Germany Strengthens Energy Efficiency in the Building Sector in the Wake of Ukraine CrisisIts Plans to Reduce the Burden of Energy Prices on Citizens, Including the Poor

in Japanese

On March 24, Germany announced measures to address rising energy prices due to the Ukraine crisis¹. Among them are concrete steps to reduce energy consumption and increase energy efficiency, particularly in the building sector. For example, the revision of the "Buildings Energy Act (GEG)" by the end of the year aims to obligate "Efficiency Standard 55" for new buildings in January 2023. The law will also stipulate that all new heating systems introduced after January 2024 must provide 65% of their heating demand from renewable energy sources whenever possible. In addition, the government will also support replacing older gas heating systems with heat pumps.

Mandatory “Efficiency Standard 55” for new buildings in 2023, operation of new heating system with 65% renewable energy in 2024

Germany’s “Buildings Energy Act (GEG),” which has been in force since 2020, stipulates energy efficiency and renewable energy use in the building sector². The current GEG requires that new buildings' annual primary energy demand not exceed 75% of the reference building level (Article 15)³. Renewable electricity use in new buildings must provide at least 15% of heating and cooling energy demand (Article 36).

According to the government announcement, the new goal is to mandate an "Efficiency Standard 55" for new buildings by January 2023. The “Efficiency Standard 55" represents that the required primary energy demand will be 55% of the reference building level, which can be understood as a 20% improvement in efficiency compared with the current GEG regulations (maximum 75%). This efficiency standard means that the lower the number, the more efficient the building is in energy demand⁴. The coalition agreement in November 2021 stated that new building standards would be aligned with the "Efficiency Standard 40" by January 2025, and it was not an explicit mandate⁵. Also, the timeframe for the operation of 65% renewables for new heating systems was initially set for January 2025 in the coalition agreement. The current plan, however, has been moved up one year to January 2024, and the phrase "as far as possible" has been added.

Other measures include creating a framework for property owners to replace heating systems over 20 years old. Thus, within the scheme of Germany's "Federal Funding for Efficient Buildings (BEG)," a gas boiler replacement program will be optimized, and a large-scale heat pump promotion campaign will be launched. Regarding the retrofitting of buildings, priority will be given to the particularly inefficient buildings, in line with EU requirements.

Additional funding for building retrofits and new construction through "Federal Funding for Efficient Buildings (BEG)"

In Germany, where energy efficiency in buildings is key to climate neutrality, public subsidies are available for building retrofits and new construction. Germany provides financial support for improving energy efficiency in buildings and using renewable energy through the "Federal Funding for Efficient Buildings (BEG). The BEG's aid was suspended on January 24 of this year and then resumed accepting applications for existing buildings’ retrofits on February 22 and is expected to resume accepting applications for new construction on April 20⁶. 

In March, the Bundestag's Budget Committee approved €4.76 billion in additional funding for support to promote energy-efficient building retrofits, of which €1.02 billion is budgeted for 2023⁷. The reason for the additional budget funding is the tremendous demand for building retrofit support after the reopening of the application in February⁸. For new energy-efficient buildings, the Federal Ministry for Economic Affairs and Climate Action (BMWK) announced on April 5 the implementation of a new three-levels of support. The budget is €1 billion from April 20 through the end of this year. The first phase will support the new construction of "Efficient Housing Units 40." In the second phase, after the end of this year's budget, the conditions for support will be tightened and must be combined with "Sustainable Building Certification." In the third phase, after 2023, a new program entitled "Climate-Friendly Building" will further develop the "Sustainable Building Certification" above and focus more on greenhouse gas emissions throughout the building's life cycle⁹.

Aiming to break dependence on energy imports from Russia: Summer 2024 for gas, fall 2022 for coal, end of 2022 for oil

In addition, the German Federal Ministry for Economic Affairs and Climate Action (BMWK) published a progress report on energy security on March 25, outlining the prospects for a quick end to dependence on energy imports from Russia¹⁰. The dependence on gas supplies from Russia has averaged 55% in the past and dropped to 40% at the end of the first quarter of this year. Germany aims to reduce its dependence on Russian gas to about 30% by the end of this year by diversifying procurement sources through the operation of several floating LNG terminals and by improving energy efficiency, energy conservation, and electrification in companies and households, etc. The country aims to achieve almost total independence from Russian gas by summer 2024. Coal from Russia used to account for about 50% of Germany's coal consumption. The government expects to reduce its dependence on Russian coal to 25% by changing supply contracts and to break away from reliance by the fall of this year. As for oil, which accounted for about 35% of Russian imports last year, Germany aims to reduce its dependence on oil to 25% by changing the contract to replace it with oil from other countries and to become almost independent by the end year.

Heating subsidies for low-income families, relief packages for the middle class, and reduction of transportation costs

Germany takes measures to reduce the energy price burden on its citizens in response to the Ukraine crisis. Here, as background information, we would like to summarize trends in energy consumption in the German residential sector. In Germany, about 70% of the final energy consumption of a typical household comes from indoor heating¹¹. The breakdown of heating energy sources in German homes in 2021 is as follows: gas accounts for about half (49.5%), followed by heating oil (24.8%), district heat supply (14.1%), and others (6.2%). Electric heat pumps account for 2.8%, and electric heating for only 2.6%¹². In other words, gas heating is the primary energy source for many German citizens.

On March 18, the German federal government announced the provision of heating subsidies for low-income families¹³. Approximately 2.1 million people are eligible for the support. Recipients of public housing assistance will get a heating subsidy of 270 euros for a one-person household, 350 euros for a two-person household, and 70 euros for each additional person. Students receiving the German Federal Scholarship (BAföG) and vocational trainees with a vocational training grant will get a flat budget of 230 euros.

In addition, the set above of federal government measures released on March 24 also revealed the details of a relief package for the middle class. All employees subject to income tax will receive a one-time energy price allowance of 300 euros on top of their salary. In addition, a one-time family allowance of 100 euros per child will be paid. The social security recipients will get additional 100 euros per person besides the initially planned one-time payment of 100 euros. Furthermore, the energy tax on fuel will be reduced for three months. And, for a monthly fee of 9 euros, the federal government will provide tickets for public transportation for 90 days.

Renewable energy surcharge to be abolished in July 2022 to reduce burden on electricity prices

In addition to these various support measures, the German federal government has announced the abolition of the renewable energy surcharge after July 1, 2022¹⁴. The coalition agreement initially set the date of repeal in January 2023, but this will be moved up six months in response to rising energy prices caused by the Ukrainian crisis. So far, the German renewable energy surcharge has been collected as part of the electricity price, as in Japan. From now on, the surcharge will be financed by the Energy and Climate Fund (EKF), a special German federal fund based on the proceeds from the national emissions trading scheme and other sources. The German renewable energy surcharge peaked at 6.88 euro cents/kWh in 2017 and had already fallen to 3.72 euro cents/kWh in 2022¹⁵. The reduction in the electricity price burden due to the abolition of the renewable energy surcharge is expected to reach approximately 6.6 billion euros. For example, in the case of a four-person household, the annual burden will be reduced by about 300 euros compared to 2021.

Conclusion

In German households, about 70% of the final energy consumption is for indoor heating, and nearly half of the heating energy source is gas. To quickly break away from dependence on gas, coal, and oil imports from Russia, measures are urgently needed, especially in the building sector. Thus, Germany strengthens energy efficiency standards and renewable energy use for buildings. The government also announced additional budgets to support existing buildings' retrofits and new construction. Therefore, by the end of this year, the country will enact legislation such as amending the "Buildings Energy Act (GEG)." Besides ending the renewable energy surcharge, the government is developing heating subsidies for low-income households and relief packages for the middle class. In this way, Germany strives to reduce the burden on citizens under the ongoing energy crisis.

* This column is the translated version of the column originally released in Japanese on April 13, 2022.