Starting in 2025, renewable energy subsidies will be funded entirely by the federal budget, with an anticipated financing need of 17 billion euros, potentially exacerbating the budget deficit. While lower grid fees may reduce electricity prices for consumers, the EEG subsidy system, which compensates operators of renewable energy sources, is under pressure from lower market prices. Experts warn that costs to taxpayers might rise further due to increased expansion of renewable capacities, posing challenges for the government’s funding plans.
Starting in 2025, funding for renewable energy will be completely sourced from the federal budget. Grid operators project a financial need of €17 billion, potentially exacerbating the budget deficit.
Electricity grid operators estimate a requirement of €17.03 billion for renewable energy subsidies in the upcoming year. However, the anticipated end-of-year balance for 2024, projected at about €500 million, will be deducted from this amount. Thus, the net fiscal impact for the state stands at roughly €16.5 billion based on current assessments.
With lower grid fees likely, millions of consumers could see a reduction in electricity costs next year.
Disparity Between Expected and Actual Electricity Costs
The EEG subsidy plays a crucial role in promoting renewable energy sources. It secures fixed prices for electricity producers, covering wind, solar, and other renewable energy inputs. This system operates through the EEG account, which tracks both incoming and outgoing transactions stemming from the EEG Act. Essentially, it functions similarly to any bank account, balancing income against expenses.
On the expenditure side, the EEG account covers payments to operators generating renewable energy, including solar, wind, and biomass. These operators receive either a fixed payment or a market premium per kilowatt-hour they supply to the grid, as dictated by the EEG regulations.
The electricity generated from renewable sources is then sold on the energy exchange by the transmission system operators. The revenue from these sales contributes to the income side of the EEG account. However, if the revenue falls short of the payments made to energy producers, grid operators must rely on subsidies. The financing requirement under the EEG is determined by the gap between the fixed prices promised to producers and the actual market prices on the exchange.
A drop in market electricity prices increases the need for EEG financing. While most consumers purchase electricity at fixed rates and may not directly notice fluctuations in the market, they will still be indirectly influenced. Starting in 2025, the former EEG levy will be funded entirely through federal resources.
In the upcoming years, federal authorities, along with regional and local governments, will face significantly reduced revenues compared to initial forecasts.
Will the Budget Deficit Continue to Widen?
In its summer budget planning, the federal government projected a need for €15.9 billion in green electricity funding for 2025. The current coalition introduced a budget draft in July, revealing a substantial funding gap. According to the Ministry of Finance, a shortfall of €13.5 billion in federal tax revenue is expected for 2025, considering revised contributions to the EU and budget planning adjustments.
This shortfall may increase further due to escalating costs associated with renewable energy subsidies. The finalization of the 2025 budget is set for November 14 during the adjustment session of the Bundestag’s Budget Committee. Following this session, no further changes will occur until the Bundestag adopts the budget during the budget week on November 29. Finance Minister Christian Lindner (FDP) plans to adhere to the timetables for both the supplementary and 2025 budgets.
This summer, the government initiated a supplementary budget for 2024, raising the projected new debt by €11.3 billion to a total of €50.3 billion. Higher expenditures related to green energy subsidies were cited as a significant reason for this increase, prompting an upward revision of estimated costs by €10.4 billion.
Experts from the International Energy Agency suggest that the world could potentially triple its renewable energy capacity by 2030.
RWI Anticipates a Record for the Current Year
Nevertheless, uncertainties remain regarding whether this expansion will suffice. In August, researchers from the Rheinisch-Westfälisches Institut für Wirtschaftsforschung (RWI) warned that the EEG account might incur a deficit of €23 billion by year-end, according to reports from the ‘Bild’ newspaper, signaling a new record high. By the end of July, the EEG account had already been drawn down by €13.35 billion. The projected total costs for 2024 now significantly exceed initial estimates by the German government, which originally forecasted around €11 billion before raising it to €19 billion.
RWI attributes these increased costs partly to the accelerated growth of solar and wind power installations, which receive state support. Furthermore, the rapid expansion of solar facilities has contributed to instances of ‘negative pricing’ on the exchange. This means that electricity fed into the grid can occasionally be sold at negative prices, resulting in no revenue for those supplying the energy—requiring them to pay instead. Nonetheless, the state is still