GERMANY Trends and Developments Contributed by: Gregor von Bonin, Natascha Doll, Andreas Ruthemeyer, Stefan Schröder and Mirko Masek, Freshfields
contracts for difference rather than one-sided pay- ments that merely function as downstream protection, such as market premium payments under the current version of the German Renewable Energy Act. Today, new large-scale projects are increasingly developed on a subsidy-free basis, primarily sup- ported by corporate power purchase agreements (PPAs). Germany has emerged as one of Europe’s largest and most liquid corporate PPA markets. For investors, the PPA therefore becomes the centrepiece of valuation. Thorough due diligence concerning the off-taker’s creditworthiness and the PPA’s risk alloca- tion is crucial, especially given the long-term nature of such agreements and the need for them to remain per- formable despite potential changes in the economic environment or the regulatory framework. Despite the growth, challenges remain. Permitting for onshore wind, while improving due to legal reforms, can still face backlogs in certain regions. More acutely, grid connection has emerged as a serious bottleneck for both wind and PV projects. This has increased investor interest in co-locating battery storage with renewables to manage grid congestion and store excess power, creating a new layer of technical and contractual complexity in deals. Repowering is also an emerging M&A theme, offering opportunities for new investors to enter the market. Conventional generation and the transition Germany is in the middle of its coal phase-out, with an ambitious political target of 2030. Attention has therefore shifted to what will replace this reliable, dis- patchable capacity. Germany’s latest electricity supply monitoring report confirms that security of supply remains robust, pro- vided renewables, grids and flexibility are expanded at pace. However, the analysis also indicates a loom- ing requirement for 20–35 GW of new dispatchable capacity by 2035, rendering a capacity mechanism virtually inevitable. For investors, this signals a shift away from the pure energy-only market towards policy-backed capacity revenues. Details on market design and auctions for capacities are being finalised with the European Commission at the moment and are expected to be published shortly.
The government’s competitive tenders for approxi- mately 12 GW capacity of gas power plants are expected in the short term. Given the expected com- bination with a new capacity market, this could be creating a new, partially state-supported investment class. We anticipate consortia of technology provid- ers, utilities, and financial investors forming to bid in these tenders, spurring joint ventures and acquisitions of existing plants suitable for refurbishment. A major potential M&A event on the horizon is the planned re-privatisation of Uniper, Germany’s largest gas-fired generation operator, which was nationalised during the 2022 energy crisis. Any sale of this strate- gically vital portfolio would reshape the conventional power market. Power grids and networks Germany’s electricity grid is the linchpin of the energy transition, but it faces a monumental challenge. Mas- sive expansion is required to transport wind power from the north to industrial centres in the south, with projects like the SüdLink and SüdOstLink high-voltage lines being critical national priorities. The capital need is driving M&A as the four trans- mission system operators (TSOs), 50Hertz, Amprion, TenneT, and TransnetBW, seek partners to fund their multi-decade expansion programmes. We have already seen significant transactions, such as the partial sale of TSO TransnetBW to an investor consortium, the co-investment by Apollo into Amprion and the planned co-investment into TenneT’s German operations. The federal government, via its bank KfW, is taking a co-investment role to ensure these criti- cal projects are realised, while still welcoming private capital. Similar consolidation is expected at the dis- tribution grid (DSO) level, where hundreds of smaller municipal utilities ( Stadtwerke ) are struggling with the investment needed for smart grids and EV integration. Flexibility and storage To balance the intermittent nature of renewables, energy storage and flexibility solutions are essential. This segment has moved from pilot projects to com- mercial scale, with utility-scale BESS surging. Initially used for niche grid services, batteries are now valued
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