Germany to Seek Investors for New Gas Power Plants by 2025

(Bloomberg) -- Germany will begin lining up investors for a massive expansion of gas-fired power plants by early next year, marking a first step in its much-debated strategy for guaranteeing the nation’s electricity supplies. 

By early 2025, five gigawatts of new plant capacity — which should later be converted to run on hydrogen — will be auctioned, the economy ministry said Friday after weeks of protracted budget talks concluded. The plan had been cut back and delayed several times, with the capacity covering only a small part of what’s needed for the nation to phase out coal by the end of the decade.

The ministry said another five gigawatts will be tendered as part of a new capacity mechanism, expected to be ready by 2028. The government also plans to revamp its green power subsidies — switching support to investment costs instead of guaranteeing a minimum price for each kilowatt-hour generated — and wants to test this on a small scale first.

Germany is rapidly expanding its renewable energy sources, but exited nuclear power last year. The government wants to subsidize the expansion of gas-fired plants to underpin the grid when wind and solar supplies ebb.

The plan involves gradually converting the gas facilities to run on even cleaner hydrogen, but the high costs would require billions of euros in subsidies, which must be approved by the European Union. Germany’s economy ministry said the European Commission has given the plan a first green light, but a final state aid decision is still pending.

During the tenders, awards will go to bidders requesting the lowest subsidies. The government will also provide auctions for two gigawatts of capacity from existing gas plants to be prepared for hydrogen conversion, as well as 500 megawatts each for long-term storage systems and pure hydrogen plants, covering a total of 13 gigawatts of capacity including storage.

However, the nation’s regulator in January last year estimated that as much as 21 gigawatts of gas-powered capacity would be required to meet demand by 2030, and Economy Minister Robert Habeck a month later announced plans to prepare tenders for more than 25 gigawatts. To bridge the gap, the ministry said it will present options for a capacity mechanism soon, and discuss them with experts and the Commission.

Large energy companies have already expressed interest in constructing such plants, including RWE AG, Uniper SE, EnBW Energie Baden-Württemberg and Lausitz Energie Kraftwerke AG.

Investment Security

The gas facilities are “a key prerequisite for the coal phase-out,” said Kerstin Andreae, chairwoman of the BDEW energy association, urging the ministry to prepare the auctions quickly. “Companies need investment security for this,” she said.

“Ultimately there must be a business case for investment decisions,” LEAG Chief Executive Officer Thorsten Kramer told Bloomberg. One issue is that “to date, there is no fully hydrogen-capable turbine on the entire market in the size of 300-600 megawatts that we need.”

As it’s also unclear where the hydrogen for the plants will be sourced, the government’s push “must not become an economic stimulus program for fossil gas-fired power plants,” said Sascha Müller-Kraenner, chairman of Environmental Action Germany.

(Updates with more details, reaction throughout, and green power plan.)

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