This two-part report series examines the risks at the core of Germany’s energy transition, focusing on its continued reliance on natural gas and its planned shift to hydrogen. The analysis highlights implications for energy security, infrastructure costs and long-term system reliability.

The first report, “Germany’s gas dependence: An energy security risk”, analyses the country’s exposure to volatile gas markets and import dependence. It evaluates the technical and financial challenges of converting gas-fired power plants to hydrogen, the limitations of carbon capture and the potential impact on utilities’ credit profiles.

The second study (to be published in April 2026) reveals why Germany should downsize its hydrogen ambitions to avoid jeopardising its energy security and overspending on infrastructure.

Germany’s gas dependence: An energy security risk

Executive summary

Germany can lower its exposure to volatile gas prices and geopolitical conflicts by scaling up renewable energy and clean heating systems. These, alongside cross-border grid connections and energy efficiency programmes, would displace gas generation and reduce the need for expensive hydrogen infrastructure. IEEFA estimates that this strategy would allow Germany to source just 5% of its electricity from natural gas and hydrogen combined by 2045.

The country has already made significant progress. Its gas consumption peaked in 2021. Electrification and the installation of heat pumps contributed to a 23% decline in household gas use between 2021 and 2024. IEEFA estimates that the almost 1.1 million residential heat pumps that Germany installed from 2022 to 2025 saved the country €1.3 billion on liquefied natural gas (LNG) imports between 2023 and 2025.

Germany’s LNG terminal utilisation rate in 2025 was 36.3%, far below the EU average. This indicates that decisions to build LNG terminals failed to fully consider future gas demand. Nonetheless, the country still plans to almost triple its LNG import capacity by the end of 2028.

In the power sector, Germany’s government prioritises natural gas and hydrogen to support a system dominated by solar and wind. The country plans to build 10 gigawatts of hydrogen-ready gas power stations. But hydrogen power plants will likely play a smaller role than government plans because of their high expense and low efficiency.

Germany may aim to decarbonise some of its gas power stations with carbon capture and storage (CCS). But CCS has never been used at scale on existing gas plants because of technical and economic challenges. CCS projects globally have underperformed, costs are prohibitively high, and Germany does not have a carbon dioxide pipeline network.

CCS is therefore not a near-term solution for Germany’s planned 10-gigawatt gas buildout, in IEEFA’s view. If the country does attempt to decarbonise these assets with CCS, subsidies could cost hundreds of billions of euros. The gamble is that reliance on the technology could delay more viable alternatives and expose Germany to project failures. These same issues apply if Germany uses blue hydrogen (produced from natural gas with carbon capture) as a fuel in power plants.

German utilities planning to rely on CCS may also face uncertainty in reducing emissions. Despite aiming to decarbonise gas power plants, some utilities have recently signed contracts to import LNG for up to 20 years. These contractual obligations expose the companies to the risk of long-term underutilised gas power plants, potentially locking them into uneconomic supply commitments.

German utilities should carefully weigh the transition risks before signing any more long-term gas import contracts. This would help them avoid additional financial impacts related to the underutilisation of gas plants and align them more closely with the country’s climate and energy security goals.

Given these findings, IEEFA recommends that Germany do the following:

• Continue replacing gas demand with renewables, electrification of heating and energy efficiency programmes
• Significantly scale up cross-border grid connections and demand-side management, which would help minimise gas and hydrogen generation
• Cancel plans to build new LNG import terminals, given that it has already passed peak gas consumption
• Carefully monitor gas infrastructure investments to prevent unnecessary increases in consumer gas prices
• Not rely on CCS to decarbonise gas power plants

These measures would provide Germany with a more sustainable and cost-effective path to energy security.
Source: IEEFA