Reforming Germany’s renewables law: boosting wind and solar, making power system more efficient
Expanding renewables is key to reaching climate neutrality and will require significant investment in the coming years. In view of aligning Germany’s renewables support system with EU rules, an Agora study shows how a combination of public and market-based financing can help secure wind and solar growth while lowering electricity costs.
Germany’s new federal government faces the pressing task of aligning the national electricity market with revised EU requirements. An important part of this transition is the reform of the Renewable Energy Sources Act (Erneuerbare-Energien-Gesetz, or EEG), particularly the remuneration model for wind and solar energy producers.
In a recent study, Agora Energiewende outlines an investment framework for Germany, designed to accelerate the renewable energy rollout while enhancing market efficiency and reducing dependence on public subsidies. First published in German, the publication is now also available in English, allowing it to contribute to the European debate and inform guidance from the EU Commission – expected in autumn – on combining financial contracts for difference (CfDs) with long-term power purchase agreements (PPAs).
This hybrid, combination approach is also central to Agora’s proposal for Germany. It primarily targets onshore wind and ground-mounted photovoltaic (PV) systems, which already account for a significant portion of Germany’s renewable electricity generation. The framework aims to cut the capital cost of projects and decrease reliance on state support by allowing investors to hedge part of their revenues through market-based instruments, while still using CfDs for the rest.
Annual investments of approximately 15 billion euros will be needed to meet Germany’s legally binding target of sourcing at least 80 percent of its electricity from renewables by 2030. Agora’s proposed policy framework is designed to take effect after the current state aid approval for the EEG expires in 2026. It thus aligns with the EU law mandating the use of two-sided CfDs or similar instruments by July 2027. Crucially, the model protects operators during periods of low market prices and introduces repayment obligations during price spikes.
The study identifies three key investment barriers: increasing volatility in renewable electricity generation leading to unpredictable revenues, distortionary incentives from the current market premium model, and investor uncertainty following the crisis-time profit skimming after the 2022 fossil fuel price shock.
To address these challenges, Agora proposes replacing the current production-based premium with two-sided CfDs tied to a still-to-be-defined reference energy production benchmark. This would encourage the deployment of technologies with higher market value, such as PV systems with battery storage or wind turbines optimised for low-wind conditions.
In parallel, PPAs would provide a stable revenue base, particularly in early project stages, reducing the need for public funds. This dual-instrument approach – CfDs and PPAs – lowers both capital costs and investor risk premiums, making renewables more appealing for applications like renewable hydrogen production.
To further optimise risk-sharing, Agora suggests giving investors the flexibility to choose the degree of state guarantee during competitive tenders. This optional model would balance state and market financing, reserving public support for riskier projects or uncertain market phases. The principle of “market first, state second” ensures more competitive, diverse and cost-efficient investment pathways.
The authors emphasise that updating the EEG within a year is crucial for complying with EU law and for setting the stage for broader electricity market reforms. On the path to climate-neutral power systems, these reforms should also incentivise flexible renewable electricity use like power-to-heat solutions, storage and electric mobility.
The 49-page study “A new investment instrument for onshore wind and solar PV – how market incentives and state guarantees can pave the way to a climate-neutral electricity system in Germany” is available below.
