Germany is set to implement a €500 billion infrastructure fund, marking a significant shift in its fiscal regime. This initiative will establish a fund that falls outside the scope of the country’s debt brake (Schuldenbremse), a constitutional measure designed to limit new government borrowing. The fund will finance projects beyond the usual budgetary constraints, allocating €100 billion to the federal states and municipalities and €400 billion to the federal government over a 12-year period. Notably, access to this funding requires supplementary federal investment, with at least 10% of the annual federal budget having been already dedicated to infrastructure projects. The initiative aims to overhaul the country’s infrastructure network, modernising areas such as energy, transport, digitalisation, science, research and development, education, and hospitals. The fund will also allocate capital to initiatives aimed at helping Germany achieve carbon neutrality by 2045. In order to finance this initiative, Germany will issue state bonds, leveraging its strong credit rating to attract investors.
The €100 billion budget dedicated to climate-related measures is a key component of the fund. This funding will be channelled through the independent Climate and Economic Transformation Fund (KTF), a special federal fund established to finance the energy transition and climate protection measures. The KTF finances a variety of projects, including energy-efficient building renovations, development of electric mobility infrastructure, expansion of the hydrogen industry, promotion of energy efficiency measures, and investments in technologies to decarbonise industrial operations. This climate-led investment was a key condition raised by the Green party, whose backing was required for securing the fund’s approval in the Bundestag.
While the recent legislative amendment ultimately permits the financing of specified infrastructure investments, the exact allocation of these funds requires further deliberation by both the federal government and the Bundestag. As a result, the individual investments are yet to be determined.
The coalition’s recent draft strategyThe coalition’s draft strategy: https://table.media/wp-content/uploads/2025/03/06165023/Formulierungshilfe-GG-Aenderung-2.pdf. provides clearer insight into its climate and energy goals. The primary aim of the coalition’s energy policy is to achieve consistently low, predictable, and internationally competitive electricity prices. This goal is set to drive significant developments across various energy sub-sectors, including the increased deployment of wind and solar power and the addition of 20 GW of gas power plant capacity by 2030. The strategy places further emphasis on the expansion of alternative renewables sources, including bioenergy, hydropower, and geothermal energy, as well as the supporting storage capacity. Investment in research and development, particularly in nuclear fusion, is also a priority. To support these developments, the government plans to undertake extensive upgrades to the country’s outdated grid network, creating a balanced approach to modernising Germany’s energy landscape.
This goal is set to drive significant developments across various energy sub-sectors, including the increased deployment of wind and solar power.
The fund, together with the corresponding proposed policies and climate goals, has opened up significant opportunities for private sector involvement, particularly in the energy sector. As the government aims to stabilise energy prices, it creates a strong push for increased power generation, with a focus on renewable sources. In order to accommodate such increased renewable power capacity, projects aimed at modernising and expanding the electricity grid will become necessary. Additionally, the resulting need to balance the increasingly unpredictable supply and demand will drive demand for energy storage. This presents opportunities for significant growth and innovation in both grid and battery infrastructure and technologies. Structuring the development and financing of such projects will require bespoke analysis. Given the considerable support provided by the fund, public-private partnerships and joint ventures could be effective routes to entry.
The prospective government looks willing to embrace more novel, higher-risk technologies. Initial talks have explored the adoption of a legislative package for carbon dioxide storage (CCS), particularly for hard-to-abate industries. It is also considering the development of a hydrogen core network to connect industrial centres, including those in the south and east of Germany. Governmental support is often crucial for the growth of such sectors as it helps to de-risk these technologies, increasing supply and boosting investor confidence. Should the fund allocate sufficient capital to these technologies, we could likely see a significant rise in private investment and market expansion.
The prospective government looks willing to embrace more novel, higher-risk technologies.
Technology more generally has been a central focus for the coalition. Its high-tech agenda seeks to position Germany as a leader in innovation and entrepreneurship. This initiative includes the development of the world’s first fusion reactor and a substantial increase in funding for research and development more broadly, offering significant opportunities for the development of new technologies to complement and enhance existing energy sources.
While the fund is likely to increase Germany’s debt ratio by 10 percentage points, potentially reaching 90% over the next decadehttps://www.ig.com/uk/trading-strategies/_germany-s-_500-billion-stimulus-package--which-sectors--stocks--250310. and consequently necessitating higher interest rates to attract investors to German government bonds, it is projected to stimulate notable economic growth. Forecasts suggest a potential rise in Germany’s GDP growth rate to 2% in the coming years,https://www.ig.com/uk/trading-strategies/_germany-s-_500-billion-stimulus-package--which-sectors--stocks--250310. which is expected to enhance the competitiveness of German industries and improve energy security. This growth is anticipated to accelerate both the adoption of innovative technologies and the achievement of climate targets. However, implementing such energy projects may create challenges, including regulatory hurdles, technological barriers, and uncertain market dynamics. For example, navigating the recent amendments to the Renewable Energy Sources Act (EEG), the Energy Industry Act (EnWG), and the Energy Financing Act (EnFG), which introduce new regulatory requirements and compliance obligations, will be crucial. The collaborative efforts of the government and industry to adapt to these changes and address these challenges to support the anticipated project development and technological innovation will be closely monitored.
From an international perspective, the infrastructure fund is expected to create positive ripple effects across the EU. Improved transport links and heightened demand for goods and services from European neighbours could help mitigate potential economic challenges posed by external factors, such as US tariffs and international conflict. Market participants hope that this interconnected growth strengthens the EU’s overall economic resilience and promotes greater regional collaboration across its infrastructure networks.
This article was prepared with the assistance of Konstantin Huck in the Frankfurt office of Latham & Watkins.