OpinionPower plant strategy

The trimmed version

The German government's power plant strategy is more favourable than expected. However, it by no means offers planning security for investors.

The trimmed version

The pressure from the industry had recently become so great that the German government had almost no choice but to finally put a plan for a long-term power plant strategy on the table. The internal coalition agreement presented by the three governing parties on Monday now provides for a cost-effective, slimmed-down version of this strategy, although a number of questions remain unanswered. And this applies not only to the resulting date for phasing out coal-fired power generation in Germany.

The electricity and gas industry had estimated the volume of power plants required to secure the energy transition in the long term at 25 gigawatts (GW). The industry had been working with even higher figures. The result was initially a tender for new capacities of 10 GW. The green-led Ministry of Economic Affairs made significant cutbacks to its previous plans – which, of course, also reduced the costs. Previous industry estimates of 40 billion euros upwards by 2030 for the necessary funding have thus been reduced to just 16 billion euros, spread over a much more extended period. Another factor contributing to this efficient solution is that pure hydrogen power plants have been cancelled in favour of much cheaper gas-fired units that can be converted to hydrogen at a later date. In addition, plans to dogmatically rely only on "green" hydrogen produced using renewable energies have been cancelled. Of course, this also has a favourable price effect.

Speed is of the essence

However, the agreement to date is far from providing planning certainty for investors. In addition to location issues, the electricity market design, in particular, is still outstanding. The traffic light system still wants to agree on a capacity mechanism by the summer, which will determine how power plant operators are remunerated. And this will probably also have to pass an intensive state aid examination by the EU competition authorities. If the tenders for the 15 to 20 new gas-fired power plants that are now being discussed are actually to take place this year, speed is of the essence. Whether the additional capacity will be sufficient to guarantee the security of supply in the long term in the age of solar and wind is another matter. The government refers to a monitoring report by the Federal Network Agency, according to which security of supply is guaranteed until the end of the decade, even without nuclear and coal-fired power. However, some experts question this analysis as being too optimistic.