Despite major challenges, Federal Minister for Economic Affairs Robert Habeck believes good progress has been made on modernising the country’s energy supply and industrial value creation. This is the finding of the Federal Minister for Economic Affairs and Climate Action’s working report released today. The report summarises the goals, state of play and next steps of the transformation process.

“In parallel to tackling the crisis, in the past year we have laid key foundations to renew our prosperity in a climate-neutral manner. And we do see progress: the most difficult challenges on wind and solar energy expansion are behind us, we are moving forward. We have taken many decisions that will speed up administrative procedures and improve investment conditions. Many companies, too, have started investing in climate-neutral technologies. The US Inflation Reduction Act shows us that we have no time to lose. More renewables, greater energy efficiency, climate-friendly manufacturing – that is what Europe is working towards to ensure competitiveness and safeguard jobs in the long term”, Habeck said.

“This is not an easy time for any of us”, he continued, saying, “it is a time of insecurity where we are witnessing the return of war to Europe, geopolitical shifts, the climate crisis. However, or maybe because of this, we see a great willingness, a great urge in our society to do something tangible, to change something for the better, in daily life, where it is possible. A lot of people reined themselves in during the energy crisis, to save energy and strengthen independence. Thousands of heat pumps are being installed, windows and doors replaced, houses renovated to make them more energy-efficient, solar panels screwed onto roofs or put on balconies. It goes without saying that there is a lot more that needs to be done, the challenges are enormous. But we can see the beginnings of a social transformation. We have set ourselves on the path to renewal. As a country, we say with confidence that 2022 was the year where Germany proved that it can act if it wants to and if it has to. This makes us confident that our country now has the opportunity to pick up the pace.

We now have to remove the barriers that stand in the way of sustainable value creation and a sustainable energy supply, and strengthen and provide better incentives for innovation and investment. The Federal Government must live up to its political responsibility to create a binding framework and provide reliable guidance. In order to bring this framework to live, all stakeholders need to work together – from the Federal Government, the Länder, municipalities, companies, professional associations, trade unions and civil society organisations all the way to the individual members of society.”

The title of the working report is ‘renewing prosperity in a climate-neutral manner’. It refers to the manifold processes that the Federal Ministry for Economic Affairs and Climate Action has put in motion, all of which are aligned to the clear goal of achieving net zero by 2045. These processes are closely dovetailed: raising renewable energy generation capacity, raising transport capacity and ensuring the stability of the electricity system, building hydrogen infrastructure, decarbonising manufacturing, the heat transition, leveraging efficiency and promoting reductions in energy use – all of these things are closely intertwined. The work of the Federal Ministry for Economic Affairs is based on a double helix represented by the renewal of our energy supply and the renewal of industrial value creation in small, medium-sized and large companies. These two strands are inseparable from one another.
In order to speed up the renewal process, the next specific steps for all of these areas are already in the pipeline. A few highlights are listed in the next section:

First strand: renewal of the energy supply

  • The key elements of an onshore wind energy strategy are to be presented at a wind summit on 22 March. These include improved financing conditions for turbines not covered by the RES Act, proposals such as providing more land in the short term and ideas for providing better support for municipalities so they can quickly plan and implement wind energy projects.

  • This Friday, a solar summit will be held and the work done there fed into a ‘solar pact’. The goal is to make available additional sites for PV installations for example by relaxing rules on installing such systems in business parks, by establishing a new, streamlined and more attractive framework for landlord-to-tenant electricity supply and by making it easier for consumers to install solar panels on their balconies. Reporting duties are also to be streamlined.

  • A ‘power plant strategy’ will be drawn up before this summer. 17 to 25 GW of controllable load needs to be added/modernised by 2030. Power plants are to be repurposed for the use of hydrogen.

  • We are also speeding up progress on the heat transition. More than 80% of the demand for heat is currently covered by the combustion of fossil fuel. In order to become climate neutral, we need to radically transform the way we heat within two decades. In 2022, the government coalition decided to bring forward the amendment of the Buildings Energy Act regarding climate-neutral heating. From 2024, newly installed heating systems are to use at least 65% renewable energy. However, there will be a wide range of exceptions, transitional rules and deadlines in order to satisfy practical requirements.

  • In addition, social aspects will also to be taken into account by providing funding for low and middle income households so that these can afford to switch to new forms of energy. The multi-billion funding programme will take a new approach to climate-related funding: the funding will be distributed based on the recipients’ income.

  • In addition, a ‘heat planning act’ complementing the Buildings Energy Act is to be adopted in order to drive forward the expansion of the heating network. The competence for this expansion will continue to lie with the municipalities. However, the new act will anchor municipal heat planning nationwide and create a central coordinating instrument for local, efficient heat and strategic planning and investment decisions promoting a climate-neutral heat supply at local level.

  • The government plans to adopt a ‘hydrogen acceleration act’ in 2023 to advance the production and construction of the infrastructure required for this. In addition, a hydrogen import strategy will be devised that will connect the different initiatives.

Second strand: renewal of industrial value creation

  • The Federal Ministry for Economic Affairs and Climate Action will adopt an industrial strategy that will seek to strengthen the competitiveness of industry, thus renewing prosperity and participation therein on a climate neutral basis.

  • A key element for decarbonising the industrial sector are carbon contracts for difference, which help transition from traditional to green manufacturing processes. They are to be used to fund additional costs that arise when companies opt to move towards a more climate-friendly manner of operating conventional industrial facilities. The instrument is to also benefit an industrial sector that is largely made up of SMEs. A two-digit billion sum is to be earmarked for this.

  • The transformation also takes account of the needs of SMEs. For example, the funding provided for small companies shifting their manufacturing plants from fossil fuels to electricity will be expanded and an additional €100 billion provided for this by 2025.

  • The Federal Ministry for Economic Affairs and Climate Action is developing a tiered industrial electricity price model. This will make more low-cost electricity from renewable sources available to the industrial sector. To attain this goal, renewable energy funding or individual elements of this funding are to be changed to contracts for difference (CfDs). The price reached in the auctions would be passed on to industrial companies. As this model can only be used for new plants that receive CfD funding, this ‘decarbonisation electricity price’ will have an effect only in the medium term. As part of the tiered industrial electricity price model, new opportunities for supporting the conclusion of direct contracts between industrial consumers and renewable energy installations (PPAs) are also being looked at.

  • In addition to this, the Federal Ministry for Economic Affairs and Energy wants to expand production capacity for the energy transition. As a general rule: the production capacity of all technologies that are relevant for the energy transition needs to triple or quadruple in order to meet Germany’s and Europe’s rising needs. In order to ensure strategic sovereignty, these needs must be satisfied from a wide range of difference sources and, at least to a relevant extent, from European production. Germany and Europe have started to build up local production capacity, whether it be in the field of electrolysis, battery cell manufacturing or other key enabling technologies. The Federal Ministry for Economic Affairs and Climate Action has also launched an initiative for the establishment of production capacity for the energy transition (StiPE), involving representatives of the PV, wind and grid sectors along the entire value chain. This initiative is to present a proposal for a transformation fund before the end of this summer, which will promote investment in the decarbonisation of industrial production processes using equity or hybrid capital. In addition, the ‘investment premium’ instrument is to be made available for transformation technologies and an instrument for funding operating costs developed.