Germany: Without backup gas-fired capacity, the market will face price shocks

Ensuring sufficient generation capacity for periods of low electricity production from renewable sources has long been an issue for Germany’s energy sector. Backup gas-fired power plants are expected to be one piece of the solution, but the original plans have so far fallen through along with the previous government. According to some experts, Germany will continue to face the need to import electricity and high price volatility on short-term electricity markets.

With the decline in available generation capacity, particularly coal-fired power plants, volatility in energy markets has increased in recent years. During periods of high renewable generation, electricity prices fall to zero or into negative territory; otherwise, they can soar to thousands of euros per MWh. Last year was a record year for negative electricity prices. Several periods during last winter and this winter have also seen low wind power generation push prices sharply higher.

One example was early December last year, when Germany had to according to Clean Energy Wire bring a large number of fossil-fuel power plants online. At the time, electricity prices on German short-term markets climbed to almost one thousand euros per MWh.

“Price spikes and growing dependence on electricity imports are an inevitable consequence of the gradual shortage of available generation capacity. The secured capacity of power plants available on the market fell by more than 13 gigawatts by the end of 2024 compared with the end of 2022,” Christof Bauer, professor of energy economics at the Technical University of Darmstadt, told Handelsblatt.

To ensure sufficient capacity during periods of low renewable generation, known as Dunkelflaute, Germany planned to build several gas-fired power plants that would be capable of burning hydrogen in the future. The first auctions were due to take place in the first half of this year, with the plants expected to begin operating by the end of the decade. However, following the collapse of the German government last year and the recent snap election, the current situation and timeline remain highly uncertain.

“Price spikes during periods of low renewable generation are a sign of systemic failure. Until they are reliably eliminated, we should explore every option to minimize them,” Matthias Belitz, an energy expert at the German Chemical Industry Association, said, according to the publication.