Progress for Germany's green power plant strategy

The German government has reached consensus on a power plant strategy that will see subsidies provided for gas power plants that can switch to hydrogen.

The agreement was confirmed by Federal Chancellor Olaf Scholz, Economics Minister Robert Habeck and Finance Minister Christian Lindner and aims to ensure security of supply with the phase out of coal and simultaneously boost decarbonisation efforts.

The strategy will initiate a tender process for 10GW of new power plant capacity in the near future, although the exact date is not stipulated in the release. The power plants must be hydrogen-ready with a complete switch to hydrogen taking place by 2040.

The tenders are designed to allow full integration of the new power plants into the future market-based, technology-neutral capacity mechanism, which should be operational by 2028 at the latest.

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As part of the strategy, the government will subsidise power plants running exclusively on hydrogen up to 500MW for research purposes and remove regulatory and economic obstacles to the construction and operation of electrolysers.

More specifically, double tax and fee burdens will be removed on electricity storage and electrolysers to further incentivise the production of hydrogen.

The German energy association BDEW commented on the announcement, praising the strategy but stating there is now an urgent need for clarity for investors. Kerstin Andreae, chairwoman of the BDEW Executive Board stated: "The financing issue must be clarified as quickly as the state aid security and the location issue. In addition, the specific tender periods for the power plants are still unclear today.

"According to today's agreement, a capacity mechanism should be ready for launch in 2028. When an exit from coal-fired power generation will be possible will also depend on the interaction between the tenders as part of the power plant strategy and the planned and necessary capacity mechanism."

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Germany’s power plant strategy has experienced delays due to budget constraints.

This resulted from a decision by the Federal Constitutional Court in November 2023 that plans to transfer $65 billion from unused emergency COVID fund to Germany’s new Energy and Climate Fund was unconstitutional.

In terms of next steps, the agreement will be discussed with the EU Commission in Brussels and then shared with the public for consultation.