UPDATE 2-Germany to scrap fixed tariffs for new renewables, pivot to market support

Germany will phase out fixed-price subsidies for new renewable power projects and pivot to market-based support, aligning with European Union guidance while seeking to keep its climate goals on track and energy costs in check, the economy ministry said. Unveiling an energy transition monitoring study and a 10-point plan, Economy Minister Katherina Reiche called for "pragmatism and realism" to balance competitiveness with climate neutrality.

With climate targets tight, grids strained and industry clamouring for cheaper power, the study serves as the reference point for Berlin to recalibrate renewables targets, power market rules and investment. MARKET-BASED SUPPORT VS FEED-IN TARIFFS

Critics say fixed feed-in tariffs - introduced two decades ago to nurture renewables - are now too costly, noting 16 billion euros ($19 billion) is budgeted for them in 2025, and argue the sector is mature enough to face market forces. Alternatives under consideration 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.

The ministry did not specify a timeline. Germany is aiming for renewables to supply 80% of electricity by 2030 and for climate neutrality by 2045, but it has been struggling for years with a weak economy, which industry has blamed in part on high energy prices and the cost of climate policies.

RETHINKING GRID EXPANSION, STORAGE AND BACKUP CAPACITY While renewables currently provide nearly 60% of Germany's power, the report said they still create surpluses during sunny or windy periods, shortages during lulls, and remain too costly.

It sees grid transmission expansion costs rising to 440 billion euros by 2045, in addition to more than 235 billion needed in distribution network investments. 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.

Berlin will prioritise flexible backup capacity - such as gas plants convertible to hydrogen - within a technology-open capacity market planned for launch by 2027. While hydrogen will still play a crucial role in the future, the report acknowledged Germany's 2030 domestic production capacity target won't be reached.

INDUSTRY REACTIONS Business groups BDI and VCI welcomed the plan, praising a shift toward efficiency and urging a focus on the quality of renewable expansion rather than volume alone.

"What is now needed is political will and speed, so that the analysis can quickly be translated into concrete policy implementation," the VKU local utilities association said. The BEE renewable power association said the report confirmed Germany's climate and renewable targets remain achievable while warning that support for renewables should not be suddenly halted.

($1 = 0.8504 euros)

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