Germany’s Infrastructure Moment: Where government funding meets private capital

Introduction

Germany is in the middle of an infrastructure spending boom, making good on its 2025 commitments in the coalition agreement (see here for details). After decades of underinvestment, Germany is now deploying significant capital into infrastructure projects and has relaxed its constitutionally enshrined "debt brake" to do so. Several hundred billion Euros in government funding have been earmarked across multiple investment vehicles, creating substantial opportunities for investors to deploy private capital.

Special funds and investment offensives

The Germany Fund

The so called "Deutschlandfonds" has been launched in December last year. Contrary to its name, it is not a fund in the traditional sense. Rather, the Germany Fund bundles various financial instruments and platforms under one roof, with funding and investment details depending on the industry and type of investment sought. In total, EUR 30 billion in government funding are available. All programs are implemented by government owned development bank KfW. Funding focuses on three core areas: Industry and medium-sized businesses, venture capital, and energy infrastructure. Approx. 95% of the funds will be provided as guarantees to de-risk private investments. Specifically, four programmes are currently available:

• Geothermal energy: This instrument supports the financing of geothermal drilling with a depth of at least 400 meters. KfW makes available loans of up to EUR 25 million per project with a maximum term of five years. Loan repayment can be waived if geothermal drilling is unsuccessful.
• Scale-up Direct: Enables KfW to invest directly in start-ups: KfW will act as a co-investor, investing through equity directly in start-ups, alongside private investors. Up to EUR 50 million are available per investment.
• First-of-a-kind investments: KfW will make up to EUR 300 million available in co-funding for funds specializing in FOAK investments, i.e. investments in pioneer technologies, products and processes.

• Energy transition industry: KfW will provide risk-sharing mechanisms for companies that are part of the energy transition industry, such as power generation, distribution and storage, hydrogen and CCS, heat and cooling generation, and the automotive industry (likely with regard to EVs). KfW will support guaranteed facilities by up to 50%, e.g. to cover advance payments, performance or warranty guarantees), with KfW's risk share amounting to at least EUR 50 million.

Additional programmes are being prepared and expected to become available in the course of 2026. 

Special Fund for Infrastructure and Climate Neutrality

Germany's flagship fund, the "Sondervermögen Infrastruktur und Klimaneutralität", is a EUR 500 billion debt-financed government budget aimed specifically at increasing infrastructure spending at all levels of government, constituting one of Germany's largest investment packages to date. The special fund comprises three pillars:

• EUR 100 billion have been allocated over the next twelve years to the sixteen federal states which are expected to pass on some of the funding to their municipalities. Investments will be made based on state and local priorities, e.g. to fund the renovation and construction of schools, childcare facilities, to modernize local transport or to build out district heating and energy infrastructure. 

• EUR 100 billion will be transferred over the next ten years to the Climate and Transformation Fund.
• The remaining EUR 300 billion are available for federal infrastructure investments over the next twelve years. The federal budget for 2026 indicates that funds will in particular flow into bridge maintenance, railroad construction and maintenance, hospitals, high-tech infrastructure and district heating. 

Private investors cannot directly access these funds, as they are spending budgets for municipalities, states and the federal government. Companies active in the infrastructure sector will benefit from an increase in government funded projects. And there is increasing talk about a PPP renaissance, which would help leverage private capital investments throughout Germany.

Climate and Transformation Fund

The Climate and Transformation Fund ("Klima- und Transformationsfonds") provides support for the energy transition and to combat climate change. Annual budgets vary, but between 2024 and 2027 approx. EUR 212 billion in funds are budgeted. The Climate and Transformation Fund specifically supports energy-efficient building renovation, the decarbonization of industry, and the expansion of renewable energy, electric mobility, and charging infrastructure. Key priorities include fostering climate-friendly mobility, ramping up the hydrogen economy, measures for natural climate protection, and measures to ensure a climate-friendly energy supply.

Private investors should carefully assess to what extent projects relating to energy transition or climate change are eligible for support under the Climate and Transformation Fund.

Bundeswehr Special Fund

The special fund "Sondervermögen Bundeswehr" was established in 2022 in response to Russia’s war against Ukraine. The German government provided a debt-financed budget of EUR 100 billion to close capability gaps in the German armed forces and achieve the NATO two percent defence-spending target. This includes armaments investments, ammunition, information technology projects, and logistics. Infrastructure projects are funded as well, primarily digital infrastructure such as data centres and secure communications networks.

Funds are primarily available for the German armed forces to support necessary procurement. Primary beneficiaries of these funds will therefore be government contractors participating in the respective tenders, but also their suppliers further down in the supply chain. This may open up attractive investment opportunities for private capital, as suppliers and government contractors may struggle to raise capital needed for a rapid expansion of their production capabilities. For details, see our thoughts on investing in the EU and German defence sector.

What this means for investors

Substantial government funding will be mobilized for infrastructure projects in Germany, with a clear focus on infrastructure, energy transition and defence. This opens opportunities for private capital:

• KfW administered programs under the Germany Fund are specifically aimed at mobilizing private capital by mitigating risks, providing co-investments and bridging financing gaps. 
• Germany's infrastructure fund will trigger significant government spending over the next years at all levels of government, which will drive demand for construction and related services.
• The Climate and Transformation Fund will continue to make funding available for various projects related to energy transition and combating climate change. Companies active in this sector should assess carefully whether they may be eligible for funding.
  
• The Bundeswehr Special Fund adds additional spending power to the German armed forces, with established government contractors and their suppliers being the most likely to benefit from additional government demand.

By tracking regulatory developments and preparing partnerships with public-sector counterparts early, investors can expect to benefit from this investment momentum.

This article was prepared with contributions from our legal trainee Katarina Vlaski.