Geothermal energy as a key technology for the heating transition
Geothermal energy is increasingly coming into the political spotlight. Whilst the heating sector accounts for the largest share of final energy consumption, the share of renewable energies in heat supply lags significantly behind that of the electricity sector. For instance, the share of renewable energies in gross electricity consumption stood at around 54.4% in 2024, whereas in heat supply it was only around 18.1%. For 2025, the provisional figures stand at 55.1% (electricity) and 19.0% (heat). This highlights the need to make greater use of renewable heat sources which includes geothermal energy. A large proportion of the energy for heat generation still comes from fossil fuels, particularly natural gas and oil. The importance of the heating sector and the need for a transformation of the heat supply are shown by the fact that private households account for the largest share of final energy consumption through heating, which is associated with the release of carbon dioxide.
Geothermal energy utilises the thermal energy stored in the Earth’s crust. A distinction is made between near-surface geothermal energy (up to 400 m depth) and deep geothermal energy (over 400 m depth). This depth distinction is now enshrined in several specialist laws. Technically, this energy is utilised either via open systems (hydrothermal: extraction and return of thermal water) or via closed systems (probe circuit) to provide heat. Where temperatures are sufficiently high, generation of electricity is also possible. In Germany, the water temperatures required for this in practice are around 100°C, which are only reached at greater depths. Depending on the technology, however, lower temperatures can also be utilised, for example in the Organic Rankine Cycle (ORC) process. The particular advantages of geothermal energy in the heating sector are its independence from weather conditions, its ability to provide base load power, and its comparatively low land requirements. This makes it suitable as a building block of a decarbonised heat supply.
Current situation and potential
Today, only around two per cent of Germany’s heating demand is met by geothermal energy and ambient heat. There are currently 42 deep geothermal plants in operation in Germany. The majority of these plants tap into geothermal energy via boreholes several thousand metres deep and use it to provide heat. Some of the plants also generate electricity and feed this into the public grid, in some cases in combination with district heating supply. A further 16 plants are currently under construction. Furthermore, the number of exploration licences has risen significantly over the past two years from 82 in January 2023 to 155 projects currently in the planning stage. These projects could provide a heat output of one to two gigawatts in the future and, in some cases, also contribute to electricity generation. The technical and economic potential is considerable, particularly when integrated into local and district heating networks. Favourable geological conditions exist in formations with above-average temperature gradients and exploitable reservoirs. A typical application involves the direct injection of heat into heating networks. Where temperatures are sufficiently high, combined heat and power (CHP) configurations are also possible.
Key challenges include site-specific environmental and operational risks, high exploration and drilling costs, and the risk of non-discovery. The latter refers to the uncertainty as to whether sufficiently productive and hot formation water will be encountered at the target depth. These factors have so far hampered the use of deep geothermal energy despite its potential. Recently, however, regulatory decisions have been made to facilitate expansion.
The development of renewable heat sources is also being driven forward at European level. For instance, the amended Renewable Energy Directive (RED III) sets a binding minimum target of 42.5% renewable energy in gross final energy consumption by 2030, whilst an indicative target of 45% is being pursued. In addition, RED III requires accelerated approval procedures.
The Geothermal Acceleration Act (GeoBG)
With the Geothermal Acceleration Act (GeoBG), which came into force on 23 December 2025, the legislature has created a standalone framework to accelerate the development of geothermal energy, heat pumps, heat storage systems and heat pipelines. The Act affects existing procedures under sector-specific legislation and contains substantive and procedural simplifications. The aim is to simplify and accelerate planning and approval procedures, including their digitalisation, without creating a separate full licence outside the scope of mining and water law.
Further legal framework
Despite the Geothermal Acceleration Act, geothermal projects remain subject to the relevant specialised legislation, in particular mining and water law; no separate full licence is envisaged. As a renewable energy source, however, geothermal energy benefits from the support mechanisms of the Renewable Energy Sources Act (EEG) and is subject to the provisions of the Heat Planning Act and the Building Energy Act, which attribute particular importance to geothermal energy for the heat supply. Together with the procedural simplifications provided by the GeoBG, these standards form the relevant legal framework for the exploration, extraction and integration of geothermal heat into municipal supply networks.
- Mining law: Geothermal energy extracted through deep drilling is subject to mining law. A permit or authorisation is required for exploration and extraction. Authorisation for specific extraction is granted via time-limited operating plans (in particular main operating plans), without any planning assessment or concentration effect taking place. The amendment to the GeoBG introduced longer validity periods for main operating plans and shorter procedural deadlines.
- Water law: Deep geothermal energy also constitutes a use of water resources, which in principle requires a permit. This includes the extraction and reinjection of water, as well as the introduction of substances. Hydrothermal systems involve extraction and reinjection, whilst petrothermal systems involve the introduction of substances. Drilling operations may also constitute a form of use if they are capable of adversely altering the quality of the groundwater.
- Delimitation and jurisdiction: In the case of deep geothermal energy, the mining authority conducts the mining law procedure, whilst water law permits remain subject to the Water Resources Act (WHG). The amendment to the GeoBG has strengthened the coordination and procedural rules.
- Renewable Energy Act (EEG): Geothermal energy is classified as a renewable energy source. Electricity from geothermal energy is allocated values in accordance with the EEG’s classification system; operators of geothermal plants thus receive a fixed remuneration for their electricity under the EEG. Funding is provided outside the general tendering process and serves to ensure investment security.
- Heat Planning Act (WPG): Geothermal energy is classified as a renewable energy source. One of the objectives is to achieve a nationwide average share of 50 per cent renewable heat in heating networks from 2030 onwards. The GeoBG has extended the timeframe for ‘overriding public interest’ to 2045. In suitability assessments, renewable sources must be considered on the basis of concrete indications of potential.
- Building Energy Act (GEG): The GEG contains definitions relating to renewable heat, which also includes geothermal energy. It is primarily aimed at buildings and heating systems and stipulates that geothermal energy may be used as an option for utilising renewable heat, particularly within the context of municipal heat planning. However, the GEG does not provide any specific investment incentives for deep geothermal energy.
Challenges and investment incentives
The risk associated with finding a suitable reservoir remains a key economic obstacle. Even with a thorough preliminary survey, there is no guarantee that the reservoir will deliver the expected yield and temperature. The investment risk is correspondingly high, particularly in the case of costly dual-well drilling, i.e. pairs consisting of a production well and an injection well. Whilst the EEG feed-in tariff for geothermal electricity, the CHP surcharges for CHP configurations and the federal funding for efficient heating networks (BEW) address operational viability, they do not address the risk of non-discovery during the drilling phase.
The ‘KfW Geothermal Subsidy Loan’ (Programme 572), which has been available since December 2025, is a new financing instrument designed to close this gap. Up to €25 million can be provided per drilling project as a low-interest loan. Coverage is provided through a combination of geothermal success insurance from Munich Re (30–70% of the loan amount) and a KfW partial debt waiver for the uninsured portion in the event of a claim. This effectively allows the drilling phase to be covered up to 100%. Insurability is assessed on a project-by-project basis prior to application. Only if the outcome is positive is an invitation to apply issued via a financing partner. In addition, the BEW facilitates investment support for grid infrastructure and the integration of renewable heat sources. This is of central importance for the uptake of geothermal heat.
At the procedural level, the GeoBG addresses typical project hurdles to increase predictability and reduce coordination costs. The planning law privileges in rural areas also facilitate site selection without overriding nature conservation requirements.
Energy law requirements for the distribution of heat
Furthermore, when distributing heat from geothermal sources, the general rules of the AVBFernwärmeV must be observed, particularly where the heat is distributed as district heating under general supply conditions. Of particular relevance are transparency obligations regarding contractual terms, pricing regulations, metering/billing, contract duration and termination, as well as the technical and economic obligations in the connection and supply relationship.
In practical terms, this means that pricing and the service/billing logic must be clearly defined, transparent and contractually valid. Geothermal energy as a heat source therefore does not alter the applicable contractual requirements; the decisive factor is that heat is supplied within the framework of a district heating supply relationship. Consequently, geothermal energy providers must consider not only the technical and energy-economic project structure but also the contractual structure under district heating law.
According to the information available, the revised draft of the AVBFernwärmeV currently under discussion primarily expands information obligations and revises regulations regarding the adjustment of heat output. Of particular relevance are greater transparency regarding prices, price indexation formulas, network losses and other network data, as well as the incorporation of existing consumption recording and billing rules into the AVBFernwärmeV. Furthermore, customers are to be able to adjust the contractually agreed heat output more easily in future; in the event of significant reductions and when switching to renewable energies, a more extensive right to adjust or terminate the contract is to apply.
For geothermal projects, whose heat is classified as renewable, it is also relevant that the debate on the treatment of renewable heat networks has not yet been conclusively resolved in the draft; some associations are calling for greater preferential treatment for networks with a high proportion of renewable heat. The same applies to the currently planned amendment to the former Building Energy Act (now the Building Modernisation Act), the resulting heat planning by local authorities, and the hitherto highly controversial requirement for a 65% share of renewables when installing new heating systems.
Outlook
Whether deep geothermal energy becomes a cornerstone of heat supply in Germany depends on whether the combination of procedural acceleration (GeoBG), economic risk mitigation – for example through the KfW 572 programme – and targeted heat planning (WPG) ensures that the project pipeline is filled rapidly and projects can actually be realised. The EU legal framework (RED III) sets ambitious targets and requires efficient approval procedures, which are transposed into national law by the GeoBG.
At the same time, some questions remain unanswered: there is currently a lack of systematic exploration and provision of geological data, but this would significantly improve the suitability assessment within the framework of heat planning. Furthermore, the specialist literature discusses a further reduction in the administrative burden of the licensing regime, such as giving mining law decisions greater precedence over water law. Finally, it is important to strengthen acceptance of geothermal projects through transparent communication about risks and benefits, as well as through local participation.
Strategic recommendations for action
The current legal framework opens up a window of opportunity that should be used by project developers, local authorities and investors. Three areas of action are of particular importance here:
- Early-stage project structuring and funding strategy: The combination of the KfW geothermal development loan (Programme 572) and BEW investment funding enables the entire value chain to be secured – from the drilling phase through to grid connection. As insurability is assessed in advance by Munich Re on a project-by-project basis, project developers should prepare reliable preliminary exploration data at an early stage. The structuring funding applications in parallel (KfW 572, BEW, and, where applicable, EEG/CHP surcharges) can shorten the overall project duration and improve financing terms.
- Make consistent use of procedural acceleration tools: The GeoBG offers a comprehensive set of tools for accelerating procedures. These range from standard procedural deadlines and electronic processing to planning law privileges in rural areas. Project developers should therefore align their approval and operational planning procedures with the new deadlines and coordination rules. This requires that the application documents are complete from the outset so that the statutory deadlines can actually be triggered. The extended validity periods of four to eight years for main operational plans also provide planning certainty.
- Using heat planning as a strategic anchor: The WPG requires local authorities to include renewable heat sources in their suitability assessments based on concrete indications of potential. In this regard, project developers and energy suppliers can also proactively approach those responsible for municipal heat planning and contribute available geological data and project concepts. Those who get involved in municipal heat planning at an early stage can secure long-term supply prospects. At the same time, it is advisable to establish local participation formats early on in order to strengthen public acceptance and avoid subsequent delays caused by opposition.
