The European Commission has approved a capacity mechanism for Germany, available from 2031, with between €15.6 billion and €35.2 billion ($56.83 billion).
The measure aims to ensure sufficient capacity to produce, store, or flexibly consume electricity so that electricity production can consistently meet expected demand.
Capacity mechanisms can play a key role ensuring security of supply as part of the transition to a decarbonised electricity system, and the measure includes requirements that will support climate neutrality by 2045 at the latest.
This capacity mechanism will be open to all technologies, existing and new capacity, and cross-border capacity.
Contracts will be signed for up to 15 years, and the capacities will be selected in competitive auctions for delivery starting in 2031. All of the supported capacity benefitting from 15-year contracts will be required to operate in a climate neutral way by 2045 at the latest. All new gas-fired power plants bidding for a 15-year capacity contract must be hydrogen-ready, so they can switch in due course.
The first auctions will be organised in 2026 and in 2027, if undersubscription occurs. These will be reserved for additional long-term capacity, based in Germany.
Subsequent auctions, organised in 2027 and 2029, will be open to all technologies, alongside existing and additional capacities.
According to the European Commission, the measure is estimated to cost between €1 billion and €3 billion for 2031, subject to auction results. From 2032 through 2045, annual costs are estimated to range between €900,000 and €2.3 billion.
Future capacity mechanism and decarbonisation tenders
In parallel with the measure, Germany also introduced a structural capacity mechanism in 2027. This new measure is planned to extensively address the nation’s security of supply concerns from 2032 onwards and will be covered by a separate budget.
The commission says this future capacity mechanism is outside the scope of the European Commission’s approval decision but is still considered an important part of the package for delivering investor certainty needed for security of supply.
Decarbonisation tenders for the switch of 2 gigawatts of capacity from gas to hydrogen by 2040 will be carried out by the end of 2027. Tenders for the switch of a further 2 gigawatts of capacity by 2043 will be carried out between 2032 and 2035.
According to the International Energy Agency (IEA), Germany aims to reach net zero emissions by 2045. To achieve this goal, 80% of all electricity supply will need to come from renewable energy sources by 2030 and 100% by 2035, while coal is to be completely phased out.
Write to Aaliyah Rogan at Mining.com.au
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