Partner Hamburg
"The new government’s coalition agreement also acknowledges the need for additional CCGT capacity as a transition technology."
The technology of choice is Combined Cycle Gas Turbine (“CCG”) power plants, which provide for the necessary flexibility of production. Notably, they can be started-up quickly in case of expected grid instability). This was recognised already by the previous government, which developed the “power plant strategy” (“Kraftwerksstrategie”) which, however, was never implemented due to the sudden collapse of the former government in late 2024.
The new government’s coalition agreement also acknowledges the need for additional CCGT capacity as a transition technology. For investors interested in assuming a role in this new CCGT play in Germany, the coalition agreement provides some interesting first details:
- size of programme: per the coalition agreement, the intended mechanism is designed to incentivise the addition of up to 20 GW of CCGT capacity whilst at the same time emphasising that it is “technology-neutral”. This leaves room for interpretation as to whether the 20 GW is the target or whether some of the required capacity could potentially be absorbed by other asset classes, such as the booming BESS market;
- suitable project sites: additional CCGT capacity will be unlikely to come from pure greenfield developments. Rather, as per the coalition agreement, existing power plant sites will predominantly be used for new CCGT plants. This, combined with the geographic spread of large industrial power consumers nationwide, will likely result in the majority of the new CCGT plants being built in western and southern Germany by the incumbent (large) utilities in the region. However, depending on the exact details of the contemplated capacity market, investors seeking stable cash-flows might look to team-up with utilities wishing to outsource some of the capex required for the CCGT build-out;
- capacity market: the coalition agreement repeatedly makes reference to “capacity mechanism”, alluding to potential route-to-market solutions that were still being debating under the previous government. It is obvious that CCGT power plants that, by definition, will only be used during times of grid instability will need a specific support mechanism to be commercially viable. Under the former government two solutions were discussed – direct subsidies or the introduction of capacity markets allowing operators to compete in a tender process for revenues linked to keeping capacity available for production when needed. The new government arguably has resolved this point in favour of introducing a capacity market mechanism, the details of which are not described in the coalition agreement however;
- timing of phasing out of lignite: an important related topic is the timing of the expected phasing-out of lignite (“Kohleausstieg”). Whilst the previous government set a goal of completing this by 2030, the new government seems less ambitious and aiming for 2038. Though the coalition agreement still identifies 2030 as the goal for the new CCGT capacity, the deferral of the lignite phase-out will reduce the urgency of ramping up CCGT capacity; and
- hydrogen-ready: the former government emphasised in its “Kraftwerkstrategie” that new CCGT plants need to be “hydrogen ready” to benefit from the planned ramp-up of the green hydrogen economy and to ultimately be credited towards the overall decarbonisation targets. The coalition agreement, however, does not reference any such requirements but emphasises that new stand-by capacity should be sourced from “technology-neutral” tenders. It remains to be seen whether this results in a change of strategy with a view to the “hydrogen ready” requirement previously established.
Other elements outlined in the coalition agreement remain subject to detailed legislative proposals yet to come. The same is true for timing of a first series of tenders/auctions for said CCGT capacity, which the coalition agreement does not address.
Click here to view all articles in our series about the German federal government’s 2025 coalition agreement which offer a legal and practical assessment of selected topics from the coalition agreement.
