Germany is pressing ahead with its ambitious goal of achieving climate neutrality by 2045, with researchers now estimating the financial requirements for this transformation. A study by the Kopernikus project Ariadne, involving experts from the Potsdam Institute for Climate Impact Research (PIK), highlights that while the transition will require significant investments, the long-term savings on fossil fuel costs will help offset much of the expense.
The study projects that, depending on the chosen approach, the additional cost of the transition could be kept within €16 billion to €26 billion annually, which amounts to 0.4% to 0.7% of Germany’s current economic output. Experts emphasize that adopting cost-efficient strategies and integrating innovative technologies will be crucial in managing the financial impact.
Private Sector to Drive Funding for Energy Transition
The shift to a sustainable energy system will require annual investments of €116 billion to €131 billion until 2045, with key areas including renewable energy expansion, infrastructure upgrades, and energy-efficient renovations in buildings and industries. However, a significant portion of this investment is expected to come from private funds, with the government focusing on infrastructure development, supporting emerging clean technologies, and easing financial burdens on households.
According to the study, decarbonization will not only reduce Germany’s reliance on fossil fuels but also open up new economic opportunities. “Decarbonisation, i.e. the phase-out of oil, coal, and gas, requires a fundamental restructuring of our economy. This restructuring will lead to annual investments in the hundreds of billions,” said Gunnar Luderer, head of the Energy Transition Lab at PIK and deputy head of the Ariadne project.
Renewable Energy to Dominate Power Supply
Germany’s energy mix is set for a major shift, with wind and solar power projected to account for 84% to 91% of electricity generation by 2035. Researchers estimate that wholesale electricity prices will stabilize at an annual average of €70 to €80 per megawatt hour, supported by flexible pricing mechanisms, expanded electricity grids, and system-wide efficiency measures.
Backup power plants and energy storage solutions will play a key role in balancing supply and demand, ensuring stability during periods of low wind or sunshine. Additionally, advancements in the European electricity grid and hydrogen infrastructure will be critical in keeping costs under control.
Industrial and Consumer Adjustments Key to Success
Industries facing challenges in electrification, such as steel production, aviation, and shipping, will need to adopt alternative fuels like hydrogen or e-fuels. Greater efficiency in material use and increased recycling could help reduce costs, while some energy-intensive production processes might shift to regions with cheaper renewable energy sources.
Meanwhile, the transition to climate-friendly heating systems in buildings will require substantial investments, estimated at €41 billion to €50 billion per year. However, the study suggests that over time, technologies like heat pumps will prove more cost-effective than fossil fuel-based heating. Similarly, electric vehicles are expected to dominate the German market by 2030, with battery-electric cars and trucks reaching an annual market volume of €80 billion.
Energy Efficiency and Consumer Behavior Will Influence Costs
One of the key findings of the study is that energy demand will play a crucial role in determining the overall cost of the climate transition. If consumers and businesses adopt energy-saving practices and transition to fossil-free technologies, the financial burden of the transformation could be significantly reduced. In some scenarios, energy cost savings could even outweigh the expenses of climate protection measures.
With Germany’s ambitious climate targets in place, the focus is now on balancing financial investments with long-term economic benefits, technological advancements, and energy security.
