Future Financing Act II – Promotion of investments in renewable energies

Significant investments are needed to achieve Europe's climate and energy targets. The approach of the last federal government was to promote investments in environmental protection, emission and waste reduction and improved resource efficiency as part of sustainable regulation of the financial sector. The draft bill of the second law on the financing of future-proof investments of 27 August 2024 (Future Financing Act II – ZuFinG II) aimed to promote investments in renewable energy plants through open-ended investment funds through changes in investment and investment tax law.

Although it is currently not clear after the Bundestag elections whether ZuFinG II will be reintroduced and passed in the federal government, the topic remains relevant. It is expected that the provisions of ZuFinG II and the goals pursued with them will be pursued further in the course of the next legislative period.

Status Quo – Hurdles to Investing in Renewable Energy Plants

• Regulation: Currently, investments by open-ended investment funds in renewable energy plants are problematic. According to Section 231 KAGB, investment funds can acquire renewable energy plants as management objects, but the operation of these plants and the resulting income from the electricity feed-in is not permitted. This could lead to the investment fund itself being qualified as an operating company, which is inadmissible under investment law.
• Tax Law: If renewable energy plants are operated directly or held in a subsidiary of an investment fund, the question of active entrepreneurial management arises. This could lead to income subject to trade tax and jeopardize the qualification as an investment fund. If certain thresholds are exceeded, there is a risk that the fund will be reclassified and that all hidden reserves will be taxed in full.

Changes made by ZuFinG II

• Regulation: The draft of the ZuFinG II provided for adjustments to section 231 KAGB in order to eliminate the existing uncertainties. Investment funds should be allowed to acquire and even operate objects that are used to generate energy from renewable energies as management objects. In addition, it should be possible for investment funds to acquire renewable energy plants as ground-mounted plants – namely by acquiring a stake in an infrastructure project company.
• Tax Law: The planned amendments to the Investment Tax Act were intended to eliminate the risk of a loss of classification as a special investment fund. Active entrepreneurial management should no longer be detrimental to the treatment as an investment fund. Revenues from energy production should no longer lead to the pollution of the 5% "dirt limit".

Result

The draft of the ZuFinG II provided for significant facilitations for investments in renewable energy plants and would thus have created a secure framework for such investments. This could lead to sustainable development and economic stability in the renewable energy sector. Within the framework of a new legislative initiative, further relief for real estate funds would be desirable in order to enable direct investments in ground-mounted systems and to further harmonise tax regulations.