Germany is undergoing a major political shift that will have sweeping implications for the nation’s energy sector. As Europe’s biggest economy, Germany’s energy policy does not just bear impact on a national level, but will reverberate throughout the European Union and then the world.

In last month’s election, German politics took a swing to the right, and the country’s new coalition government will be dominated by the Conservative and Social Democrat parties. Climate activists are waiting with baited breath to see what energy policy comes out of the new coalition. “A country once seen as a beacon of progressive climate policy is poised for a significant reset, with the conservatives – having in part blamed Germany’s ambitious green goals for chronic economic weakness – keen to roll back targets and policies amid rising voter apathy on climate,” Reuters reported on Friday.

Germany massively ramped up its clean energy spending under the previous coalition government, largely as part of a pivot away from reliance on Russian energy imports. When Russia invaded Ukraine in February 2022, Germany was dependent on the Kremlin for more than half of its natural gas and a third of its oil. Now, Germany is set to derive 20% of its energy from solar power in 2025. Walking back this commitment to solar and wind buildout would have major implications for the German economy as well as the climate.

There are other key developments taking shape for Germany’s energy security under the new government. Germany will be ramping up investments in its ageing and insufficient power grids with a €500 billion ($534 billion) infrastructure fund. The move comes as part of a broader and prolonged effort to redefine national spending and public finances for a new German era, after Angela Merkel finally stepped down after 16 years as the Chancellor of Germany, the country’s highest office, in 2021.

“It has been clear for long that more investment in the future is needed, including in energy transition infrastructure and digitalization,” Simone Peter, President of the German Renewable Energy Federation said in a social media post after the new German government announced that it will loosen Germany’s constitutional borrowing restrictions.

Concerns over high energy costs were a key theme in last month’s elections, and Chancellor-in-waiting Friedrich Merz has pledged that he will bring them back down to a comfortable level for German consumers. Revamping the nation’s energy grids will be a key part of this challenge, and will help to spread the use of renewable energy in a win-win for energy security and climate. 

“Energy companies have long argued that an expansion of networks is desperately needed as the country’s electricity needs are set to grow, and as it tries to eliminate net carbon emissions by 2045,” Bloomberg reports. “More than half of Germany’s power comes from renewables, but it struggles to send wind output from the north to demand hotspots in the south.”

Indeed, issues with energy flow in Germany have had far-reaching fallout in its neighboring countries, fomenting resentments. When renewable energy cannot be dispatched to meet demand in population centers like Berlin, these cities rely on energy imports from neighboring countries to fill the gap.

This has wreaked havoc on neighboring Norway’s energy markets. Norway is not a part of the European Union, but its trade policies and energy grids are intimately intertwined with Germany’s. As more and more of Norway’s clean energy flows to German grids, Norwegian energy prices are climbing ever higher domestically. “Norway has cheap and abundant energy thanks to prodigious hydropower resources, and locals are none too happy about sacrificing their cheap energy prices to keep German lights on,” Oilprice reported last month.

Ramping up investments in the energy grids could therefore be a win-win-win for energy security, climate, and diplomacy. 

By Haley Zaremba for Oilprice.com

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