Germany Special funds: hybrid infrastructure and regulatory opening

Buildings, districts, and industrial sites are increasingly evolving into integrated energy and infrastructure units. More and more frequently, different components are being combined, including:

• Rooftop photovoltaic systems
• Battery energy storage systems (BESS)
• Charging infrastructure for electric mobility
• Digital control and management systems

This integration gives rise to a new asset class: hybrid infrastructure. It combines real estate value creation with energy production, flexibility capacities, and sustainable power supply – making it a key building block of the energy transition.

Until now, this very integration has been subject to regulatory barriers in Germany, particularly for regulated real estate funds. This is set to change with the proposed Location Promotion Act (Standortförderungsgesetz – StFG).

The Act establishes the legal and tax prerequisites to ensure that:

• Energy infrastructure can be structurally integrated into real estate funds,
• Investments in photovoltaic systems, battery storage, and charging infrastructure can be made with legal certainty, and
• New business models in the field of green and hybrid infrastructure can emerge.

 

The starting point – commercial activity as a tax risk factor

Under current law, any form of active operation of infrastructure by a real estate company or a (special) investment fund within the meaning of the Investment Tax Act – such as power generation, storage operation, or charging infrastructure – regularly results in the loss of qualification as a real estate company and constitutes active commercial management at fund level. As a consequence, the fund loses its tax privileges.

This has had significant implications:

• Loss of tax transparency and fund privileges,
• Exclusion from the catalogue of permissible investment assets under the German Capital Investment Code (KAGB), and
• A de facto investment ban on energy infrastructure within real estate special funds.

As a result, the integration of energy and mobility value creation into real estate portfolios has largely been impossible.

Operating infrastructure effectively turned real estate into a commercial business – thereby blocking the transformation of the building economy.

 

The Location Promotion Act – a turning point

The proposed Location Promotion Act (StFG) consolidates measures from the former Future Financing Act II and supplements them with tax and State aid provisions.

Its objective is to facilitate investment in sustainable location-based infrastructure and to mobilise institutional capital for the energy transition.

Key elements of the draft legislation:

Expanded definition of permissible real estate assets (amendment to the KAGB):
Energy generation, storage, and charging infrastructure are recognised as non-independent components of real estate, provided they serve the supply of the respective site.

Tax clarification regarding income qualification:
Income from energy generation or charging operations will in future be classified as ancillary income from asset management rather than as commercial income. Tax privileges – such as transparent taxation for special investment funds – will therefore be preserved.

Facilitated funding and permitting:
Simplified procedures and tax depreciation incentives are envisaged for sustainable infrastructure within existing buildings, supplemented by access to public funding (e.g. the Climate and Transformation Fund (KTF) and the Special Fund for Infrastructure & Digitalisation).

For the first time, this creates a coherent legal and tax framework for embedding energy and mobility infrastructure within regulated real estate structures.

 

New value chains for real estate and funds

As a result of the Location Promotion Act, regulated funds will in future be able to:

• Integrate energy generation and storage into their real estate strategies,
• Operate charging and mobility services through subsidiary entities,
• Structure district electricity and self-supply models with legal certainty, and
• Implement energy-as-a-service approaches without tax risk.

This enables, for the first time, vertically integrated value creation along the energy–real estate axis—from the physical asset to infrastructure and end user.

Hybrid infrastructure thus shifts from a tax risk to a driver of returns, within a regulated and ESG-compliant framework.

 

Interface with special funds and the funding architecture

The opening of fund supervisory and tax law directly aligns with the objectives of the special funds.

Projects that integrate photovoltaic, storage, or charging infrastructure into real estate can in future qualify as eligible energy-related sub-investments.

This creates a three-pillar structure combining law, tax, and funding:

• KAGB opening: legal permissibility of infrastructure investments
• Tax relief: preservation of fund privileges
• Special funds: financing through Federal resources

Public funding and private fund capital thus interlock for the first time – on an institutional, scalable, and legally robust basis.

 

Relevance for international investors

For international funds and institutional investors, this means:

• Access to decentralised energy and charging infrastructure via regulated real estate vehicles
• Stable regulatory and tax frameworks
• Combinability with funding from special funds and EU programmes
• ESG-compliant investment profiles within the meaning of the Sustainable Finance Disclosure Regulation.

With the Location Promotion Act, Germany is opening – for the first time – the regulatory space in which buildings become energy assets.

 

Our advisory focus

• Classification of hybrid assets under the KAGB and AIFMD
• Tax structuring and avoidance of commercial qualification and active entrepreneurial management
• Integration of public funding and compliance with State aid law
• Contractual models for energy-, storage-, and mobility-as-a-service concepts
• Cross-asset structuring for real estate, infrastructure, and energy investors

We shape the interface where real estate, energy, and capital markets law converge into a new investment model.