German cabinet approves green energy law reform amid shift to cut grid costs

Germany's cabinet approved major reforms to its green energy law (EEG) that will end feed-in tariffs amid a shift from rooftop to ground-mounted solar and link future wind and solar projects to regional grid capacity in a bid to cut redispatch costs, the energy ministry said July 29.

Cabinet approved amendments to the EEG 2023 alongside a new grid connection package that introduces market-based incentives to steer wind and solar away from congested network areas.

The shift marks the first time Germany has systematically considered grid constraints when planning renewable capacity since introducing EEG subsidies over 20 years ago, it said, describing the move as the "start of the next chapter for the energy transition."

The law maintains the 80% target for the share of renewables by 2030 while aiming to reduce system costs.

Developers will face curtailment without compensation in so-called hot spot regions where power networks cannot absorb additional wind or solar output.

"With this package, we are creating a paradigm shift for renewables: for the first time since the introduction of subsidies, we are systematically taking into account where new plants make sense for the power grid," Economy and Energy Minister Katherina Reiche said.

All new installations will be required to sell power directly to the market rather than receiving guaranteed feed-in tariffs, with a phased transition for smaller solar projects (below 25 kilowatts).

The rule applies only to new projects entering auctions or commissioning from 2027 onward, reflecting the government's view that small-scale solar already generates attractive returns without support.

The policy pivots toward utility-scale ground-mounted solar, where economies of scale deliver lower costs.

Grid package hurdles

In grid-saturated regions, compensation for curtailment will be capped at 20% of annual generation, or 18% in designated wind priority areas, limiting financial risks while creating location incentives.

The new restrictions are limited to six years.

Grid operators will gain authority to prioritize connection requests and reserve capacity, while connection procedures will be streamlined.

Grid capacity calculations will shift from peak generation to typical feed-in profiles, potentially reducing grid expansion requirements.

Germany will tender an additional 12 gigawatts of onshore wind, while maintaining existing expansion pathways to 2030, it said.

Analysts at S&P Global Energy Horizon forecast German solar and onshore wind capacity to hit 300 GW in late 2030 after reaching 200 GW earlier this year.

Biomass role

Biomass received a defined role as flexible backup for wind and solar, with the 2030 capacity target raised modestly to 9.5 GW and extended through 2035 as many existing biomass plants face expiring 20-year support contracts.

The EEG 2027 will deploy contracts for difference to secure investments cost-efficiently, while clawing back excess profits during high-price periods, the ministry said.

Revenue recapture will flow back to reduce support costs, which are still projected at about €17 billion/year ($19.4 billion/year) over the coming years.

Projects able to finance themselves through market revenues can proceed outside the EEG framework, the ministry added.

The legislation now moves to parliament and requires EU state-aid approval as the current EEG 2023 approval expires in December.

Mixed sector reactions

Energy industry association BDEW broadly backed the decisions to align renewables expansion with grid capacity, but warned that curtailment rules and output restrictions could undermine the economic viability of projects.

BDEW cautioned that the cabinet-approved draft legislation required closer scrutiny to ensure overlapping policies do not discourage investment needed to reach the 80% renewables target by 2030.

"It is right that grid bottlenecks must be taken into account when choosing locations," BDEW said in a statement. "However, it must be carefully examined that the further expansion of renewables remains economical and is not restricted by overlapping effects of other measures."

The association called for consultation on the detailed rules governing capacity-limited grid areas and compensation-free curtailment before the legislation advances through parliament, as lawmakers need transparency on underlying assumptions, reliable data and a sound impact assessment.

BDEW also welcomed the inclusion of an evaluation clause by June 2029.

Renewables association BEE criticized the cabinet's approval, warning that the draft legislation favors grid operators over generators and will jeopardize expansion targets. Especially the grid connection package shifts responsibility for years of delayed network expansion to solar or wind, while imposing few requirements on network operators.

"The expansion targets will not be achievable on the basis of this draft law," BEE President Ursula Heinen-Esser said in a statement. "It is now up to parliament to make significant improvements to the decisions in order to correct this development."

Heinen-Esser said the grid connection package remains primarily a "law for grid operators" that holds generators accountable for grid delays.

BEE noted that the provision allowing curtailment reserves to apply from the grid connection commitment rather than commissioning is effectively negated by rules that allow network operators to unilaterally extend the reserve period by up to 18 months.

The association views this as a significant deterioration compared with earlier draft legislation, even though the base duration was reduced to six years from 10 years.

Renewables covered a record 56% of German power demand in H1 2026 with solar now Germany's biggest single source of electricity during summer, while wind tops Germany's winter power mix.