Germany Plans Initial 12.5 GW of Gas Power Plants to Bolster Energy Transition

Germany Unveils Power Plant Strategy

Germany has announced plans to construct an initial capacity of 12.5 gigawatts (GW) of gas-fired power plants. This move is a key component of the country's 'Power Plant Strategy' (Kraftwerksstrategie), aimed at ensuring energy security and supporting the transition to a climate-neutral electricity system. The plants are designed to be 'hydrogen-ready,' allowing for future conversion to run on hydrogen, though this conversion is not immediately required.

The German government, including Federal Chancellor Olaf Scholz, Economic Affairs Minister Robert Habeck, and Finance Minister Christian Lindner, agreed on the core elements of this strategy on February 5, 2024. The initiative seeks to provide reliable backup capacity for intermittent renewable energy sources like wind and solar, especially during periods of low generation, often referred to as 'dark lulls.' This capacity is essential as Germany phases out coal-fired power plants, with a goal to achieve at least 80% renewable energy in electricity generation by 2030 and a largely climate-neutral electricity system by 2035.

Hydrogen Readiness and Future Conversion Timeline

A central aspect of the new power plants is their 'hydrogen-ready' design, meaning they can be converted to operate on hydrogen in the future. The current plan does not impose an immediate requirement for this conversion. Instead, a specific date for the full conversion to hydrogen operation is expected to be set in 2032, with the actual switch projected to occur between 2035 and 2040. This phased approach acknowledges that sufficient quantities of hydrogen may not be available by 2030.

The 12.5 GW capacity includes several components:

• Two tenders for new hydrogen-ready gas power plants, each for 5 GW capacity.
• 2 GW for retrofitting existing gas power plants to enable hydrogen use.
• 0.5 GW for fully hydrogen-powered plants.

Tenders, Subsidies, and EU Approval

The first tenders for these new power plants are anticipated to be launched by the end of 2024 or early 2025. Germany has secured informal approval from the European Union for state aid to subsidize the construction and operation of these facilities. The subsidy scheme, estimated at approximately €16 billion ($17 billion) over two decades, will be financed from the country's Climate and Transformation Fund. These subsidies are intended to cover investment costs and the difference in operating costs between hydrogen and natural gas for 800 full-load hours per year once the plants are converted to hydrogen.

The power plants are expected to be primarily located in southern Germany. This strategic placement aims to enhance grid stability and reduce redispatch costs, addressing regional energy demands. The overall strategy also includes the development of a capacity market, expected to be operational by 2028, to further incentivize maintaining power plant capacity.