Wind energy and storage investments continue to grow as the country prepares for new renewable support models in 2027. System flexibility and market volatility pose challenges for the sector, while Power Purchase Agreements (PPAs) emerge as a potential solution to the problem.

Germany continues to consolidate itself as a leader in renewable energy in Europe, with 62.7% of its electricity generated from clean sources. Onshore wind energy expansion has been significant, with 14 GW of projects approved in 2024, marking a major improvement in reducing permitting times. Additionally, recent wind energy auctions have highlighted strong demand, with 6 GW of bids submitted for only 4 GW of available capacity.

However, key challenges remain for the energy transition. According to Irina Peltegova, Senior Green Power Market Analyst at Veyt, the main barriers include political uncertainty, price volatility, and the need for greater system flexibility. “Battery storage will be crucial to managing the intermittency of renewable generation,” the analyst asserts.

System flexibility: batteries and price volatility

The closure of Germany’s nuclear power plants and the reduction in coal usage have increased the need for large-scale energy storage systems. In this context, Germany’s battery storage capacity grew by 39% in 2024, reaching 17.7 GWh, with the sector projecting further expansion, as 226 GW of large-scale battery projects applied for grid connection.

Additionally, the country is implementing a key energy market reform: the switch to a 15-minute Market Time Unit (MTU) in June 2025. This change will allow for a more accurate reflection of fluctuations in renewable generation and consumption patterns, potentially reducing system balancing needs.

However, the impact of low wind and solar output events, such as those recorded in November and December 2024 (Dunkelflaute), will continue to pose a challenge. These events highlight the need for investment strategies in flexible assets, as price volatility could affect the profitability of Power Purchase Agreements (PPAs) and other financing models.

PPAs on the rise: a more profitable option than the EEG scheme

Source: Veyt

Power Purchase Agreements (PPAs) are emerging as an increasingly attractive alternative for developers compared to the government-backed Renewable Energy Sources Act (EEG) scheme. According to a Veyt model, the fair value of a 10-year German baseload PPA is currently €95/MWh, making it 10% more lucrative than the market premium awarded in recent auctions.

“Onshore wind developers can expect higher returns with a 10-year PPA compared to the state support scheme,” says Lisa Zafoschnig, Head of the PPA team at Veyt. This is largely due to the expected increase in electricity prices and Guarantees of Origin (GO), which are forecast to rise to €5.77/MWh by 2027 after the current oversupply in the market is balanced.

Interest in PPAs continues to grow. In 2024, Germany recorded 40 new PPA agreements, reaffirming its position as Europe’s largest PPA market. Among the top buyers are Amazon (1,333 MW) and Google (1,280 MW), as well as power producers such as Axpo, SSE, and RWE.

Source: Veyt

Regulation and political uncertainty: the dilemma of the new support scheme

One of the most pressing challenges is the design of a new renewable energy support scheme for 2027, as the current model based on floating premiums will expire on 31 December 2026. The German government has explored four options for the new scheme, but the most likely choices involve a claw-back mechanism to limit excessive profits, which could impact the profitability of renewable projects.

“The government appears to be leaning towards more restrictive options, which could deter investors,” warns Peltegova. However, political instability could delay decision-making. A potential new government led by the CDU and SPD could bring regulatory changes, with the CDU even considering a revival of nuclear power.

Furthermore, uncertainty in German energy policy could weaken its influence in EU climate negotiations. Discussions on the 2040 climate target and the Clean Industrial Deal are set for February, but Berlin may lose its footing in the debate if a stable government is not in place by then.

The future of renewable energy in Germany

Despite the challenges, the future of Germany’s renewable energy sector remains promising. The country will continue holding renewable energy auctions in 2025, and PPAs are expected to grow further, supported by electricity prices projected to remain above €90/MWh until 2027.

However, the increasing share of intermittent renewable energy will raise imbalance costs, necessitating more sophisticated solutions for storage and system flexibility. Onshore wind imbalance costs are expected to rise from €1.5/MWh in 2025 to €2.4/MWh in 2050, while solar energy costs will increase from €2/MWh to €2.9/MWh over the same period.

Moreover, climate volatility will become a growing factor in electricity market pricing. By 2035, variations in weather conditions could cause electricity prices to fluctuate by up to 40% above or below average levels. To mitigate these risks, hybrid PPAs and more flexible contract structures will be crucial in ensuring financial stability for both generators and buyers.

“The German PPA market has room for continued growth, but it is becoming increasingly complex due to cannibalisation and climate risks,” concludes Lisa Zafoschnig.

With these factors at play, Germany must move swiftly in its renewable transition without compromising electricity market stability. Expanding wind energy, increasing battery storage, and ensuring a predictable regulatory framework will be key to securing a sustainable energy future.