  • This assumes no capacity dropping offline which is unrealistic, but nevertheless sits well above our 2035 Base Case demand forecast of 682TWh and even above the figure from our High-RES scenario of 738TWh.
  • The midpoint of the government’s estimate for gross electricity demand in 2030 is 715TWh, so this would imply a 15% increase in five years, compared to 8% in our Base Case forecast and 12% in High RES.
• Our hydrogen capacity and electric vehicle assumptions are close to the government’s for 2030, so the discrepancies in demand likely stem from assumed rapid switching from gas in residential heating and industry.
  • Needless to say, this would be a massive undertaking. A study commissioned by Greenpeace released this week estimated that to achieve carbon-neutral heating by 2035, the installation of new oil and gas heating systems in Germany would need to be banned from 2024. This would mean less than two years to retrain Germany’s heating technicians and secure supply of heat pumps and solar thermal systems, still early-adopter technologies in most countries including Germany.
  • There is also the paradox that to avoid calling on thermal capacity, electrifying other sectors necessitates accelerating renewable power installations, exacerbating previously discussed issues with capacity and grid bottlenecks.

Scenario 2: 100% renewable power mix in 2035

• Germany getting off gas as well as all other fossil fuels and nuclear by 2035 would be very, very difficult to achieve. Something will need to provide grid flexibility in the wake of 60GW of thermal capacity retiring, and alternative technologies do not yet exist at scale.
  • The world’s first at-scale gas and bioenergy-fired power plants that are equipped with carbon capture and storage (CCS) are still in the development phase, and would not be complete until the latter 2020s.
  • Hydrogen-fired power plants are earlier in development still. The world’s first, Keadby in the UK, is targeting a 2028-2029 start up. The first gas plants that are capable of cofiring hydrogen are starting up in the US this year, but will require retrofitting to be capable of burning 100% hydrogen if the supply becomes available.
  • Battery technologies are more advanced, but Germany’s current capacity is negligible, and the prices of raw materials such as lithium have been surging, with competition from electric vehicles and other countries planning massive build outs.
  • Pumped hydropower is limited by available sites, while alternative long-term storage options are not yet deployed at scale anywhere.
• Germany had been planning to rely on gas in the mid-term to enable coal’s phase-out by 2030. Our last quarterly update forecast 16.8GW of newly built gas capacity by 2035 and 30GW by 2050. This capacity would need to be CCS or hydrogen-compliant, or face retirement shortly after commissioning.
• Essentially, a carbon-neutrality target would make Germany’s renewable capacity targets more difficult to achieve. It may be that German politicians are deliberately leaving the question of whether they intend to target 100% renewable supply or demand open as leverage against Russia, and/or as an immediate political response to the invasion of Ukraine.

Next steps

• This week ministers are meeting with renewable energy associations, who are apparently nonplussed that the key tenets of the law have been determined without their input.
• The EEG amendment will be formally released on 7 March. We will return with another update based on a close reading of the actual document.
• Germany’s energy and climate ministry aims to submit a second package of measures to cabinet in the summer. The goal is for both packages to become law by the end of the year.