Germany’s Looming Power Supply Gap Will Likely Be Filled by Gas

(Bloomberg) -- Germany’s plans to phase out coal and nuclear power will leave a large gap in supplies of electricity that’s likely to be filled by natural gas.

Germany will need to add about 18 gigawatts or 60% more gas-fired capacity to plug the hole left from shutting its six remaining nuclear reactors by the end of next year and plans to phase-out about half its coal and lignite fleet by 2030, according to report by consultant Enappsys Ltd.

New gas plants will be vital to provide backup to increasing amounts of solar and wind generation that will be needed to fill an ambitious climate target set earlier in May. The new stations won’t be running all the time and will have to vary output to match renewable generation which will cut profitability.

“The state might struggle to find the necessary investment for the expansion of the gas capacity,” Enappsys wrote in the report. “Such facilities will mostly generate income during the demand spikes where renewables fall short and in the balancing markets when opportunity arises.”

One solution is for Germany to introduce a capacity market where power producers are paid to keep their plants available. The chief executive officer of Germany’s biggest utility RWE AG, Rolf Martin Schmitz, said earlier this year that he thought it was inevitable that a capacity market would be introduced after the federal elections in September.

The tightening of supplies will push up power prices, according to Sabrina Kernbichler, European power analyst at S&P Global Platts.

“The continental market is becoming increasingly tight with capacity shutting,” she said. “Germany will become one of the premium-priced markets by 2026.”

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