Developers of renewable energy projects can expect fresh opportunities to arise in Germany after the federal government established a special €500 billion fund to drive investment in infrastructure and deliver climate neutrality by 2045.
Düsseldorf-based Dr. Lars Hettich of Pinsent Masons, expert in public procurement law, said the special fund has been brought further into the spotlight subsequently, with the Christian Democrats and the Social Democrats having announced the results of their negotiations for constituting a new German government.
Hettich was commenting after the German Parliament and German Federal Council voted to change the country’s constitution – known as the Basic Law – to enable additional borrowing by the German federal and state governments via the ‘Sondervermögen’.
Current rules, known as the Schuldenbremse or debt brake, mean, broadly speaking, the German government can only borrow up to 0.35% of the country’s annual gross domestic product. However, the approved change to the Basic Law means Germany’s federal government can now establish the Sondervermögen without the loans taken out under that fund counting towards the debt brake.
Both the federal government and the state governments in Germany will be entitled to make use of the special fund.
While the new provision raises many questions with regard to certain requirements and has also been subject to severe criticism as regards its compliance with German constitution, it is expected to boost public procurement in the area of renewable energy, Hettich said.
“In the last couple of years, starting with the Ukrainian invasion, climate and infrastructure-related projects have fallen short due to lack of funds or their relocation to more urgent projects, such as defence and security,” Hettich said. “We think that this amendment of the Basic Law and the establishment of this special fund will make it more attractive and also much easier for the state to invest in – equally urgent needed – infrastructure and renewables.”
In line with this new strategy, the Christian Democrats (CDU / CSU) and the Social Democrats (SPD) took special interest in infrastructure and energy transition investments in the course of their negotiations for establishing a new government coalition.
According to the recently published paper of the working group Transportation, Infrastructure, Building and Habitation (AG 4), funds from the Sondervermögen will, for example, be made available for roads to clear the backlog of renovation work, particularly on bridges and tunnels, for the refurbishment of so-called high-performance corridors within the German railway network, and for upgrading the infrastructure of waterways, locks, seaports and inland ports.
The working group Climate & Energy (AG 15) also issued a paper on planned measures in the context of renewables, though failing to indicate which of them are to be covered by funds from the Sondervermögen.
“Needless to say, it is not also a lack of funds that slow down energy transition in Germany, but also very strict public procurement rules resulting into costly and lengthy procurement procedures,” said Hettich. “In this context, we closely follow the initiative of the European Commission to transform the European public procurement directives, taking the need for more drastic environmental approach under due consideration. Simplifying public procurement law also is one of the main topics of negotiation of the German government-to-be.”
The Sondervermögen will not replace the existing climate and transformation fund, established by the Climate and Transformation Fund Act in 2024. While the existing fund is a long-term fund that is fed by various sources of revenue and supports broad-based climate protection measures, the new special climate fund is a targeted financial package that is financed by new debt and enables specific additional investments in climate protection.
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