Without equity, the energy transition threatens to come to a standstill

24.04.2026

Source: E & M powernews

Many municipalities have tight budgets and are unable to provide the necessary capital for the energy transition from their current budgets. A study aims to help find a solution.

A recent study by Agora Energiewende, Stiftung Klimaneutralität and Dezernat Zukunft is the first to quantify the nationwide equity capital requirements of municipal energy supply companies. According to the study, there will be a gap of around 68 billion euros by 2035. Municipal energy suppliers are particularly affected, as many municipalities have tight budgets and are unable to provide the capital from their current budgets.

The overall investment requirement is significantly higher. Around 647 billion euros will have to be invested in infrastructure by 2045. The equity base of many of the almost 900 municipal companies is not sufficient for this. If they lack sufficient equity, their creditworthiness falls. This makes access to debt capital, which is necessary for the implementation of key projects, more difficult. This is where the new study comes in. It also looks at the "Germany Standard" launched by the federal government together with KfW. With this new instrument, the federal government wants to facilitate private and municipal investments in key future-oriented fields (we reported).

The study shows that local authorities are legally able to provide their companies with equity capital. However, the financial reality limits this possibility considerably. The municipal budget deficit reached a peak of 31.9 billion euros in 2025, according to the results now available. There is hardly any scope for additional capital injections.

Credit-financed equity measures are also reaching their limits. Investments in networks are considered economically viable. However, returns in the form of dividends often only occur in the long term. At the same time, interest and redemption payments are a short-term burden on budgets. This time lag means that municipal authorities often reject such financing.

Hybrid financing instruments as an approach

The authors of the study entitled "Equity for the energy transition" have now identified "hybrid capital" as a key approach to strengthening the equity base. This instrument combines the characteristics of equity and debt capital. Banks consider it as economic equity when granting loans, provided certain conditions are met. These include long-term availability and subordination in the event of insolvency.

According to the authors of the study, one example is subordinated shareholder loans. Local authorities take out loans and pass them on to their energy suppliers as loans. If structured accordingly, repayment is made via fixed interest and repayment structures. These instruments therefore differ from traditional equity injections, which depend on uncertain dividend income.

Examples show how they can be implemented in practice. In Hanover, Enercity received 700 million euros via such a loan. In Hesse, the state development bank provides subordinated capital. Both models aim to limit the financial burden on public budgets.

However, the implementation of hybrid financing depends less on the legal framework than on political factors, according to the authors of the study. Local authorities play a central role in the approval of borrowing. Differing interpretations lead to uncertainties and delays. The study therefore calls for adjustments to local authority law. Standardized procedures and clear regulations could facilitate implementation. There is also a need to expand funding structures at state level.

Proposal for a "Germany standard"

As a solution, the study proposes a coordinated system across all federal levels. Local authorities should determine their equity gap on the basis of long-term investment plans and make targeted use of hybrid instruments. States should reduce legal hurdles, provide guarantees and expand funding programs.

The federal government should also intervene here, for example with counter-guarantees, loan programs and the development of uniform standards. The concept also provides for the establishment of platforms to involve private investors. The aim is to make smaller projects accessible to institutional capital. The study sees this approach as a "blueprint" for a comprehensive solution.

The entire study "Equity for the energy transition" is available as a PDF on the Dezernat Zukunft website.

Author: Heidi Roider