Germany seeks savings by scaling back renewable subsidies

Key points

• Germany’s parliament votes in November on a renewable energy reform, with EU approval for current subsidies expiring at the end of 2026.
• The reform scraps feed-in tariffs for new installations, ends subsidies for small rooftop solar and brings in contracts for difference, while keeping an 80% renewables target for 2030.
• The government says renewables no longer need up to €17bn a year in support, though analysts say the savings remain unclear.
• Critics warn that ending renewables’ priority grid access could slow the energy transition, particularly onshore wind.

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Germany’s proposed changes to its renewable energy legislation are being criticised for cutting subsidies, even as the government sticks to its targets for renewable power. 

The German parliament is debating a reform of its 25-year-old renewable energy legislation. The proposed reforms would cut subsidies for small-scale solar installations and put more focus on the stability of the electricity grid, while still sticking to a goal for renewables to make up 80% of electricity consumption by 2030.

A vote is expected in the second week of November. The parliament is under pressure to agree to the reform quickly as European Union permission for the current subsidies under state aid rules runs until the end of 2026.

The reform comes against a backdrop of hostility towards environmental action and renewable energy from the far-right Alternative for Germany (AfD) party, which is leading in opinion polls, far ahead of the parties of the current centrist ruling coalition. The AfD wants to scrap all subsidies for renewable energy and use the proceeds to cut energy prices.

German economy minister Katherina Reiche from the ruling Christian Democrats said the reform is an attempt to be more strategic in how and where Germany promotes the roll-out of renewables, while sticking to a goal for renewables to provide 80% of electricity by 2030 up from 60% now.

“We are consistently continuing the expansion of renewable energy, while at the same time realigning our approach: with more market forces and competition, greater cost efficiency, and greater responsibility for the overall system,” she said when the reform was announced.

Key components of the reform

 

The reform involves a revision of the Renewable Energy Sources act, along with new rules on how installations are connected to the German electricity grid, which has struggled to adapt to the expansion of renewable power.

The key changes include:

• The phasing out of guaranteed fixed prices for electricity supplied to the public grid, known as feed-in tariffs, for new wind, solar and biomass installations. This policy, which came into force in 2000, was credited with driving a big rise in investment in renewables, particularly by private individuals and cooperatives. It has been a blueprint for similar legislation in many countries worldwide, including China.

 

• An end to subsidies for new solar installations under 25 kilowatts, like those common on private rooftops. The government argues that these already deliver strong returns and it wants to promote larger ground-mounted systems instead. There will be a new cap on feed-in power for smaller solar installations, limiting them to 50% of their installed capacity. “This creates a powerful incentive for operators to install battery storage, allowing them to capture solar power generated during midday peaks and feed it into the grid during evenings when demand and electricity values are higher,” partners at law firm Freshfields wrote.

 

• The reform also introduces the two-way contract for difference (CfD) model to align Germany with new EU electricity market rules. These contracts offer operators a safety net when electricity prices are low, while making them return excess profits during high-price periods, known as “clawback”, cutting the total cost of public funding. “While this change caps the upside potential for operators, it offers greater revenue certainty, which could lower capital costs and de-risk investments,” according to partners at legal firm Freshfields.

 

• The legislation will also integrate the EU’s Net Zero Industry Act (NZIA) and energy security directives into Germany’s national framework. This means non-price criteria will be  used to evaluate bids for onshore wind and large-scale solar to strengthen energy security. “Bidders will likely need to demonstrate contributions to supply chain diversification, cybersecurity, and sustainable business practices,” Freshfields said.

 

• The grid connection package proposes scaling back connection priority for new renewables projects, limiting compensation payments – known as “redispatch measures ” – in areas facing grid bottlenecks, and partially allowing grid operators to charge renewable investors for grid upgrades, according to Clean Energy Wire (Clew). Redispatch measures currently cost the government €3bn a year.

What impact will the reform have?

 

The German government spends up to €17bn a year on subsidies for renewable energy and argues that renewables no longer need that level of support as installation costs have fallen.

“We cannot sustain this in the long run. At the same time, however, electricity must be affordable – for everyone. The system must become more cost-effective. After all, electricity prices must neither jeopardise our competitiveness nor place an undue burden on households,” Reiche said.

Lukas Guenner, product manager at Aurora Energy Research, said it was not yet clear how much the government would save from the package of measures.

“In the end it depends on the bid levels achieved in the auctions but it could result in savings because people are exposed to the clawback mechanism,” he said.

Guenner said the CfD model should not curtail investment in renewables in Germany as banks are comfortable with it, but that there are more concerns about the new legislation on the electricity grid, particularly the reform of grid fees and redispatch measures.

“This could create major uncertainty for renewables and it’s been criticised very heavily,” he said, noting that it could especially hurt onshore wind development.

The grid reform removes privileged access for renewables to the electricity grid, which had helped encourage investment in the country’s energy transition. The renewables industry, environmentalists, and even the country’s churches have warned that the reforms would slow the advance of clean energy, Clew reported.

The government’s focus on reducing redispatch costs ignores other long-term system costs, such as those from importing fossil fuels, according to the Renewable Energy Federation of North Rhine-Westphalia (LEE NRW). 

“The key question is not how we can minimise costs in the short term, but rather how we can generate and utilise the increasing amount of electricity produced from renewable energy sources in the long term while keeping total system costs as low as possible. To achieve this, generation, grids, storage, and flexibility must work together optimally,” said Christian Vossler, managing director of LEE NRW.

Environmental and human rights organisation Germanwatch wants amendments to the legislation, including a longer transition period for the phase-out of subsidies for small installations.

“Small solar power systems encourage participation in the energy transition and, for many households, serve as a gateway to heat pumps and electric cars. Eliminating the feed-in tariff for new systems—combined with increasing requirements for operators—makes investing in small solar systems uneconomical in many cases,” said Germanwatch analyst Henri Schmitz.

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