INTERNATIONAL ENERGYAGENCY The IEA examines thefull spectrumof energy issuesincluding oil, gas andcoal supply anddemand, renewableenergy technologies,electricity markets,energy efficiency,access to energy,demand sidemanagement andmuch more. Throughits work, the IEAadvocates policiesthat will enhance thereliability, affordabilityand sustainability ofenergy in its32Member countries,13Associationcountries andbeyond. IEAMembercountries: IEAAssociationcountries: AustraliaAustriaBelgiumCanadaCzech RepublicDenmarkEstoniaFinlandFranceGermanyGreeceHungaryIrelandItalyJapanKoreaLatviaLithuaniaLuxembourgMexicoNetherlandsNew ZealandNorwayPolandPortugalSlovak RepublicSpainSwedenSwitzerlandRepublic of TürkiyeUnited KingdomUnited States ArgentinaBrazilChinaEgyptIndiaIndonesiaKenyaMoroccoSenegalSingaporeSouth AfricaThailandUkraine This publication and anymap included herein arewithout prejudice to thestatus of or sovereignty overany territory, to thedelimitation of internationalfrontiers and boundaries andto the name of any territory,city or area. The EuropeanCommission alsoparticipates in thework of the IEA Source: IEA.International Energy AgencyWebsite: www.iea.org Table of contents Executive summary ........................................................................................5Energy policy landscape..............................................................................11Climate and energy strategy ............................................................................ 12End-use sectors ............................................................................................... 18Electricity.......................................................................................................... 30Fuels ................................................................................................................ 33Recommendations ........................................................................................... 37Focus areas ...................................................................................................411.Electricity system optimisation.................................................................. 41Recommendations ........................................................................................... 582.Decarbonising heating in buildings ........................................................... 61Recommendations ........................................................................................... 723.Expanding the role of hydrogen................................................................ 73Recommendations ........................................................................................... 87Annexes .........................................................................................................89 Executive summary Germany is at an important inflection point in its energy transition.As one eraof its energy history draws to a close, another is coming clearly into view – the moveaway from nuclear, coal and Russian natural gas contrasted by the transition towardsrenewables, low-emissions hydrogen, heat pumps and electric vehicles (EVs). Whilethe world has been buffeted by geopolitical and geoeconomic challenges in recentyears, Germany has worked hard to accelerate its clean energy transition. This reportseeks to provide Germany with timely advice on how it can progress towards itsenergy and climate goals, including in three key focus areas: 1) optimising electricitysystem operation; 2) decarbonising heating in buildings; and 3) expanding the role ofhydrogen in the energy system. It emphasises the need for long-term policy stability,targeteddemand creation,infrastructure development,integrated planning andstreamlined permitting to successfully advance Germany’s energy transition. Germany’s transition is crucial not only to meet its climate goals, but also forits energy security and economic competitiveness.It is targeting a 65% reductionin greenhouse gas (GHG) emissions by 2030 (from 1990 levels) and climate neutralityby 2045, with the long-standingEnergiewendestrategy guiding the evolution of itsenergy system. While this has supported a surge in renewables-based electricitygeneration, which will need to both continue and grow, more work lies ahead todecarbonise end-use sectors, such as transport, industry and buildings. Existingstrategies and supportive policy measures in these sectors will need to be matchedby a strong focus on effective, cost-efficient implementation. Given that Germanconsumers pay among the highest electricity prices in Europe, policy developmentswill need to also be seen through an affordability and competitiveness lens, includingby ensuring that the distributional impacts are well understood and that proactivemeasures are taken to manage the costs of transition measures. To ensure publicsupport for the transition, the government should also clearly communicate costs,benefits and timelines. Germa