Can Germany's federal election decide the future of the nation's energy transformation?
In the heart of Europe, Germany, with a population of over 80 million and a GDP of €4.5 trillion, is making significant strides in its energy transition, known as the "Energiewende." Renewables accounted for a record 62.7% of public net electricity generation in 2024, with solar photovoltaic growth exceeding government targets[1]. The country aims for 80% of electricity to come from renewables by 2030, targeting climate neutrality by 2045 with expanded wind and solar capacities as key pillars[3][4].
However, political and economic uncertainties pose challenges. A leaked 2025 government report finds progress insufficient to meet post-2040 climate targets, particularly in transport and building sectors, slowing overall emission reductions needed for 2045 climate neutrality[2]. Efforts to phase out coal (targeted by 2038) continue amid geopolitics and energy policy shifts[1][3]. Recent government proposals to withdraw subsidies for small rooftop solar systems risk undermining the solar sector’s momentum and investor confidence, as the removal of such feed-in tariffs could reduce household adoption from 100% to about 40%, disrupting financing reliant on stable incentives[5].
For long-term investors, these factors mean opportunities in continued growth in renewable infrastructure to meet ambitious targets, but also risks from policy shifts and subsidy withdrawals that create regulatory uncertainty, slow progress in some sectors increasing the risk of missing targets which could lead to further policy changes or penalties, and market integration adding complexity and exposure to broader geopolitical risks[1].
Meanwhile, Germany's automotive industry is grappling with its own set of challenges. The country's car manufacturers have been slow to adapt to the shift to electric vehicles (EVs) and are struggling to compete with Chinese peers. The crisis in the automotive sector has led to a plummet in share prices of giants such as VW, Mercedes, and BMW[6]. The Conservative party (CDU), leading in the polls for the upcoming election, is expected to reverse significant climate reforms if elected, which may further hinder the adoption of electric cars[7].
The far-right Alternative for Germany (AfD) has seen its share of the vote surge to more than 20%. CDU leader Friedrich Merz, who has expressed distaste for wind turbines and described them as "ugly" devices, could potentially lead the government if the CDU wins the election[8]. Reviving the automotive sector is key to restoring the German economy, according to Michael Field, chief equity strategist at Morningstar[9].
Despite the challenges, investor demand for sustainably labelled funds is not slowing down, with SFDR funds reporting €743bn in net assets in Q3 2024[10]. However, investors are grappling with the challenges facing the German economy, with growing scepticism of ESG funds among retail investors and concerns about the lack of policy certainty among institutional investors[11]. US tariffs are also expected to amplify the crisis in the German manufacturing sector.
German family offices are more ready to commit to the energy transition, with many being led by a younger generation committed to tackling climate change[12]. The CDU places its hopes on nuclear fusion, a technology that energy experts warn is not advanced enough to be scaled up in time to meet Germany's 2045 net zero targets[13].
In conclusion, Germany's energy transition and automotive industry are facing significant challenges, from regulatory uncertainties and slow progress in the energy sector, to competition from Chinese peers and potential policy reversals in the automotive sector. However, opportunities remain in renewable infrastructure and the continued shift towards electric vehicles, provided that policy and regulatory frameworks support these transitions.
- The rapid growth in Germany's renewable energy sector, particularly solar photovoltaic, is generating interest for long-term investors seeking opportunities in renewable infrastructure, despite political and economic uncertainties that might slow progress towards climate neutrality.
- In the political arena, the upcoming election in Germany could sway the nation's environmental policies, as the Conservative party, leading in polls, has shown a potential inclination to reverse climate reforms, which could impact the transition towards electric vehicles and renewable energy.
- Given the growing investor demand for sustainably labeled funds and the challenges within the German economy and automotive industry, retail and institutional investors are expressing skepticism about ESG funds, raising concerns about policy inconsistencies and their potential impact on the energy transition and renewable infrastructure.
