New Policy Paper | Shaping the German power plant strategy

German power plant strategy needs adjustment

On February 5th, the governing German coalition announced key points of its future power plant strategy (“Kraftwerksstrategie”). The strategy addresses how to increase the flexible generating capacity in Germany needed when wind, solar, water and other renewables do not generate enough to meet the electricity demand due to weather conditions (low solar and wind input). The key points are

  • the German government going out to tender for construction of four new natural gas power plants at a capacity of 2.5 GW each. These power plants are then to be converted to green hydrogen fuel in the timeframe 2035-2040.
  • establishing a “market based, technology-neutral capacity mechanism” for buil­ding further flexible capacity, which is to be designed by summer 2024.

Germany needs flexible, CO2-free power capacity to offset variability in wind and solar power generation. But to first build large new natural gas plants and then convert them to green hydrogen is economically and ecologically the wrong path. It

  • is the most expensive option. Much cheaper, faster and more reliable options include directly converting the existing natural gas plants to green hydrogen fuel (35 GW capacity), converting the existing biogas power plants from baseload to flexible load operation (12-24 GW capacity) and expanding the use of electricity storage for short term flexible load (currently 1-2 GW).
  • extends fossil fuel burning and adds to global warming without compelling reason.

Pursuing this path serves the fossil fuel industry, large utilities and large power plant suppliers. It does not serve German citizens, businesses or climate goals.

That is why the design of flexible capacity procurement should be changed to

  • require the power plants to be CO2-free from the start and
  • allow proposals from power plants of all sizes (not only 2.5 GW and more) and fuel stocks (not only green hydrogen) and from power storage operators

in these coming months and before a tender is put out.

Regarding the “capacity mechanism” details were not provided in the press statement and may yet need to be defined. It is the EWG-position that this should include:

  • differentiating electricity prices by time in order to shift demand towards peaks and away from lulls in wind and solar power generation – thereby narrowing gaps between renewable power supply and demand
  • procuring flexible capacity for the remaining gaps in long-term contracts via the mechanisms fixed prices or utility tenders for capacity. These should allow all types of power capacity (e.g. green hydrogen, biogas, geothermal, battery and other storage) and providers (from large to fairly small including citizens’ energy cooperatives) to compete.

In Germany, the mechanisms exchange (“Strombörse”) and state tenders have proven less than effective in terms of best price for electricity customer and of quickly growing supply of renewable power.

The Energy Watch Group has developed a briefing on these key points, including recommendations on tender and mechanism design in the coming months.