A more efficient and resilient electricity system can support a secure, affordable energy transition in Germany, according to the IEA’s new Energy Policy Review.

Under its long-standing Energiewende policy, Germany is transforming its energy system. It is moving towards a system based largely on renewable electricity, which it views as a long-term opportunity to improve energy security and economic competitiveness. However, more work is needed in the energy sector to reach Germany’s goal of climate neutrality by 2045, including expanding the electricity system, lowering energy prices, and reducing emissions in end-use sectors, such as transport, buildings and industry.

“Germany finds itself at a critical moment in its energy transition, where it can create new economic opportunities and strengthen energy security by ensuring a supportive policy environment,” said IEA Deputy Executive Director Mary Burce Warlick, who is launching the report in Berlin today alongside Stefan Wenzel, Germany’s Parliamentary State Secretary to the Federal Minister of Economic Affairs and Climate Action.

The IEA report highlights how Germany has exited from nuclear power and lowered its share of coal-fired generation. At the same time, it has ramped up its wind and solar capacity significantly. But challenges persist, most notably from the ongoing impacts of the energy crisis caused by Russia’s curtailment of pipeline gas supplies to the European Union. Germany is contending with regional power imbalances and high electricity prices that erode affordability and competitiveness. Success will hinge on further growth in renewables generation, grid expansion, increased electricity system flexibility, and targeted efforts to lower consumer prices.

Transport is the largest emitting sector in Germany and is a key area for additional focus. This highlights the need for a targeted approach that covers electric vehicles, biofuels and improvements to public transport. The IEA report finds that incentives for consumers to adopt low-emissions transport options will be needed to deliver meaningful reductions in transport emissions in line with Germany’s ambitions. While upgrades across rail and electric charging will also provide the necessary supporting infrastructure.

The report recommends greater efforts to improve the efficiency of Germany’s relatively old building stock and support its transition to clean energy technologies. Germany took an important step towards this goal with the passage of the Buildings Energy Act and Heat Planning Act. Together, they establish a long-term pathway to reduce emissions in space heating through district heating and heat pumps. Following through on these plans, and ensuring ongoing communication with households, will be essential to realising results, according to the IEA report.

Germany has ambitious goals to develop a hydrogen industry, including plans to displace fossil fuel use in hard-to-abate industrial processes. The country’s hydrogen strategy includes innovative mechanisms to connect buyers and sellers, and to finance infrastructure. Nonetheless, the IEA report finds that final investment decisions on projects are lagging, highlighting the need to focus government efforts on using targeted demand creation policies to help kickstart the sector.

The IEA regularly conducts reviews of the energy and climate related policies of its member countries and provides recommendations – a process that supports energy policy development and encourages the exchange of international best practices and experiences. Overall, the IEA report concludes that Germany has a huge economic opportunity to leverage its technological and industrial leadership if it stays the course with ambitious plans for an energy transition. To realise this opportunity, it must also manage present challenges relating to energy costs, public acceptance and industrial competitiveness.