Germany will face electricity supply security problems, government advisers say

The expected increase in electricity consumption and decline in the installed capacity of conventional power plants will pose a challenge to security of electricity supply in Germany in the coming years. The country's leading advisers on the energy transition said in their report. According to the advisers, the key obstacle is the phase-out of coal-fired power plants, while construction of gas-fired plants is lagging behind.

The outgoing coalition government did not pass legislation to introduce an incentive scheme for building new gas-fired power plants, which are needed to ensure electricity supplies during periods of low renewable energy generation.

Following the country's February elections, the bill must be resubmitted to parliament. Ongoing talks on the likely next coalition government, formed by the Christian Democratic Union (CDU/CSU) and the Social Democrats (SPD), could delay the process further.

An expert commission tasked with monitoring progress in Germany's energy transition said that addressing this issue is “one of the most urgent and time-critical areas of action” for the new government, even though electrification of sectors such as transport and heating is progressing more slowly than expected. In addition to short-term support for building new power plants through auctions, Germany will also need a capacity mechanism.

In its preliminary agreement, Germany's future government said it would seek to introduce incentives for building up to 20 GW of installed gas-fired power capacity by 2030. The likely next German chancellor, Friedrich Merz, has also explicitly said he will not close any old coal-fired power plants until alternatives are in place.

The experts' report is a brief update on the state of Germany's energy transition. Since the last comprehensive monitoring report in mid-2024, there has been modest progress in the areas of grids, energy prices and greenhouse gas emissions, although all three still lag behind the trajectory needed to meet the targets set.

According to the report, only renewable energy expansion is on track. The slow ramp-up of hydrogen-based generation remains the main shortcoming identified by the commission.

Report recommends splitting Germany's bidding zone

The report also recommends splitting the single German bidding zone, which its authors say currently leads to inefficient decisions about where to locate new power plants and their uneconomic operation. Splitting the zone would encourage the construction of new power plants where they are actually needed, as operators could expect higher revenues there, the authors said.

The move would also allow a more cost-effective geographical distribution of new gas-fired power plants or energy storage than under a single bidding zone. The report says that average electricity prices could in future be lower even in more expensive zones than under a single zone, because redispatch and grid expansion costs would be lower overall.

Germany could learn from other EU countries, such as Italy or the Scandinavian countries, which have introduced compensation for those disadvantaged by such a reform, the report says.

Another 200 GW of renewables by 2030

Germany has set a target of meeting 80% of gross electricity consumption with renewable electricity by 2030 and reaching 360 GW of installed capacity in wind and solar power plants by 2030. That would mean adding a further 200 GW compared with today. Growing electrification of sectors that still depend on other energy sources, particularly heating and transport, is also likely to increase overall electricity consumption in the coming years.

Alongside a growing number of renewable energy sources and as a replacement for coal-fired power plants being phased out, Germany needs power plants that can help bridge periods of low renewable energy generation. Energy companies are avoiding investment in these sources because new power plants are not viable without support, given their expected low utilisation.