Capacity market debate resurfaces as Germany may need gas to replace coal

The planned exit from coal-fired power generation in Germany may require large-scale construction of gas-fired power plants, but the necessary investments in the technology still remain wanting, Klaus Stratmann writes in the Handelsblatt. “The industry assumes that the required investments are not going to happen,” Stratmann says, adding that uncertainty over the gas plants’ profitability due to the parallel increase in renewable energy capacity is holding potential investors back. “Investments could possibly be stimulated if it was possible to make money by keeping plants in stand-by mode” in a capacity market and not only by providing electricity under the so-called “energy-only market” scheme, where plants might only run a few days every year. According to Felix Matthes of research institution Öko-Institut, “we will need certainty by 2022 at the latest on which projects can be implemented without a capacity market.”

In its final report on a way out of coal-fired power production, the German coal exit commission said that a “systematic investment framework” is needed to ensure that sufficient gas capacity is built up in time to compensate for the loss in coal capacity, and according to Germany’s grid agency BNetzA, the country will need 9.4 gigawatts (GW) of gas plant capacity by 2030. Germany decided against introducing a capacity market in 2015, betting on the so called energy only market. Utility operators had pushed for a capacity market, warning that the prices set on the wholesale markt for electricity did not provide enough incentives for investment in necessary flexible conventional capacity. In 2017, RWE head Rolf Martin Schmitz said a German capacity market would cost about two billion euros per year.