Analysis: Germany's backup gas-fired power plants will need €60 billion in support

Ensuring the construction of backup gas-fired power plants in Germany will require additional revenues of €60 billion beyond the wholesale electricity market, according to an analysis by the Institute of Energy Economics at the University of Cologne (EWI). The news was reported by international outlet Clean Energy Wire, citing German newspaper Handelsblatt.

The planned construction of up to 25 GW of backup gas-fired power plants, which will be needed in Germany in the future to ensure security of electricity supply during periods when solar and wind power plants do not provide sufficient electricity generation, will require significant revenues beyond the wholesale electricity market.

According to EWI, this would amount to around 60 billion euros, equivalent to 120 000 euros/MW/year, assuming a capacity contract term of 20 years.

This figure is almost twice the unit costs of capacity mechanisms that Germany has incurred in recent years according to last year's report by the Agency for the Cooperation of Energy Regulators (ACER). It is also around 50% higher than the prices achieved in capacity auctions held in Poland (87 000 euros/MW/year) and Italy (70 000 euros/MW/year) in 2022.

Total costs relative to electricity consumption in a given country are also a commonly used indicator for assessing the cost of capacity mechanisms. In this case, the planned measure, with expected costs of around 3 billion euros a year and electricity consumption in Germany of around 500 TWh/year, would add 6 EUR/MWh to the final electricity price. For comparison, the wholesale electricity price for the German market for 2025 is currently trading at just under 95 EUR/MWh.

Pressure to replace natural gas with hydrogen

The relatively high expected costs of the planned support in Germany may be due, among other things, to requirements to limit the use of natural gas in supported backup plants. According to information published last August, Germany is preparing three support schemes in total, with only the first, covering 15 GW, intended for natural gas-fired power plants. However, these plants will have to be converted to hydrogen by 2035.

The second measure is expected to include auctions for a total of 4.4 GW of hydrogen-fired power plants in regions where this fuel is expected to become available soon. The final 4.4 GW is expected to be allocated to auctions for projects combining renewable electricity generation, green hydrogen production, hydrogen storage and its subsequent combustion to generate electricity.