Germany Bets Big on Natural Gas to Keep the Lights On
Gas-fired projects secured all 5.16 gigawatts (GW) of derated capacity in Germany's first capacity auction, with more than half going to developments at existing coal sites. The results show how the search for dependable backup power is giving established generators an advantage, while batteries missed out entirely. Derated capacity is adjusted to reflect each project's expected contribution to…
Germany is relying heavily on natural gas to maintain electricity supply, as indicated by the distribution of capacity awarded in the country's inaugural auction for renewable energy backup projects. A total of 5.16 gigawatts (GW) of derated capacity was secured, with over half of it going to existing coal facilities that are being repurposed. This outcome reflects the priority given to dependable backup power, while battery storage did not fare as well.
The auction's focus on derated capacity, which accounts for each project's contribution to security of supply, highlights Germany's need for reliable backup during extended periods of low wind and solar output, termed 'Dunkelflaute'. As coal generation declines and renewable capacity increases, the country requires reliable backup power for periods when renewables are less effective.
Existing power sites, particularly those operated by LEAG and RWE, enjoyed a significant advantage in the auction, securing more than 99% of the awarded capacity. For established power plant operators, existing infrastructure can reduce investment costs and development timelines. However, the specific requirements of the auction, including a minimum 80% capacity availability for 10 consecutive hours, favored gas generation and made it challenging for battery storage to compete economically.
Despite the auction's result, bids totaled almost 12 GW, exceeding the 4.5 GW procurement target, and the volume-weighted average award price was around 155,000 per derated megawatt per year. This price, although lower than regulatory ceilings, remains substantial in comparison to recent European capacity auction benchmarks. The upcoming auctions will depend on their duration requirements and contract terms, with more favorable conditions potentially benefiting battery storage and other flexibility sources.
For hydrogen suppliers, the auction creates potential future market opportunities, but the economics of transitioning to hydrogen are still unclear.
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