Germany Bets Big on Natural Gas to Keep the Lights On

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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…

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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 security of supply.

As coal generation is being phased out and renewable capacity expands, Germany needs reliable backup power during prolonged periods of low wind and solar output, known as Dunkelflaute. Capacity payments reward operators for keeping that supply available.

LEAG and RWE secured more than 99% of the awarded capacity. LEAG's success at its existing lignite sites highlights the potential value of reusing grid connections and other infrastructure. For developers, access to an established power plant site can help reduce investment costs and development timelines.

The first round required projects to deliver at least 80% of their installed capacity for 10 consecutive hours. That favored gas generation and made it difficult for batteries to compete economically. The result reflects the specific type of backup supply Germany sought in this auction.

Almost 12 GW of bids competed against a 4.5 GW procurement target. The volume-weighted average award price was about €155,000 per derated megawatt per year, 36% below the ceiling. Even so, it exceeded recent European capacity auction benchmarks. Germany is procuring new long-duration capacity with hydrogen-readiness requirements, which limits direct comparisons with markets that also support existing assets.

Later auctions could create more favorable conditions for batteries and other sources of flexibility, depending on their…

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