Germany’s fundamentals risk: What 50% lower demand growth means for batteries

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Germany’s fundamentals risk: What 50% lower demand growth means for batteries

Germany's power demand is forecast to grow 70% by 2040 to meet climate targets. This requires reversing a decade of decline.

If projected annual demand growth halves from 4% to 2%, all other things being equal, average daily price spreads fall 10% by 2030. Daily volatility drops 7%.

For BESS, lower demand compresses the arbitrage window that merchant revenues depend on. Average annual Day-ahead revenues fall by €4.5k/MW/year over five years, if demand growth halves.

This analysis:

Outlines the assumptions underlying Modo Energy's central demand forecast
Identifies indicators that would signal lower demand growth materializing
Quantifies how two alternative demand scenarios impact prices and revenues

To learn more, reach out to the author - cosima@modoenergy.com

Central scenario assumes a successful energy transition

Modo Energy's central scenario is informed by the Entso-e’s 10-Year Network Development Plan. It projects 4% annual demand growth through 2040. Demand increases 1.7x from 2026 to 2040. This requires the energy transition to proceed as planned.

Germany aims for climate neutrality by 2045.

Transport, industry, and residential heating account for 40%, 25%, and 22% of emissions respectively. To decarbonise, these sectors must electrify.

Four drivers underpin the forecast:

Driver	Today	2030 target	Annual additions needed
EVs	2.1 million (4–5 TWh)	15 million (35–40 TWh)	2.6 million
Heat pumps	1.7 million (5–6 TWh)	6 million (18–20 TWh)	0.9 million
Electrolysers	0.1 GW (<0 TWh)	10 GW (60–80 TWh)	2 GW
Data centres	20 TWh	30–35 TWh	10–15 TWh

If any driver underperforms, demand growth slows.

Demand fell 12% over the past 10 years

Electrification targets mean reversing a ten-year-long trend of declining demand.

Industrial recession drove much of the decline. Energy-intensive manufacturers contracted or relocated. German industrial electricity prices were 25% above the EU average in 2024.

Efficiency gains have also absorbed electrification growth, improving 1.9% annually since 2000. The COVID-19 pandemic and 2022 gas crisis caused step-change reductions that never fully recovered.

From 2026, a subsidised industrial price will cut wholesale costs by up to 50%, with a floor of €50/MWh. The policy aims to counteract industrial decline and incentivise electrification. As it runs for only three years, its value for long-term investment is limited.

Current deployment rates miss 2030 electrification targets

Electrification has underperformed in the past two years.

The three main drivers are behind schedule:

Driver	Current rate	Required rate	Required rate multiple
EVs	500k/year	2.6m/year	5×
Heat pumps	280k/year	900k/year	3×
Electrolysers	<0.1 GW operational	2 GW/year	20×

Policy has not closed the gap.

EV sales collapsed 27% in 2024 after subsidies ended. A new €3 billion scheme announced in 2025 excludes the mass market. 2025 sales recovered to 500k, but are still 5x lower than the required 2.6 million per year.

Heat pump sales dropped 50% in 2024, but recovered to about 280k in 2025. Heat pump subsidies up to 70% remain available, but policy uncertainty and installer constraints limit uptake.

Electrolyser support programs from the national hydrogen strategy remain unlaunched. 2025 budget cuts reduced funding further.

While deployment rates have picked up in 2025, at current roll-out speeds, Germany will miss its 2030 electrification targets.