One of the focal points for the start of World War 1 was the amount of military build ups that were going on around the world. Aside from the US (who only had a military for defending their own interests), most of the great powers have built up their forces to fend off a potential attack. This was no exception to Germany, a relatively new nation in Europe, only close to 30 years old when the 20th century dawned.
In geographical terms, Germany was smaller than the British, and aside from their pivotal position in Europe (bordered France and Russia, two foes that Germany didn't want to have to fight simultaneously, Austria-Hungary (which wasn't on good terms with the Germans for a while), and the neutral Low Countries and Denmark (with slightly good relations with the British), they could dominate in a potential land war due to the high focus in land warfare (complications would rise with a war between Russia and France), but not sea warfare with the British. German Empire in 1914 , shows that they had their colonies in Africa to protect, Chinese concessions, the Pacific Islands, and Kaiser-Wilhelms-Land, much smaller than the French colonial Empire (huge swath of NW Africa, Madagascar, Indochina, Caribbean islands, Chinese concessions, and Pacific Islands), so it can rival them and Russia (confined to the northern corner of the world), but couldn't compete with the British empire, who had a considerable territory in every continent as of 1907 as well as loyal Dominions in Canada, Australia, New Zealand, South Africa, India, Newfoundland & Labrador, which pre-1914, they also had to be protected by the British due to their low military forces.
I did read beforehand that the German's foreign policy around 1900 or so was to befriend the British and isolate France as much as possible. We all know how that worked out (Agadir crisis brought France and the UK, who were having warmer relations even closer to an alliance, France and Russia saw Germany as a threat, even with their land forces buildup and alliance ties with Italy and Austria-Hungary, so they became closer. Even Italy had second thoughts about allying with Germany and Austria-Hungary (which still wasn't happy that Venice/Venezia/Venedig was taken in the side war during the Austro-Prussian War, and the fervent Italian nationalism in the country), so they had friendlier ties with France and the UK just as an assurance.
Germany, a nation with a lesser geopolitical influence on the world during the early 20th century, was destined to compete with the British in terms of Naval domination, and with the naval plans and bills that were enacted, they wanted to have closer to 2/3rds of that strength, potentially harmful to the British Home Isles.
Why were the Germans compelled to compete with the UK for having a superior navy?
The most significant reasons for German naval expansion lie with the personal aims and ambitions of two people; Kaiser Wilhelm II and Admiral von Tirpitz. Wilhelm wanted Germany to have a strong navy, mainly because of his idolism of the Royal Navy, while Tirpitz mainly wanted to enlarge his navy with little regard for the consequences for diplomacy.
Wilhelm II was a man obsessed with Germany's (and in turn his) international image, and a large part of this focussed around ships and warships. As a grandson of Queen Victoria, he took frequent visits to her retreat on the Isle of Wight, Osborne House. From here, it was a quick trip to the RN's main base at Portsmouth. Here, some of the happiest days of his life were spent, viewing the might of the Royal Navy. He would continue this interest into later life, taking a deep interest in developments within the RN and German Navy. He wanted to create a fleet that could rival the RN, in the hope that this would gain him the respect of the British he so sought. This meant a fleet of battleships - when the Naval Secretary from 1883-88, General Caprivi, sought to build a strong fleet of torpedo boats, he was overridden and sacked by Wilhelm, because Wilhelm didn't want torpedo boats representing him at naval reviews, especially in Britain.
In 1890, Tirpitz was a captain serving as Chief of Staff for the Baltic Fleet. Seven years later, he was Naval Secretary, with full control of German naval policy. This meteoric rise was down to his desire for a larger fleet, which well aligned with that of the Kaiser. In 1890, he advocated battleships at a dinner attended by several members of the military staff and the Kaiser, catching the latter's eye. Following this, Tirpitz was assigned to create a new German naval doctrine, which he had done by 1892. This doctrine called for the production of eight-ship squadrons of near-identical battleships, but led to difficulties with the Naval Secretary, partly because it was seen as implicit criticism, and partly because it was seen as far too costly for the funds available. In 1895, Tirpitz was asked by the Kaiser to produce a report on future naval production; this report, which called for production of 17 battleships, greatly impressed the Kaiser. In comparison, the Naval Secretary of the time was having trouble getting money for his fleet plans out of the Reichstag, infuriating Wilhelm. While politics would delay his appointment as Naval Secretary until 1897, this was the point where Tirpitz secured the position.
Once he was confirmed in the position, Tirpitz desired a major change in German strategy. Nine days after taking office, he presented a memorandum called "General Considerations on the Constitution of Our Fleet According to Ship Classes and Designs". This, somewhat dryly titled, document laid out his naval strategy:
For Germany, the most dangerous naval enemy at the present time is England.
The military situation against England demands battleships in as great a number as possible.
It called for the rapid production of a fleet of 19 battleships ( a flagship, two squadrons of eight, and two reserves), to be completed by 1905. This passed into law in 1897-8, with a slightly later end date of 1908. Later naval laws would build on this fleet, enlarging it and replacing obsolete ships. Tirpitz did not mind that the building of such a fleet would antagonise England and damage the relationship between the two countries - when challenged by the Foreign Ministry, he said "Politics are your affair. I build ships." Through his advocacy for a fleet build-up, he advanced his career, being ennobled in 1900, and promoted to Admiral in 1903.
Tirpitz produced two major justifications for the expansion of the fleet. The first, most famous one was described as a 'risk theory', and was basically an early form of deterrence theory. This was based on the claim that the British had to be prevented from intervening in a future war in Europe. While nobody could build a fleet that could win sea power from the Royal Navy, a fleet strong enough that it's destruction would so weaken the Royal Navy that it lost sea power could be constructed. This would ensure that the British would be discouraged from intervening. The second major justification was that the construction of the fleet was an important economic driver. The naval construction industry provided good jobs for the German economy. It also provided additional work for other, connected industries, such as the steel industry. By creating well-paying jobs and ensuring that others were kept, the fleet construction helped stave off the desire for socialism, and support conservative, pro-Kaiser positions. Tirpitz also connected the navy with the acquisition of colonies abroad, which the Kaiser desired to boost Germany's prestige abroad.
Neither Wilhelm nor Tirpitz really cared that the construction of the German Navy was driving Britain away from Germany. To both, expansion of the German Navy was an end in itself.
Sources:
Fighting the Great War at Sea: Strategy, Tactics and Technology, Norman Friedman, Seaforth, 2014
Dreadnought: Britain, Germany and the Coming of the Great War, Robert K. Massie, Vintage, 2004
If you're interested in the Anglo-German Naval Race, I'd definitely read the last one. It's a hugely comprehensive overview of the period, covering both the major political and military figures, the context in which they worked, and how their actions played into the rising tensions.
