UPDATE 1-Germany plans to end fixed contracts for new renewable energy installations

Germany plans to stop using long-term, fixed-price contracts to buy power from new renewable energy installations, in line with European Union guidance, but will continue to support the sector, the economy ministry said on Monday. Critics of so-called fixed feed-in tariffs say they are too costly for governments and energy users, and that the renewable industry is established enough to be subject to market forces.

Presenting the results of an energy transition monitoring study, the economy ministry said alternative financing models would be considered. These include contracts for difference - where the generator is paid if market prices fall below an agreed level, but must refund the difference if they rise above - or mechanisms to claw back revenues above certain thresholds. "We now need an honest assessment of the current situation. The energy transition can only succeed with more pragmatism and realism," Economy Minister Katherina Reiche said in a statement, presenting a ten-point plan aimed at keeping Germany on track for climate neutrality without sacrificing competitiveness.

Germany has been struggling for years with a weak economy, which industry has blamed in part on high energy prices and the cost of the country's climate policies. The study, prepared by the EWI and BET research institutes, found that while renewable sources now account for nearly 60% of Germany's electricity supply, they still cause overproduction during sunny and windy hours and shortfalls during lulls, and are too costly.

It recommended replacing fixed feed-in tariffs with market-based mechanisms. The ministry did not give a time frame for the shift. The ministry proposed a coordinated expansion of the power grid, renewable capacity, and storage, with incentives including regional bonuses. It also proposed capacity-based grid charges and cable pooling.

New renewable plants may also face higher costs in congested regions, while projects in less-well served areas will benefit from faster, cheaper connections, it added. The government also wants to prioritise flexible backup generation, including gas plants convertible to hydrogen, through a new technology-open capacity market to be launched by 2027. (Writing by Friederike Heine Reporting by Riham Alkousaa Editing by Ludwig Burger and Mark Potter)

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