Germany to tender for 10 GW of gas-fired power plants and introduce a capacity market

Germany plans to launch a tender for the construction of up to 10 GW of gas-fired power plants that are intended to use hydrogen at a later date. The country also plans to introduce a capacity market from 2028. This follows from the government’s new power plant strategy, key elements of which were agreed by German Chancellor Olaf Scholz, Economy Minister Robert Habeck and Finance Minister Christian Lindner.

The new strategy, approved after several months of debate, scales back the plans in the coalition’s consultation paper from last summer, which called for tenders for 15 GW of gas-fired power plants and 8.8 GW of hydrogen-fired power plants. The aim was to enable Germany to phase out coal-fired power plants by 2030 rather than 2038, a key goal of the 2021 coalition agreement.

Four tenders are to be organised in the near term for hydrogen-ready gas-fired power plants with a combined installed capacity of 2.5 GW. The aim is to hold the first tender this year, a ministry spokesperson told S&P Global Commodity Insights.

The new power plants will have to switch to hydrogen between 2035 and 2040, with the exact date to be set in 2032, the ministry added. The plants must be located in areas suitable in terms of bottlenecks in the transmission grid.

Support for the power plants will be funded from the Climate and Transformation Fund (KTF), which had approximately 60 billion euros frozen in November 2023 following a court ruling that required the power plant strategy to be reviewed.

In addition, coalition leaders agreed on plans for a new capacity market from 2028, with a final political agreement to be reached this summer. Newly built gas-fired power plants will then be incorporated into the new capacity market framework.

Replacing retiring power plants

Germany will retire approximately 10 GW of coal-fired power plants this year alone, after emergency regulations during the 2022 gas supply crisis allowed reserve units to return to the market and postponed closure dates for hard coal units that were awarded compensation for shutting down in tenders.

Of the remaining 50 GW of installed gas- and coal-fired capacity, an average of approximately 6.6 GW is expected to be available in 2028 as retirements continue, analysts at S&P Global Commodity Insights expect.

Germany’s renewable energy target, by contrast, is to reach 360 GW of installed wind and solar capacity by 2030. This will require dispatchable resources for periods when the wind is not blowing and the sun is not shining, as well as measures to stabilise the transmission grid.