Berlin is moving forward with a strategy to bolster its energy security and transition to a hydrogen-based economy, announcing plans to tender for 10 gigawatts (GW) of new, hydrogen-ready gas-fired power plant capacity. The move, confirmed by the Federal Ministry for Economic Affairs and Climate Action (BMWK), represents a scaling back of earlier ambitions but aims to provide crucial backup power as Germany accelerates its shift away from coal and nuclear energy.
The plan, formally known as the Kraftwerksstrategie (Power Plant Strategy), addresses concerns about maintaining grid stability during periods of low renewable energy production – so-called “dark doldrums” – when both wind and solar power are scarce. The initial phase, beginning in , will involve state-aid-approved tenders for the new capacity. These plants are slated for commissioning between and , with a legal requirement to transition to operate on 100% hydrogen by at the latest.
The decision follows months of debate and negotiation with the European Commission, which needed to approve the state aid scheme. Germany’s initial plans, considered last summer, had envisioned tendering up to 15 GW of gas-fired capacity alongside 8.8 GW of hydrogen-fired capacity. The revised strategy reflects a compromise between the need for immediate capacity and the long-term goal of decarbonization.
Beyond the initial tenders, Germany intends to introduce a capacity market starting in or . This market mechanism will shift revenue from pure energy sales to payments for guaranteed firm capacity, distributed through network and retail tariffs. The precise design of this market is still under development, with the government consulting with stakeholders to determine the optimal approach.
Officials are leaning towards a decentralized, technology-neutral system that values the availability of firm capacity from a variety of sources, including thermal plants, battery storage systems (BESS), pumped hydro storage and demand-side response (DSR). This approach aims to encourage innovation and avoid locking the country into long-term dependence on any single technology.
The shift towards capacity payments will have implications for energy market players, requiring them to re-evaluate their asset strategies. While the move is expected to enhance grid stability and price predictability, it will likely lead to increased costs for consumers, who will ultimately bear the expense of maintaining reserve capacity. However, proponents argue that the benefits of reduced supply volatility and improved price stability outweigh the costs, and that flexibility revenue streams will partially offset the increased expenses.
The German government’s decision comes after years of grappling with the challenge of phasing out coal and nuclear power while simultaneously increasing the share of intermittent renewable energy sources. The country’s energy transition has been complicated by the war in Ukraine and the resulting disruption to gas supplies, which highlighted the vulnerability of relying on a single energy source.
The focus on hydrogen-ready gas plants is intended to prevent a “fossil fuel lock-in” and ensure that the new infrastructure aligns with Germany’s commitment to achieving carbon neutrality by . The government has allocated approximately 16 billion euros in subsidies from the Climate and Transformation Fund to support the transition over the next two decades.
Industry stakeholders have generally welcomed the plans, recognizing the need for reliable backup capacity to ensure supply security. However, environmental organizations have criticized the continued reliance on gas power, arguing that it undermines Germany’s climate goals. The debate underscores the complex trade-offs involved in balancing energy security, affordability, and environmental sustainability.
The German approach is being closely watched by other European countries facing similar challenges in their energy transitions. The success of the Kraftwerksstrategie and the capacity market will likely influence energy policy decisions across the continent, as nations seek to navigate the transition to a cleaner, more secure energy future. The move also signals a broader shift in thinking about energy markets, recognizing the value of firm capacity alongside energy production, and paving the way for a more resilient and flexible grid.
