Germany passes law to subsidise new gas-fired power plants, auctions set to become pricier
Clean Energy Wire / Table Media
The German parliament has adopted a law to introduce state support for new gas-fired power plants intended as backup for renewables, aiming to secure electricity supply as the country phases out coal.
Lawmakers made several changes to the government cabinet draft, including raising the maximum subsidy level, which could lead to higher costs than initially expected, Table Media reported. Instead of the 173,000 euros per megawatt originally planned, up to 244,000 euros will now be paid.
The new gas plants are seen as crucial to enable Germany to phase out coal as planned. The country exits the most climate-damaging form of fossil fuel electricity generation and rapidly expands renewable energy as part of its efforts to build a climate-neutral society by 2045. To secure supply security, it aims to build up alternative generation capacity for use in time periods where intermittent wind and solar energy are insufficient to meet demand – so-called “controllable capacity”. Germany has decided that gas-fired units will play a major role during a transitional period, to later be converted to run on green hydrogen.
The energy sector largely welcomed the adoption of the law, with local utilities association VKU arguing that it lays the foundation for “the urgently needed expansion of reliable power station capacity” that will contribute to supply security.
The law now requires the approval of the European Commission under state aid rules. “This would lay a key foundation for a secure electricity supply in the future by backing renewable energies, which are at the heart of the electricity system,” said Kerstin Andreae, head of energy industry association BDEW.
Germany will initially hold two sets of auctions for new backup power plants with a combined capacity of 11 gigawatts (GW). Of these, the first tenders (8 September and at the end of December 2026), covering 9 GW, are aimed at so-called "long-term capacity", which is capable of supplying electricity continuously over an extended period, ensuring that even prolonged periods without sufficient renewable energy generation can be covered. It is likely that only gas-fired power plants will be successful in these auctions. Successful bidders receive remuneration for having electricity available once a facility is built, providing the financial incentive needed to invest in the first place.
NGOs criticised that battery storage projects would be excluded from the first rounds of auctions. “By focusing solely on fossil fuel-fired power stations, the German government is missing an opportunity to make Germany less dependent on fossil fuel imports and to reduce its vulnerability to price shocks caused by geopolitical crises as quickly as possible,” said Simon Schreck, policy officer at Germanwatch.
Schreck also criticised that the conversion of power plants to run on hydrogen should come much sooner than the law currently envisions. Under the law, plants must be "hydrogen-ready" – defined as being "designed and constructed in such a way that the capability to operate on 100 percent hydrogen can be achieved by modifying plant components or the operation of the power plant." All power plants subsidised under the law must be climate-neutral by 2045 at the latest.