GERMANY Trends and Developments Contributed by: Udo Olgemoeller, Nicolaus Ascherfeld, Johann von Pachelbel and Janina Müller, A&O Shearman
At the same time, Economy Minister Katherina Reiche, on her first visit to China on 27 May 2026, stated: “We welcome investment by Chinese companies in Ger- many. Many are active and here too investments are increasing.” The visit signals a posture of openness to commercial investment whilst maintaining red lines on critical infrastructure. For investors, the practical implication is a regulatory environment simultaneously more rigorous on critical infrastructure screening and more welcoming of broader energy sector investment. Navigating this distinction is a key advisory challenge. Local Heating Networks and Contracting Solutions Heat planning The Wärmeplanungsgesetz requires municipalities to prepare heat plans, with new networks obliged to meet a 65% renewable or waste-heat share and full decarbonisation by 2044. For infrastructure inves- tors, this creates a pipeline underpinned by municipal mandates and long-term demand certainty, typically financed through public grants, concessional KfW lending and commercial debt. Corporate PPAs and offtake innovation Corporate PPAs – both physical and virtual – have become mainstream, with the market moving towards baseload-shaped, hybrid (generation plus storage) and portfolio-backed structures. EU electricity market design reforms require German transposition and the facilitation of two-way contracts for difference (CfDs). The introduction of sovereign-backed CfDs along- side corporate PPAs will create a dual-track revenue landscape with different risk-return profiles. The new regulatory framework must enter into force by the end of the year; at the time of writing, the draft has not yet entered the legislative process Tolling agreements in battery energy storage In the battery energy storage systems (BESS) sec- tor, tolling agreements have emerged as a critical contracting solution for achieving bankability. Under a tolling structure, a counterparty – typically a utility, energy trader or aggregator – assumes operational control of the battery’s charge and discharge cycles in exchange for a fixed periodic fee, guaranteeing the asset owner a stable, secured cash flow irrespective of short-term market volatility. This enhances the debt capacity of BESS projects and enables project finance
structures that would not be achievable on a purely merchant basis. Increasingly, tolling agreements are combined with profit-sharing mechanisms, allowing asset owners to participate in the upside from energy arbitrage and ancillary services revenue whilst retaining the down- side protection of the fixed tolling fee. Market standard terms for BESS tolling agreements are still developing in Germany, with key negotiation points including the allocation of degradation risk, performance guaran- tees, curtailment and grid unavailability provisions, and the treatment of ancillary services revenues. As the installed BESS capacity in Germany continues to grow rapidly and the revenue-stacking business model matures, the standardisation of tolling docu- mentation is expected to accelerate – a development that will further improve bankability and broaden the investor base for storage assets. EU-Level Reforms Several EU-level developments will materially affect Germany’s energy sector. The EU Electricity Market Design Reform establishes the framework for sov- ereign two-way CfDs and long-term PPA facilitation within state aid rules. Reforms to REMIT enhance market abuse surveillance obligations. The ECJ’s November 2024 Kundenanlagen ruling (Case C-293/23) held that Germany’s broad cus- tomer installation exemption is incompatible with the EU Internal Electricity Market Directive. A transitional provision preserves the status quo until 31 December 2028, but a permanent solution is needed → affecting large industrial sites and real estate complexes oper- ating quasi-private grids. Relevant amendments of the EU law are currently being discussed. The evolving EU FDI Screening Regulation, moving towards co-ordinated mandatory enforcement, will add a further clearance layer for energy infrastructure deals, potentially extending review timelines. Smart meters and digitalisation The rollout of smart metering under the Metering Point Operation Act ( Messstellenbetriebsgesetz – MsbG) has been accelerated, and the Netzpaket reforms
120 CHAMBERS.COM
Powered by FlippingBook