ICIS EXPLAINS: German election’s impact on energy

• On 24 February 2025, ICIS reviewed the potential impact of CDU/CSU’s election victory and how it could shift Germany’s energy policy, while traders said the picture for energy markets remains uncertain until a new coalition forms
• On 20 February 2025, ICIS updated this analysis to highlight three main pathways that could emerge from the election and how they could impact gas and power prices. 

LONDON (ICIS)– Germany will head to the polls on 23 February for a snap federal election as Olaf Scholz, the incumbent chancellor, lost the vote of confidence last December, a month after his coalition government collapsed in November 2024.

The following analysis will reflect core pledges from the manifestos of the German parties and review those in detail using ICIS data and insights.

This analysis of German political pledges and announcements will be continuously updated by the ICIS energy editorial team. Lead authors include German power reporter Johnathan Hamilton-Eve, German gas reporters Ghassan Zumot and Eduardo Escajadillo.

Data aggregated from multiple surveys collated by Politico, showed that on 12 February, the CDU/CSU led the polls with 29% of the vote.

While the CDU/CDU remains ahead, the party has lost three percentage points since 13 November, when Scholz first announced a vote of confidence would take place on 16 December.

Meanwhile, the Alternative for Germany (AfD) and Linke party have seen the largest gains in voter support, with each increasing by three percentage points in the polls.

NORD STREAM

AfD co-leader, Alice Weidel, said in a party congress on 11 January that her party is willing to resume Russian gas supplies via Nord Stream.

The Sahra Wagenknecht Alliance (BSW) has proposed reviving Nord Stream as part of its strategy to affordable and secure gas supplies. However, this is unlikely to materialise as BSW is not among the top three parties while the AfD is explicitly excluded from the ruling coalition. As a result, such energy policies would be very unlikely to pass in parliament.

Other parties are explicitly against the idea of returning to Russian piped supplies.

Technical capacity of Nord Stream 1 and 2 is 55 billion cubic meters (bcm) per year for each of the twin pipelines.

REVIVAL OF NUCLEAR POWER

Germany’s controversial decision to shut down its last three nuclear power plants in April 2023, is also an important topic discussed by the main parties who claim that this source of generation would ensure security of supply in the power sector.

The AfD is the most vocal party to advocate for the return of nuclear energy as part of its agenda, the CDU/CSU dissimilarly said it would examine the possibility of recommissioning nuclear power plants as part of energy diversification.

Excluding the FDP which support nuclear power development, the SPDs have no clear stance on the issue.

The Greens/Alliance 90, Linke and BSW are the only parties that explicitly oppose a return to nuclear power generation, although BSW does support intensifying research in the field of nuclear fusion.

Despite mixed views on nuclear, market participants and former nuclear operators  remain sceptical on the issue, citing high costs, extensive staff training, regulatory challenges and the advanced dismantling of decommissioned nuclear plants as key barriers, making a revival unfeasible.

GAS POWER PLANT STRATEGY?

After a year of delays to the power plant safety act, Germany’s coalition collapse led to the current minority government failing to pass the act in December 2024.

While the German Federal Ministry of Economic Affairs and Climate action (BMWK) previously told ICIS that implementing the act was “no longer possible” due to CDU/CSU opposition, traders active within the German power market noted that a revised bill with a renewed focus would likely follow the elections to help address missing power plant capacity.

“A law to increase the capacity of dispatchable power plants is highly necessary and we will see some version of it in 2025,” said one trader.

The CDU/CSU, led by Friedrich Merz, said in January that it would build 50 new gas-fired power plants quickly if elected.

According to ICIS Analytics, that would make around a 25GW capacity addition to Germany’s current 36GW gas-fired fleet.

This move aims to bring back confidence for investors and supply security for power consumers amid multiple periods of limited renewable generations this winter so far.

On the other hand, the Greens want to move away from fossil fuels towards renewable energy as fast as possible. They strongly oppose new gas-fired power plants, unless hydrogen-ready, and aim to achieve 100% renewable electricity within the next ten years. Additionally, they plan to stop using fossil gas by 2045 and reject new long-term gas import deals, focusing on local sustainable energy.

The Social Democrats, led by the incumbent chancellor Olaf Scholz, advocate for a more balanced approach. They aim to reduce CO2 emissions and are open to carbon capture and storage projects. Scholz recently welcomed the commissioning of new US LNG projects in a bid to diversify energy sources and expressed commitments to phasing out traditional energy sources gradually to maintain energy security and industrial strength.

The Free Democratic Party (FDP) supports a market-driven policy. They want to reduce regulations to improve efficiency and modernization, creating a simple capacity market to incentivize building gas-fired power plants. The FDP also supports increasing domestic natural gas extraction, including the use of fracking, and boosting storage capacities to reduce reliance on international supplies.

In stark contrast, AfD takes a very different approach. They support building new coal- and lignite-fired power plants and aim to revive the Nord Stream pipelines to secure cheap gas imports.

RENEWABLE ENERGY

The expansion of renewable energy remains a key topic in Germany, however, its focus has somewhat declined as debates over migration and how to revive the country’s struggling economy take centre stage.

Despite this shift, most parties continue to agree on the need to expand renewables.

The Greens, SPD and Linke are the most ambitious in terms of promoting renewable energy.

The Greens have pledged to uphold the Renewable Energy Sources Act (EEG) target of an 80% renewable energy mix by 2030 and a carbon-neutral power grid by 2035.

Similarly, Linke supports a 100% renewable energy mix, but with an extended timeline to 2050.

To accelerate renewable expansion, Linke proposes municipalities receive a €25,000 bonus per MW for new wind turbines and large-scale PV systems built, along with a higher mandatory payment from wind and solar operators to municipalities.

All parties advocate for lower grid fees, while the Greens, SPD, and CDU/CSU also advocate for a reduction in electricity taxes to cut prices and incentivise renewable growth.

The BSW has indicated it would implement a repowering program to replace old wind turbines with new ones to increase electricity yield, while encouraging the installation of PV systems on public buildings and parking lots.

In contrast, the FDP and AfD take an openly hostile stance towards renewables.

Both parties have pledged to ban renewable subsidies, while the AfD has vowed to go a step further and demolish all wind turbines, with Weidel describing them as “windmills of shame”.

IMPACT ON ENERGY PRICES

The impact of election results on German power and gas prices is uncertain and will ultimately depend on the amount and type of capacity added and its commissioning timeframe.

One market participant told ICIS it is early to expect an immediate impact on energy prices, adding that “markets would react to tangible actions following the establishment of the new government.”

The below three different scenarios based on parties’ pledges present the potential impact on gas and power markets depending on the election outcome.

PATHWAY 1

A shift in German energy towards fossil fuels and the revival of nuclear power, could help stabilise some price volatility but hinders Germany’s climate targets.

This pathway is most closely resembled by the Alternative for Germany (AfD), which holds an anti-renewable stance, supports keeping coal and gas-fired power plants running, repairing the Nord stream gas pipelines, returning to nuclear and dismantling wind farms.

Even if the AfD does not manage to form a coalition, it could still become the strongest opposition party and restrict renewable expansion, particularly new wind farms.

Revining Nord Stream 1, 2 pipelines would be bearish for gas prices, however the picture for power differs as the bearish impact of abundant gas supply for power generation could be offset by the dismantling of renewables capacity.

A European energy trader said that despite current negotiations between the US and Russia for peace in Ukraine, it is unlikely that a resumption of Russian piped flows to Germany materialises in the medium term at least.

A second trader told ICIS that new nuclear plants would not impact power prices, as new plants would not be operational before 2040.

PATHWAY 2

The second pathway could see a more balanced approach, emphasising the build out of baseload generation, an increase in renewable capacity—though less ambitious than the previous government—and the continued use of coal until a viable alternative is found.

This pathway aligns with the CDU/CSU party, which has pledged to build 50 new gas plants, continue renewable expansion, consider the recommissioning of nuclear plants shut down in 2023, uphold the original 2038 coal phase-out target and prevent further coal plant closures until new combined heat and power (CHP) and gas plants are built.

“Building new gas plants quickly can help ensure security of supply. To the extent that it replaces coal/lignite generation, additional gas generation is bearish for power prices,”  said of Head of Power Analysis at ICIS, Matthew Jones.

“I think the higher the CDU scores in the election, the greater the chance that the coal phase-out will be delayed somewhat, which could lower forward [power] prices somewhat” a third trader said.

Recommissioning nuclear plants would add further pressure to power prices, due to lower marginal costs than fossil fuel generation.

However,  former nuclear operators dismissed the possibility of recommissioning nuclear plants, due to technical and economic feasibility, which could mute any potential power price impact.

Jones added: “If investments in gas are made at the expense of additional renewable generation or restarting nuclear, this will be bullish for power prices as the marginal costs are much higher compared to those technologies.”

PATHWAY 3

With polls indicating a coalition will be the most probable outcome, the third pathway represents a coalition of the CDU/CSU, SPD and Greens, with this approach not being too dissimilar from energy policies in the previous government.

Although all these parties support the expansion of renewables, the Green and SPD party could drive a greater focus for renewable energy.

“Increasing renewables is the fastest way to reduce wholesale prices as it has zero marginal cost. The issues are the amount of subsidy required given falling capture prices and the challenge of maintaining security of supply when the wind doesn’t blow and the sun doesn’t shine”, said Jones

The SPD and Greens’ stance against nuclear might end the CDU/CSU’s nuclear resurgence plans and push for an accelerated coal phase-out.

Germany’s power plant act which failed to pass in December 2024, would likely see power plant capacity addressed in the form an of revised bill, which could add pressure to far curve power contracts.

Whether these gas plants prioritise carbon capture and storage (CCS) or hydrogen would still depend on the coalition emerging.

“There needs to be investment in gas plants, probably with some form of H2-ready infrastructure and CCUS attachment. However, the focus will depend on whether the CDU forms a coalition with SPD (favour CCS) or Greens (favour hydrogen)”, said the second trader.

While, energy policies may influence prices differently, a coalition is unlikely to have an immediate impact on curve prices.

ICIS Power analyst, Ellie Chambers said, “In broad strokes, their policies won’t differ significantly from those of the traffic light coalition, so I don’t expect any incoming government to have a major effect on curve contracts.”