Business and consumer groups speak out against Germany's gas power plant strategy

The German government’s strategy for securing future electricity supply with new gas-fired power plants carries significant economic, regulatory, and environmental risks, according to a report commissioned by the European Energy Exchange (EEX) and several business associations. Current plans involving a so-called capacity market, where power plant operators are paid for keeping generation capacity in reserve, are “neither necessary nor suitable” to secure supply, the report says.   

The government plans to hold two rounds of auctions for gas-fired power plants this year, which are meant to serve as a backup for intermittent renewable energy sources as the country phases out coal. The plants would eventually be integrated into a new capacity market. Environmentalists and renewable energy associations have said the plans are oversized, neglect other options such as batteries for improving supply security, and risk prolonging Germany’s fossil fuel dependence. The report underlines that the plans are also viewed with great scepticism by more mainstream business groups such as the German Chamber of Industry and Commerce (DIHK), one of the groups that commissioned it.

“Government technology control increases price risks due to geopolitical events, stifles innovation in the electricity market, and makes it more difficult for companies to achieve climate neutrality,” the DIHK’s energy expert Sebastian Bolay said. “Ultimately, this leads to further cost increases for companies and exacerbates the competitive disadvantages for Germany as a business location.” 

The report is particularly critical of plans to establish a capacity market as this entails “significant economic, regulatory, and environmental risks”. It said the financial support planned by the government does not meet European rules, because supply security can be achieved more effectively and efficiently by strengthening the market through a mandatory hedging requirement. 

This would force electricity suppliers to “insure” sales volumes over the long term using futures markets or their own generation, comparable to mandatory car insurance, EEX said. “A hedging obligation can set off a positive chain reaction: it strengthens the electricity market, dampens price spikes, and leads to lower electricity prices,” EEX CEO Peter Reitz said.

The Federation of German Consumer Organisations, which supported the report’s findings, said households already pay some of the highest electricity prices in Europe and that the government plans would increase electricity prices. “Instead of centralised capacity targets, incentives are needed to encourage the flexible use of electric vehicles, heat pumps, and storage systems,” said the group’s head Ramona Pop.