Germany’s gas dependence: An energy security risk  /  Chapter 4

German issuers exposed to transition risks from fossil fuel assets

Key findings

Major German utilities that own gas and coal power plants, as well as gas transmission and storage assets, will likely be exposed to elevated climate transition risk over time. While the German government could bear some financial responsibility through its aid, subsidies, equity injections or lending support, significant risk will remain within the private sector. Fossil fuel exposure without a credible climate transition plan could pose long-term credit risk through multiple channels, including market, technology, regulatory, social and governance factors. 

Germany has around 70 gigawatts (GW) of gas- and coal-fired capacity, relatively concentrated among major unregulated, diversified utility companies including RWE, EnBW and Uniper (Figure 9). These companies’ credit profiles are exposed to energy transition risks against the backdrop of Germany’s renewable power targets. Between 2025 and 2028, considering plants currently under construction or in test operation, Germany expects to add around 2GW of new gas-fired capacity. State-backed EnBW accounts for two-thirds of this new capacity. German municipalities are primarily developing the rest (Figure 10). 

Moreover, regulated gas networks are exposed to electrification and risks of a secular decline in gas demand. Germany has 16 gas transmission system operators (TSOs). Open Grid Europe (OGE) is the largest, operating a network of 12,000km, followed by Ontras with 7,500km. EnBW owns 100% of Ontras. 

Climate transition plans face execution and market challenges 

German utilities have disclosed plans to address energy transition risk for their gas and coal power plants and other gas-related businesses. However, in IEEFA’s view, some of their decarbonisation levers will likely face execution challenges (Table 5). The utilities also have differing Scope 1, 2 and 3 emissions profiles and emissions reduction targets (Figure 11).¹ Risks will likely increase where emission reduction strategies rely on technologies that are not yet commercially proven, including carbon capture and storage (CCS) and hydrogen. 

Gas-fired power exposure varies among utilities. The long-term cash flow implications are likely material for Uniper and RWE, and to a lesser extent EnBW. This arises from the unclear prospects of gas-fired plants’ CCS retrofits and hydrogen readiness. German utilities’ gas power exposure includes the following:

• Gas accounts for half of Uniper’s 9GW of power capacity in Germany. Uniper’s decarbonisation would rely largely on retrofitting a significant part of its gas-fired plants with CCS or to run on hydrogen or biofuels.
• RWE will likely remain one of Europe’s highest-emitting utilities by 2030, despite being relatively advanced in renewable energy development. RWE still has 15GW of gas-fired capacity, including 4GW in Germany. Decarbonising the company’s gas fleet would depend on the successful deployment of hydrogen-ready or CCS retrofits. RWE also plans to build a 300-megawatt (MW) green hydrogen project on the site of the Emsland gas-fired plant by 2027. Green hydrogen is produced using renewable energy.
• Since 2022, EnBW has been replacing three coal-fired units with gas power plants with a combined capacity of 1.5GW. These will contribute substantially to Germany’s near-term gas-fired capacity growth. EnBW invested €1.4 billion in thermal generation between 2023 and 2024. While this forms part of the company’s coal phase-out plan, achieving its 2035 climate neutrality target would hinge on a fuel switch to hydrogen.
• Long-term supply contracts could add market risks. Uniper, RWE and EnBW have entered into heads of agreement and contracts to import LNG and gas for up to 15–20 years, despite the companies’ plans to decarbonise gas-fired plants. These contractual obligations expose the companies to the risk of long-term underutilisation of gas power plants, potentially locking them into uneconomic supply commitments.
• By contrast, E.ON has very low exposure to gas power. The company operates small-scale, embedded gas-fired combined heat and power units. It plans to convert these units to generate electricity and heat using renewable sources.            

Utilities with coal power plants generally have clear phase-out plans. RWE and LEAG’s significant lignite coal capacity could expose them to decommissioning costs and liabilities. RWE booked €6.3 billion in provisions as of 2024 related to coal mining damage. The company’s diversification has helped mitigate its credit exposure. RWE and LEAG pass their financial burdens onto the German government to some extent through the early exit agreement and state-aid package.²

• Uniper has phased out commercial coal capacity in Germany, with its remaining hard coal plants — Scholven B and C (690MW), Staudinger 5 (510MW) — declared as system-relevant in grid reserve.³
• EnBW plans to phase out coal capacity by 2028. The company aims to reduce its coal capacity from 3.1GW as of 2025 to 1.4GW by 2026 by converting the Heilbronn plant to gas and selling Lippendorf lignite assets to Czech energy group EP Group.⁴ It plans to reduce its coal capacity to 1.1GW by 2027 with the conversion of Altbach/Deizisau. It has 1.8GW of coal in grid reserve.

German utilities’ gas-related businesses are reflected in their high Scope 3 emissions: Uniper has gas operations along the value chain, making it one of the most fossil fuel-exposed. It has a fleet of four LNG vessels under charter and 7.2 billion cubic metres of gas storage capacity. Scope 3 emissions dominate its emission profile, stemming from the use of sold products, reflecting the company’s exposure to climate transition that will likely exacerbate commodity volatility. But Uniper has not set an ambitious Scope 3 decarbonisation pathway, targeting still 66 million tonnes of CO2 in 2030 and 57 million tonnes in 2035. The company aims to maintain annual gas sales of 180–200 terawatt-hours in Germany, Austria and Switzerland over the medium term. It plans to expand its pipeline gas and LNG sourcing portfolio. This strategy is misaligned with Germany’s climate goals and exposes the company to the trend of declining gas demand. Uniper’s other projects include a hydrogen storage facility in Lower Saxony and a 30MW green hydrogen plant in Saxony-Anhalt. But they are unlikely to materially drive emissions reduction, and their scale is expected to remain a minor part of Uniper’s overall business. 

• E.ON has one of the highest Scope 3 emission profiles, totalling around 60 million tonnes of CO2 equivalent in 2024, driven primarily by purchased electricity sold and gas sold to end customers. E.ON states that it aims to drive low-emissions power for customers through facilitating electrification and energy efficiency solutions.
• Gas TSOs OGE and Ontras are exposed to material transported gas emissions, which they exclude from their Scope 3 reporting.⁴ Pressure to address these indirect emissions is likely to rise. The risk of declining gas demand could impact their cash flow generation. TSOs’ earnings may come under pressure as risks related to lower utilisation rates and stranded assetslo may build over time, increasing reliance on the Federal Network Agency regulatory framework that sets remuneration methods for gas transmission activities. In response, OGE and Ontras plan to heavily invest in hydrogen networks to decarbonise emissions from gas transportation. The credit profiles of their new hydrogen network businesses would be supported by a distinct regulatory framework based on a cost-plus model, which aims to mitigate risks during the ramp-up phase. However, their future hydrogen network earnings would rely on a steady and continually supportive regulatory framework. The scalability of hydrogen remains uncertain and poses long-term financial risk. 

New fossil fuel expansion could limit utilities’ ability to invest in renewables 

Germany’s unregulated utilities are contemplating participating in the country’s new gas-fired plant tenders. This would require additional capex, increasing debt leverage. The construction of new fossil fuel power plants — in addition to the already significant existing assets and those under construction — would increase carbon lock-in risks. If the plants remain unabated, this would be incompatible with these utilities’ decarbonisation plans. Spending on new gas power plants could limit utilities’ ability to invest in climate-aligned solutions. This adds uncertainty around utilities’ earnings potential for deleveraging. Fossil fuel companies Uniper and LEAG could be more exposed: 

Uniper remains committed to new gas power projects. Recent expansions include a 300MW gas plant at the Irsching site. The company’s capex on gas plants and hydrogen manufacturing is currently not aligned with the EU taxonomy’s environmental criteria. While the company aims to align these investments with the taxonomy within five years, this is subject to significant execution risk, in IEEFA’s view. Uniper exhibited weak operating performance and needed a government bailout in 2022. As the EU requires the German government to reduce its stake in Uniper, the company’s access to new equity investors remains highly uncertain given its elevated standalone risk exposure. Energetický a průmyslový holding (EPH), which itself is predominantly fossil fuel-based, is among the companies that the government has approached about a purchase of Uniper.

• LEAG is part of a complex corporate group structure with an intention to expand fossil power. The company was transferred from EPH to a sister company under the same parent, EP Group, in 2023. The transfer lowers clarity on disclosure and governance structures. Transition risk could continue to impact EPH’s credit profile.

On the other hand, RWE, EnBW and E.ON are at a more advanced stage of energy transition, as reflected in their relatively high EU taxonomy-aligned metrics (Figures 12 and 13). They are leading green bond issuers, which reflects access to sustainable investors. However, this does not eliminate the challenge of decarbonising their existing fossil fuel exposure. Further investment in fossil fuels will lower the coherence of their green bond programmes:

• RWE, for instance, still spends significantly on coal and gas production. This amounted to €511 million in 2024. The company has scaled back its renewable energy investments, lowering its 2025–2030 investment plan to €35 billion, a reduction of €10 billion compared with earlier plans.
• E.ON plans to develop a 61MW on-site gas power plant for a data centre in Frankfurt. Although this is a small project, any expansion from E.ON in this direction would signal a retreat from its renewable energy strategy. This would in turn undermine the credibility of its transition plan and the perception of the company as a renewables-driven green bond issuer. With its focus on electricity grids, E.ON has one of the most advanced transition plans among German utilities. This follows a spin-off of its fossil fuel assets into Uniper in 2016.
• Uniper includes gas in its green bond framework. The company is contemplating an inaugural green bond issuance, with a framework published in October 2025. While utilities typically issue green bonds to fund renewable energy projects, Uniper’s framework of eligible projects spans gas power, CCS, hydrogen, nuclear and renewables.

Government also bears transition risks and costs

Germany’s nationalisation of Uniper in 2022 reflects the government’s willingness to support the country’s energy assets. While the EU requires Germany to reduce its Uniper ownership to a maximum of 25% plus on share by 2028 at the latest, the government could still be inclined to offer support in the event of future earnings volatility or losses arising from energy transition risks. In the case of EnBW, a €3.1 billion capital increase in 2025 underscores the strong backing from its public sector shareholders.[1] 

The German government and state-owned development bank KfW have also directly invested in other fossil fuel infrastructure and projects, such as a €4.06 billion measure to support floating LNG terminals. German state-owned entities are developing the gas-fired capacity that the country will commission in the next three years (Figure 10); the state is also in discussions to support additional capacity.