Germany to hold first auctions for hydrogen-ready gas power plants

The German government approved its power plant strategy last week as part of an economic growth package. This implements an agreement reached with coalition leaders in February this year and coordinated with the European Commission. Germany will hold auctions for a total of 12.5 GW of power plant capacity and 500 MW of storage facilities.

The tenders will take place in two separate rounds. According to the Federal Ministry for Economic Affairs and Climate Action (BMWK), the first round is due to take place at the end of this year or the beginning of next year.

The first round will auction support for 5 GW of new hydrogen-ready gas-fired power plants and 2 GW of upgrades to existing plants. These facilities must switch to operating on green or blue hydrogen from the eighth year after commissioning or modernization. In addition, tenders will be held for 500 MW of power plant capacity running exclusively on clean hydrogen and 500 MW of long-duration energy storage facilities.

The second round will see tenders for a further 5 GW of new gas-fired power plants, which the ministry says are intended to help ensure security of supply, particularly when solar and wind power plants are not generating electricity. The plants are to be built primarily in southern Germany to reduce redispatch costs and contribute to grid stability.

“These power plants represent a kind of ‘bridge’ to a comprehensive, technology-neutral capacity mechanism, which is to be in place from 2028,” the German Federal Ministry for Economic Affairs and Climate Action (BMWK) said.

The government said the agreement on launching the tenders was coordinated with the European Commission, which still needs to give its final approval under state aid guidelines. Germany’s energy industry had been eagerly awaiting the strategy and warned that further delays could jeopardize the goal of gradually phasing out coal by 2030. However, the legally mandated deadline for ending coal-fired power generation remains 2038.

“Now that we have given a boost to expanding renewable energy and the grid, both electricity and hydrogen, the Power Plant Security Act will give us a triple boost in the area of power plants. First, it will accelerate the decarbonization of the power plant fleet, because we have approved a specific path for some plants to transition to hydrogen; second, it will support the development of new technologies for hydrogen power plants; and third, expanding new power plants will ensure a gradual phase-out of coal,” said Robert Habeck, Germany’s Federal Minister for Economic Affairs and Climate Action.

Reactions are overwhelmingly positive

The German Energy and Water Industries Association (BDEW) said the long-awaited strategy must now be consulted on and implemented as quickly as possible. According to BDEW, the expansion and operation of new hydrogen power plants are key prerequisites for a gradual phase-out of coal. Businesses need investment certainty to make this happen.

“The details of the tenders must be designed so that power plants capable of using hydrogen can be built as quickly as possible,”BDEW wrote in a press release.

The environmental group DUH also welcomed the strategy, but warned that it should not become an “economic stimulus program for power plants burning fossil gas” through the use of blue hydrogen, which is produced from natural gas in combination with carbon capture and storage processes such as CCS.

Capacity mechanism

The BMWK also said it would shortly present a document outlining options for possible capacity mechanism solutions, together with their main advantages and disadvantages.

The document will then be subject to consultation, after which the German government will make a decision on this basis, develop the corresponding capacity mechanism and discuss it with the European Commission. The capacity mechanism is expected to be operational by 2028.