Andreas Ruthemeyer
Partner

Andreas Ruthemeyer partner at Freshfields, advising on energy and infrastructure finance transactions in Europe. Freshfields advises clients across the energy, infrastructure and real assets sectors throughout the full transaction lifecycle, drawing on a seamlessly integrated global team to navigate commercial, regulatory and geopolitical complexity. Trusted by sophisticated investors to structure complex transactions with precision, the firm delivers creative solutions that unlock value. A core strength is developing tailored financing approaches across the capital structure – including strategic and hybrid capital – to help sponsors, lenders and investors advance critical energy and infrastructure projects.

Germany’s Infrastructure Supercycle: Financing the Grid, Renewables, BESS and Data Centres

Introduction

Germany’s energy and infrastructure market continues to be one of Europe’s most active and sophisticated. The combination of strong policy support, a deep industrial base and an established legal framework continues to attract both strategic and financial investors, alongside the debt capital required to fund them.

The announcement of the €500 billion Special Fund for Infrastructure and Climate Neutrality attracted considerable interest and made headlines globally. The special fund has been perceived as a significant milestone to boost the investments needed in the energy and infrastructure sector. The details and long-term impact, however, remain to be seen. The overall investment figures, though, are impressive. For 2026 alone, the federal budget allocated more than €120 billion for public investment in the infrastructure sector, spanning transport, digital networks, energy systems and healthcare infrastructure.

Yet, the headline number tells only part of the story. The finance ministry’s own monitoring report disclosed that the actual disbursement is running well behind the pace originally envisaged. That gap between fiscal ambition and delivery is, in many respects, the defining tension of the current German infrastructure cycle: capital should be available in record volume, but the bankability of individual projects still depends on execution risk, regulatory sequencing and the willingness and ability of sponsors and lenders to structure around uncertainty.

For energy and infrastructure finance practitioners, the more interesting story is not the size of the state’s balance sheet, but where private and institutional capital is actually being structured in alongside it. Three sectors dominate current deal activity: electricity grids, renewables and battery storage, and data centres. Each of these sectors faces a distinct bankability challenge, and each illustrating a different structuring response.

The Sondervermögen and a shifting public-private capital stack

The mechanics of the special fund are becoming clearer as 2026 progresses. The draft budget provides for roughly €58.9 billion of Sondervermögen-funded investment in 2026, up from approximately €27 billion in 2025, with spending broadly split across transport, digitalisation, hospital transformation and energy infrastructure. What remains unresolved is the extent of private capital participation and the specific financing instruments through which it will be deployed.

This ambiguity does not seem to be accidental. The government’s evolving approach favours direct spending or co-investments, such as KfW’s entry into TenneT Germany as an equity co-investor alongside international pension and sovereign capital. Backstopping private investment through grants, anchor investments or first-loss pieces or reviving public private partnerships, does not seem to be the current focus of policy makers.

In order to make most efficient use of the public funds and to avoid that it merely results in increasing the debt of the public budget, structures are required that unlock private capital, such as first-loss structures, anchor investments or a new focus on public private partnerships. This should be the focus of government policy.

In addition, the fund’s early execution has drawn criticism. Reports through the first half of 2026 suggested a material share of disbursements were substituting for ordinary budget items rather than funding genuinely incremental investment, and spending was reported to be running behind the government’s own targets. For financing parties, the practical implication is to treat the fund as a powerful demand signal.

Grid expansion: one of the anchor asset classes of the cycle

One asset class that defines the current German infrastructure market is the electricity transmission and distribution grid. TenneT Germany is one of the illustrations of scale: the company invested €4.1 billion in grid expansion and modernisation in the first half of 2026 alone, a roughly 14 per cent increase on the prior-year period. Critically, TenneT Germany secured up to €9.5 billion in long-term equity from APG, GIC and Norges Bank Investment Management, followed in early 2026 by KfW’s entry as a shareholder. This demonstrates that international institutional capital is prepared to underwrite German transmission risk at large scale, showing trust in the regulatory asset base framework and its stability and clean long-term return profiles. In addition, TenneT Germany’s successful debut in the bond markets during the same period further diversifies its funding base beyond bank and shareholder capital.

Amprion’s recent, indirect Apollo investment offers a second data point confirming that alternative asset managers, not just traditional infrastructure funds and pension capital, now see German transmission as an attractive, long-duration yield opportunity. Further co-investment transactions into grid operators are expected as sponsors compete for exposure to what is, in effect, a regulated, inflation-linked cash flow stream underpinned by an explicit and accelerating national investment mandate.

The European Investment Bank remains another financing backbone. The EIB has invested €3.7 billion directly into German energy projects in 2025 alone. The investments are part of the €45 billion that the EIB intends to invest between 2023 and 2027 specifically for renewable energy and REPowerEU-aligned projects in Europe. Much of this capital flows through targeted, regionally anchored transactions, such as the EIB’s €220 million loan to WEMAG to expand and digitalise grid infrastructure in Mecklenburg- Vorpommern.

Regulatory changes and proposals represent a principal swing factor. The federal government’s proposal for the Grid Package (Netzpaket) on 29 July 2026 seeks to better align generation build-out with grid development and streamline connection processes. However, the package also reallocates a portion of curtailment risk onto renewable generators in grid sections designated as capacity-constrained, a shift that has been warned could render some project financings in Germany no longer viable. For lenders and sponsors, the practical implication is clear: grid connection risk and curtailment exposure now require far more granular, location-specific underwriting than in prior cycles. However, this will not be new for the international lending community which has faced similar questions in other European countries for years.

Battery storage: from build-out to bankability

Battery energy storage systems present a contrast in the German market between headline growth and underlying financing difficulty. Installed power capacity has reached 17.9 GW and 27.2 GWh of total energy stoarage capacity as of April 2026, and for the first time in seven years, utility-scale additions have overtaken residential storage in quarterly terms. This is a structural shift in where capital is being deployed. Yet more between 400 and 700 GW of proposed battery capacity sits in grid connection queues against approximately just 2.5 GW actually connected, underscoring that physical grid access, not capital availability, is now the binding constraint on deployment.

The single largest determinant of bankability through the remainder of 2026 is the proposal by the Federal Network Agency (BNetzA) on grid fee treatment for storage assets. Following a period of uncertainty during which the regulator also proposed solutions that would retroactively impose grid fees which raised widespread concerns across the storage sector, the BNetzA proposed that it would preserve the existing grid fee exemption for operational projects and certain advanced-stage developments. It further outlined a relatively moderate grid fee framework for future storage facilities.

All taken together, the proposals are likely to be welcomed by investors, lenders and developers as they finally create certainty and may further increase interest in the German BESS market, particularly for projects capable of securing grandfathering protection.

To secure grandfathering protection, BNetzA proposed that the exemption would not only apply to operational projects but also to projects under development under two conditions. Firstly, a final investment decision for a project must be reached before the final General Electricity Network Tariff System determinations enter into force and secondly, such projects must be commissioned no later than 4 August 2029. If those conditions are met, such projects are expected to retain the existing twenty-year exemption from grid fees.

Data centres: the new driver of grid demand

Digital infrastructure has emerged as a genuinely new source of German grid and capital demand, increasingly convergent with some of the energy financing themes rather than a separate, purely real estate-driven asset class. The German data centre market is forecast to grow at an 11.5 per cent compound annual rate between 2025 and 2031 across nearly 200 existing and more than 40 upcoming facilities. Hyperscaler commitments provide the clearest signal of capital intent: Google has pledged €5.5 billion for data centre and office investment in Germany, while Microsoft’s earlier €3.2 billion commitment has translated into concrete projects in Cologne and Elsdorf.

The financing structure of these assets is shifting. In addition to the binding constraint on data centre development being capital or land, it is also power availability, prompting hyperscalers, in Germany as elsewhere in Europe, to move beyond simple power purchase agreements toward direct funding or co-development of generation and grid-connection assets located adjacent to their facilities. This blurs the traditional boundary between real estate-style data center financing and energy project finance, and is likely to accelerate demand for structures that can accommodate both revenue streams, colocation or hyperscale lease income, and power-related project cash flows, within a single financing perimeter.

Underwriting standards are bifurcating accordingly. Investors continue to favour hyperscale tenancies for their comparatively straightforward credit profile. At the same time, lenders often now expect firmly committed, transparent hyperscale credit before financing new capacity. Edge, enterprise and wholesale segments, by contrast, offer differentiated risk-return profiles better suited to value-add and core-plus capital, typically with faster paths to revenue but materially higher execution risk. For German sponsors and their advisors, structuring the right capital stack increasingly means underwriting power availability and grid connection timing with the same rigour traditionally reserved for tenant credit.

Structuring themes

Across grids, storage and data centres, several recurring structuring themes are shaping how deals are being put together in the current cycle. First, portfolio-level and supply-chain risk-sharing instruments, rather than single-asset guarantees, are emerging as the more capital-efficient response to concentrated OEM and construction risk, particularly in grid components. Second, contracted revenue is increasingly a financing precondition rather than a credit enhancement: in storage in particular, the market has moved decisively away from pure merchant structures toward tolling and hybrid offtake arrangements as a baseline requirement for project debt. Third, platform and AssetCo/SPV structures are displacing single-asset financing across all three sectors, allowing sponsors to aggregate smaller connections or facilities into financeable portfolios that can absorb individual project delays without threatening the overall capital structure.

Bankability in the current German cycle turns less on technology or construction risk, both now well understood across grids, storage and data centres, and more on regulatory-timing risk. The BNetzA grid fee decision, the practical implementation of the Netzpaket, and the prospective introduction of a capacity mechanism will each, independently, determine which projects clear investor hurdle rates over the next eighteen months. Structuring advice in this market increasingly means building financing documentation flexible enough to absorb regulatory outcomes that will not be known at financial close, through mechanisms such as tenor flexibility, contingent pricing, and step-in rights tied to regulatory milestones rather than construction milestones alone.

One additional tool that is emerging is preferred equity for bridging the gap between senior debt and common equity across all three sectors, valued for the same underlying reason: it can attract new capital without diluting control or forcing a full re-rating of ownership. As with the transmission operators discussed above, municipally-owned distribution grid operators, which face their own capex acceleration as electrification, e-mobility, heat pumps and data centre connections drive up investment needs alongside the transmission build-out, are increasingly cited as candidates for preferred equity. Preferred equity structures can broaden access to capital while allowing shareholders to retain strategic influence over their assets.

Conclusion

Germany enters the second half of this decade with capital availability no longer the binding constraint on its infrastructure build-out. The Sondervermögen, a deepening pool of international institutional capital committed to German transmission assets, and sustained hyperscaler investment in digital infrastructure together represent the ingredients for the development of a supercycle in prospect. What remains important is to avoid and resolve regulatory uncertainty, on grid fees for storage, on the practical operation of the Netzpaket, and on the shape of any future capacity mechanism. The period through 2027 is likely to resolve several of these open questions, and the financing structures that emerge in response, blended capital stacks, portfolio-level guarantees, and contract structures built to flex around regulatory timing, will very likely become the templates for the next phase of Germany’s infrastructure investment cycle.