EU state aid rules hurdle for German plans for state support to build new gas power plants

The European Commission (EC) has concerns over Germany’s economy ministry plans to create incentives for the construction of new gas-fired power plants with a combined capacity of about 25 gigawatt (GW). The concerns are significant enough that they could prevent the EC from giving the plans permission based on EU state aid rules, reported business daily Handelsblatt. Internal documents seen by Handelsblatt show that the Commission says that German plans must comply with the European rules for capacity mechanisms, where operators are paid to be ready to produce electricity when needed, not only for every kilowatt hour they produce. Accordingly, the government must precisely assess how big the electricity needs are, which will be put out to tender. There is also a need for a fundamental reform of the electricity market design as well as the opening of tendering for all eligible technologies, across borders, writes the newspaper. This clashed with the German government’s wish for “a fast and uncomplicated solution,” writes Handelsblatt. The economy ministry said it was in intensive talks with the Commission. These are “constructive at all levels”.

The government aims to have about 25 gigawatt of controllable power production capacity built to ensure supply security as Germany moves away from coal. Much of this would be via gas-fired power plants. However, potential operators are concerned that they will not be able to recoup their investment if their power plant only runs for a few hours a year. To incentivise the construction, the government aims to supply support through an auction system. News service Tagesspiegel Background had recently also reported that the scheme could be delayed due to the talks with the European Commission and the national legislative process. The strategy is a key element for Germany’s planned earlier coal exit. Once the government cabinet decides on the strategy and legislative proposals by the economy ministry, these will then have to be debated and decided in parliament.