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Agreement with European Commission on key aspects of the power plant strategy

In mid-January, the European Commission and the Federal Ministry for Economic Affairs and Energy (BMWE) reached an agreement in principle on key aspects of the power plant strategy. These form the framework for ensuring electricity supply in Germany in line with European requirements. A brief overview of the most important points.

In a first step, new plants with a capacity of twelve gigawatts may be auctioned before the end of this year on the basis of the agreed key aspects of the power plant strategy. The aim is to ensure security of supply when less renewables-based electricity is available than needed, e.g. during so-called Dunkelflauten (i.e. when the sun is not shining and the wind is not blowing). Through several rounds of auctions, the power plant strategy addresses the full requirement for controllable capacities in 2031 to ensure Germany's security of electricity supply at its usual high level.

In the first round of auctions, which will take place in 2026, ten gigawatts have been reserved for new capacities that can generate electricity for a longer period at a time. Examples of such facilities are modern and highly efficient gas-fired power plants. Further rounds are planned for 2027 and 2029 for controllable capacities that need to be ready by 2031. In addition, the agreement covers a comprehensive strategy for the technology-neutral expansion of controllable capacities. This also includes the introduction of a comprehensive capacity market in the course of 2027, which is intended to ensure from 2032 that there are sufficient controllable capacities in the system.

^{New power plants must already be hydrogen-ready}

All newly built power plants must already be hydrogen-ready – i.e. ready for operation on the basis of green hydrogen. By 2045, they are to operate entirely without fossil fuels.

In order to further decarbonise the power plant fleet in a targeted way, additional measures are to incentivise an early conversion to hydrogen, so that two gigawatts of power plant capacity can be converted to hydrogen by 2040 and another two gigawatts by 2043. For this purpose, the Federal Government intends to create a legal framework that will also enable auctions for early decarbonisation from 2027 onwards. This will essentially provide for contracts of difference for the additional fuel costs associated with early conversion to hydrogen.

The power plant strategy thus contributes to securing the security of electricity supply in Germany and at the same time to attaining the target of climate neutrality by 2045. It also helps ensure the statutory coal phase-out by 2038.

^{Comprehensive, technology-neutral capacity market from 2027}

Federal Minister Katherina Reiche said: “The agreement on the power plant strategy is a key step for ensuring supply security in Germany. The good and constructive talks with the European Commission have paved the way for it. The short-term calls for tenders covering twelve gigawatts of new, additional controllable capacities create the basis for secure electricity supply in Germany and thus for the competitiveness of our industry. This is also the starting point for a comprehensive, technology-neutral capacity market, with which we will incentivise the construction of additional power plants and other flexible capacities. We are thus ensuring both security of supply and the achievement of our climate targets.”

The agreement in principle between the Federal Ministry for Economic Affairs and Energy and the European Commission does not yet bring the State aid procedure to a close. Following the submission of the respective draft act, the power plant strategy remains to be approved for State aid by the European Commission. The details of the capacity market are also still being discussed.