Economics Minister Katherina Reiche Sees Electricity Price Relief by 2030s

The German government is shifting its approach to the energy transition, moving away from long-term subsidies toward a market-driven model. Economics Minister Katherina Reiche is targeting a reduction in the federal budget’s burden, noting that the government currently spends 17 billion euros on EEG funding, a figure that is trending upward.

My goal is more market and less permanent funding. Katherina Reiche, Federal Economics Minister

Reiche argues that without these reforms, the financial strain on the federal budget will continue to grow. She specifically pointed to the 2014 EEG amendment as the most expensive in her view, claiming its subsidy promises create financial obligations that last for 20 years and still weigh on the budget today. She stated that the EEG subsidy mountain only dismantles itself over many years, and the priority is to prevent it from growing strongly again by designing new subsidy promises so that the EEG is more cost-efficient by 2027.

The 2027 Cutoff for Small Solar Installations

A central pillar of the reform targets the smallest players in the energy market. Starting in 2027, new solar installations with an installed capacity of under 25 kilowatts—primarily small rooftop photovoltaic systems—will no longer receive permanent funding.

This move has sparked a backlash from environmental groups, the Green Party, and industry associations. The Federal Association of Solar Economy warned that this could lead to a massive collapse in photovoltaic expansion and severely stifle investment. While the government has offered a three-year transitional payment of 5.2 cents per kilowatt-hour, the solar industry has dismissed this as a mere consolation prize.

Reiche has pushed back against these claims, asserting that the law provides a reliable investment environment and numerous opportunities that make much of the industry’s criticism incomprehensible. She stated, I take the criticism from the industry seriously. At the same time, this law offers so many investment opportunities and such a reliable investment environment that many points of criticism are not comprehensible.

Grid Package and the End of Payment for Unused Power

Beyond subsidies, the government is introducing a “grid package” to address the inefficiency of Germany’s energy distribution. Currently, Germany follows a unique principle where producers are compensated even for electricity that cannot be used due to grid bottlenecks. Reiche noted that for shut-off electricity, there is the same remuneration as for electricity that is actually used.

The ministry intends to phase out this practice step by step, ensuring that producers are no longer paid the same rate for shut-off power as they are for power actually used by the grid. To further optimize the system, the government will now label grid areas with bottlenecks as capacity-limited, which will result in worse conditions for building new plants in those specific zones.

This strategy aims to steer the expansion of wind and open-space photovoltaic plants toward areas where network capacities already exist or the grid can absorb the additional power. Reiche explained that the legal claim to a grid connection—regardless of where plants are built—required grid expansions that often could not be realized in time, leading to significant additional costs for electricity consumers. By avoiding unnecessary grid expansion, the government intends to lower costs and make the overall system more efficient.

The Role of Gas and Industrial Competitiveness

While the long-term goal is a cheaper energy transition, the short-term reality remains difficult. Reiche emphasized that the cost of electricity is heavily influenced by the price of gas, stating that the cheaper gas importers can buy gas, the lower the costs of electricity generation. To buffer price fluctuations and prevent them from hitting consumers directly, she stressed the importance of procuring gas on a diversified and reliable basis at low prices over the long term.

This shift toward cost-efficiency has found support among industrial leaders. Wolfgang Große Entrup, Managing Director of the Association of the Chemical Industry, welcomed the move, arguing that for far too long, it was only about the unbridled growth of renewables. He noted that high system costs had given Germany nearly the highest electricity costs among industrial nations, which constitutes a significant disadvantage in competition.

The transition remains a balancing act. Reiche stated that the energy transition will only be permanently successful if climate protection, security of supply, affordability for citizens, the preservation of competitiveness and a responsible handling of tax money come together. However, the timeline for relief is clear: despite the current reforms and the fact that old EEG subsidy promises remain valid, the government does not expect the public to feel the impact on their bills for another decade.

Noticeable relief will only be seen in the 2030s. Katherina Reiche, Federal Economics Minister