The results of the German election on 23 February may result in little substantive change in the country's energy policy.
The conservative CDU received 28.6pc of the vote, slightly short of its declared 30pc aim, according to preliminary official results. The far-right AfD came second, doubling its vote share from the last election to 20.8pc, while parties belonging to the outgoing government lost a significant portion of votes. The centre-left SPD received 16.4pc of the vote, the Greens 11.6pc and the liberal FDP did not make it into parliament with 4.3pc of the vote, below the country's 5pc threshold.
CDU leader Friedrich Merz is most likely to be the next chancellor, but will need a coalition partner to form a government — possibly the SPD, judging by statements from Merz and outgoing chancellor Olaf Scholz on 23 February. But if the far-left BSW is successful in its legal challenge of the election result — having received 4.97pc of the vote — this would reduce the number of seats for other parties and mean that Merz would need a second coalition partner.
With the CDU in a centrist coalition, there may not be a broad shift in energy policy, market participants agree. Both the CDU and SPD acknowledge the Paris climate agreement and EU Green Deal and want to adhere to emissions reduction mandates.
But the CDU announced in its manifesto that it would scrap the heat transition laws brought in by the outgoing government, which has required all newbuilds to install heating systems that use at least 65pc renewable energy since January 2024. The CDU is more likely to use market-based policy than regulatory approaches to the heat transition, such as a potential green gas quota.
Timing of new government important for energy sector
German energy and water industry association BDEW has already called for a swift resolution of coalition talks in order to "establish the ability to act".
The relevant parties have shown an awareness of the need for the quick formation of a new government in light of the geopolitical situation, with Merz saying he hopes a coalition can be feasible by mid-April.
The energy sector has put a special focus on tenders for new hydrogen-ready gas-fired power generation capacity, which the outgoing government announced two years ago but could not pass in parliament before the election after it lost its majority in November. The CDU did not approve of the tender design of the outgoing government but is committed to expanding gas-fired capacity to ensure security of supply. The tenders "must start this year" to be able to flexibly react to fluctuations in renewable output, BDEW said.
At the same time, the old government remains in force and is able to make decisions on technical matters, such as the issue of potential gas storage tenders. The timing of any tenders will not be affected by the change in government, German gas market area manager THE's managing director, Torsten Frank, told Argus in an interview earlier this month.
And the coalition talks may have some bearing on Germany's drive to renegotiate storage filling targets for this summer, particularly in terms of timing. Domestic law permits the economy minister to mandate a lower stockfill target than the current 90pc start-of-November requirement, but this would require the topic to be high enough on the political agenda to either be passed by the outgoing minister or one of the first actions of the incoming government.
Global context takes precedence over domestic energy policy
Energy policy did not take centre stage in the election campaign or in Berlin on 23 February, with only the AfD mentioning energy, nodding towards its stated aim of normalising relations with Russia and returning to gas imports.
But the AfD most likely will not be part of the government, as CDU leader Merz again ruled out a coalition between the two parties last night. All other parties that will be in parliament do not want closer ties to Russia.
And most parties want to form a government quickly so they can increase military aid to Ukraine, in light of US president Donald Trump's recent announcements relating to the future of US support for Ukraine and Europe. Germany and Europe needs to seek more independence from the US, Merz said on 23 February.
But more aid for Ukraine might become difficult in a tight budgetary situation, as the government needs a two-thirds majority to approve an emergency budget that goes beyond the stringent fiscal rules of Germany's constitutional debt brake. Far-left party Die Linke, which gained 8.8pc of the vote and will probably have 64 seats in parliament, indicated on 23 February that it will not approve further military aid.
Several parties have already announced support for a reform of the debt brake, also to support more investment that could help Germany's ailing economy, although for such a constitutional reform, the government again would need a two-thirds majority. Merz has argued for reduced business taxes and a lower bureaucratic burden to support the industrial sector and has toyed with the idea of returning to nuclear energy, less than two years after Germany's last reactor closed down.
