The energy and heating transition in Germany – successful implementation for a sustainable future
Dialogue Forum in cooperation with the Academy for Political Education Tutzing
12 March 2025, Munich Re, Saal Europe, Giselastraße 21
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Alongside the electricity transition, heat generation is a “sleeping giant” in the transformation towards a climate-neutral economy due to its great importance. In the heating sector, the renewable share is only around 17 percent, compared to around 46 percent for electricity. At the Dialogue Forum, experts presented the innovative solutions and best-practice models that are being considered or have already been implemented.
Representatives from science, politics, business and civil society discuss at the Dialogue Forums.
The good news first: greenhouse gas emissions in Germany continue to decline thanks to green electricity and less coal-fired power. The bad news is that not all sectors of the economy are on the right path to achieving climate neutrality by 2045. “The toughest challenge is the municipal heating supply for heating, hot water and industrial processes, which accounts for 59 percent of Germany's final energy demand,” explained Prof. Dr. Mario Ragwitz, Director of the Fraunhofer Research Institution for Energy Infrastructures and Geotechnologies. Depending on the scenario, large quantities of CO2-neutral secondary energy carriers such as electricity, hydrogen and synthetic fuels will be needed for the energy transition.
The biggest challenge is municipal heating supply for heating, hot water and industrial processes, which accounts for 59 percent of final energy demand in Germany.
Prof. Dr. Mario Ragwitz
Director of the Fraunhofer IEG
Heat networks are the backbone of the energy transition
In all scenarios, electricity plays a particularly important role, for example for heat pumps or for electric cars. Electricity-based solutions show significant efficiency advantages. However, some processes cannot be mapped with electricity alone. “Hydrogen is particularly relevant for energy-intensive applications in industry and transport,” says Ragwitz. Synthetic fuels, in turn, could replace fossil fuels in aviation and maritime transport, as well as in some heavy-duty transport. In any case, a massive expansion of the power grids is necessary to connect the regions in the north with a lot of wind power and in the south with a lot of photovoltaics. “The heat networks are the backbone of the energy transition,” Ragwitz made clear. But there will be no getting around processes for CO2 capture and storage either.
The fact that turning away from traditional fossil solutions is associated with intensive discussions and resistance has been demonstrated by the Building Energy Act, labeled the “heating hammer”. The building sector is lagging so far behind its own climate targets because politicians have relied on gas as a bridge technology for too long and because the various governments have approached the heating transition too cautiously, as Robert Brückmann, head of the dena Competence Center Heating Transition, explained. “It is only with the municipal heating plan, which the municipalities have to draw up by 2028 at the latest, that the topic has been strategically addressed”. Where does a heat network make sense, and where does a decentralized supply make more sense? In Germany, there are around 20 million homes with a very heterogeneous ownership structure. “To ensure that everyone pulls in the same direction, you can't leave people to their own devices,” says Brückmann.
The issue was only strategically addressed with the municipal heating plan, which the municipalities have to draw up by 2028 at the latest.
Robert Brückmann
Head of the dena Competence Centre for the Heat Transition
Munich as a pioneer
Dr. Karin Thelen, Managing Director of Regional Energy Transition at Stadtwerke München, explained what a municipal heating plan might look like. “Munich has set itself the goal of decarbonizing its heating supply by 2040,” she made clear. The city has been relying on geothermal energy for 20 years, and another ten plants are to go into operation in the next 15 years. In addition, the 1,000 kilometers of district heating networks would have to be expanded by a further 500 kilometers. “And we are trying to get the public on board by informing them about what is planned where and which variant is most economical for which building.” One challenge is the cost of the heating transition, which amounts to 2.5 billion euros for Munich alone.
Munich has set itself the goal of decarbonizing its heating supply by 2040. And we are trying to get the public on board by informing them about what is planned where and which variant is most economical for which building.
Dr. Karin Thelen
Managing Director, Regional Energy Transition, Stadtwerke München
In the municipality of Pullach, south of Munich, the municipal heating supply is even further advanced. According to Helmut Mangold, managing director of Innovative Energie für Pullach GmbH, 60 percent of households and commercial enterprises are already connected to the geothermal heating supply on a voluntary basis. “By 2027, every street should have access to district heating,” he said.
1500 billion euros needed
They are fortunate in that Pullach can fall back on sufficient trade taxes for financing. “Other municipalities cannot afford this,” he pointed out. After all, a kilometer of heating network costs around two to three million euros. The consequence: “We have an implementation problem in Germany because there is a lack of financial support and no bank is willing to give municipalities loans for the necessary investments.” This is because the income from the networks and thus the return on investment would only flow after a long lead time of around 20 years. “We need a 1500 billion euro pot for local authorities in Germany, similar to the armaments fund, to make the heating transition a success,” he demanded. Another possibility would be for the municipalities to issue profit participation certificates for equity, which would make it easier to raise the additional debt capital needed. “However, this only works if investors' return expectations are not too high,” Mangold pointed out. Although there is federal funding for efficient heating networks, this only applies if sufficient budgetary funds are available, added Ragwitz.
We have an implementation problem in Germany because there is a lack of financial support and no bank is willing to give the municipalities loans for the necessary investments.
Helmut Mangold
CEO, Innovative Energy for Pullach
The right mix is essential
The question remains as to how sufficient heat can be sustainably generated in the long term without geothermal energy. In Cologne, for example, a river water heat pump with an output of 150 megawatts is being built that can supply around 50,000 households. “An important innovative element is to link the surplus of so-called warm light storms – the generation peaks of photovoltaics and wind power – with the heating transition, for example via geothermal energy storage,” outlined Ragwitz. ‘The right mix is important for the respective municipality,’ recommended Brückmann. In rural areas, where heating networks are not feasible, the focus is on decentralized solutions, added Ragwitz. The problem here is that many houses built decades ago first need to be renovated to make them more energy efficient before a heat pump can be installed. Biomass and hydrogen are suitable at best for certain niches, but not for widespread use. Another obstacle is the lack of regulation of the heating market; there is no regulated feed-in tariff and no grid fees. A glance across the border shows how it can be done better: “In Switzerland, for example, district heating suppliers whose heat comes from renewable energies, such as deep geothermal energy, receive 130 francs per ton of CO2 saved. The money comes from the CO2 tax on fossil fuels,” Mangold explained. “Sweden has had a functioning CO2 market for over 20 years, and with this market mechanism, the heating transition also works much better,” he said.
Renate Bleich, managing director of the Munich Re Foundation, moderated the panel discussion that evening.
Bureaucracy as an obstacle
“We have to think about electricity and heat together and not just expand the grids in parallel, but where it makes the most sense,” Thelen demanded. Not only the large utilities, but each and every individual as a self-producer must more systematically make his or her contribution to the electricity and heating transition. And bureaucratic obstacles must be removed. “Seventy to eighty percent of the time is taken up by the planning procedures alone. Especially with geothermal energy, there are many responsibilities, and it's easy to lose your nerve,” said Thelen.
The technical solutions for climate-neutral and affordable heat are available. Heat pumps and district heating networks fed by green energy will play a major role in the transformation. At the same time, heating demand must be reduced through energy-efficient renovations in the building sector. However, without a holistic strategy that encompasses not only technological but also social and political measures, implementation will not be successful in time. Germany must now tackle it seriously and vigorously – at all levels.
