Key Points:
- Germany’s governing coalition agreed to raise the maximum permissible bid for gas power station tenders from €173,000 to €244,000.
- The sweetened terms aim to encourage investment and secure 12 gigawatts of backup power capacity to support the nation’s coal phase-out.
- The initial tenders, covering 9 gigawatts of long-duration, hydrogen-ready capacity, are scheduled for September and December 2026.
- While the energy industry welcomed the pro-investor reforms, environmentalists criticized the plans for expanding natural gas dependence and costs.
Germany’s governing coalition has agreed on a sweeping set of pro-investor reforms designed to stimulate massive private investment in the nation’s backup power sector. The legislative draft, scheduled for parliamentary review on Thursday, aims to accelerate the construction of modern gas-fired power stations. To attract hesitant utility developers amidst rising raw material and capital costs, the government plans to significantly raise the maximum permissible subsidy payments. This strategic intervention represents a critical defensive move to secure the nation’s electricity grid as Europe’s largest economy phases out its remaining coal-fired power plants.
The focal point of the new legislative package is a substantial sweetening of the financial terms for upcoming utility tenders. The ruling coalition, led by Chancellor Friedrich Merz’s conservatives alongside their Social Democrat partners, plans to raise the maximum permissible bid for these capacity tenders. The cap will climb from the previously planned €173,000 ($197,687) per megawatt per year to a much more attractive €244,000 per megawatt per year. This 41% increase in guaranteed state support aims to assure private developers that their long-term infrastructure investments will remain economically viable even if the plants only run occasionally as backup reserves.
The sweetened bid cap is designed to support the government’s ambitious plan to tender a total of 12 gigawatts of new-build dispatchable power capacity over the coming years. The rollout will begin with two massive, consecutive auctions scheduled for September 8 and December 22, 2026. These initial rounds will procure 9 gigawatts of long-term, hydrogen-ready gas capacity capable of supplying electricity continuously over extended periods. This long-duration capability is essential to guarantee grid reliability during prolonged periods of low wind and solar output, a weather phenomenon locally known as the “dark doldrums.”
To align with the nation’s environmental commitments, any subsidized gas plants built under this program must meet strict sustainability criteria. All successful bidders must construct facilities that are hydrogen-ready, meaning the hardware must be designed to easily transition to burning 100% clean hydrogen with minimal component modifications. The legislation dictates that these modern plants must run for at least 15 years and must become entirely climate-neutral by 2045 at the latest. By promoting hydrogen-ready gas technology, the government aims to build a flexible bridge from fossil fuels to zero-emission energy.
Beyond sweetening the financial subsidies, the draft law also introduces a series of investor-friendly changes to existing operating rules. Specifically, the coalition plans to modify a controversial requirement that mandated all long-duration backup plants to deliver at least 10 consecutive hours of uninterrupted power supply. Industry groups argued that this rigid 10-hour rule created an unnecessary barrier to entry for smaller, decentralized energy storage operators and municipal utilities. The updated reforms will ease this restriction, offering developers greater operational flexibility to structure their facilities and bid more competitively.
To prevent regional grid bottlenecks and ensure balanced energy distribution across the country, the expansion will follow a strict regional management split. The draft law mandates that one-third of the total tender volume must be developed in northern Germany, while the remaining two-thirds must be constructed in the energy-hungry industrial south. This regional division is necessary because the wind-rich north frequently lacks the transmission line capacity to send electricity to southern manufacturing hubs, making local, dispatchable gas plants in the south critical for overall system stability.
The BDEW energy industry association strongly welcomed the sweetened bidding terms, noting that the higher price caps are essential to unlock private sector capital. Managing Director Kerstin Andreae stated that the higher limits finally ensure the economic viability of modern gas-fired power stations, especially given the steep inflation affecting construction materials, labor, and financing over the past two years. The industry group urged parliament to pass the measures before its upcoming summer recess and secure rapid approval from the European Commission so that the first tenders can proceed on schedule in September.
While utilities and industry groups celebrated the reforms, the environmentalist Greens launched a fierce critique of the coalition’s plans. Energy policy spokesman Michael Kellner accused the government of letting the costs of gas power stations explode at the expense of taxpayers. Environmental advocates argue that raising the price caps and easing operating rules perpetuates Germany’s dependence on natural gas rather than accelerating the deployment of grid-scale battery storage and renewable energy. The sharp political divide highlights the ongoing tension between meeting immediate energy security needs and pursuing long-term decarbonization targets.
Ultimately, the success of this upgraded capacity mechanism will determine whether Germany can safely exit coal by its target date. After retiring its last nuclear power plants three years ago, the nation cannot afford to lose its remaining firm capacity without reliable, dispatchable backups. Following the initial 9-gigawatt auctions this year, the government plans to tender another 2 gigawatts of capacity on May 18, 2027, which will be open to battery storage technologies. By integrating these subsidized plants into a new, comprehensive capacity market, Berlin hopes to build a stable, green, and highly resilient energy grid for the next decade.
