Germany allocated 5.16 gigawatts (GW) of reduced capacity to gas-fired projects in its first capacity auction. More than half of this capacity has been dedicated to existing developments at coal sites. The results of this auction indicate that the search for reliable electricity supply favors established producers, while batteries were completely left out of this competition.
The Necessity of Power Support
The reduced capacity is specifically designed to reflect the expected contribution of each project to supply security. With the gradual phase-out of coal production and the expansion of renewable capacity, Germany needs a reliable backup source during prolonged periods of low wind and solar generation, referred to as "dunkelflaute." Capacity payments to operators reward them for keeping this supply available.
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Advantage of Existing Sites
In this auction, companies LEAG and RWE secured over 99 percent of the allocated capacity. LEAG's success at its existing lignite sites demonstrates the potential value of recovering network connections and other infrastructure. Access to an established power plant site can help reduce investment costs and development times.
In this auction, projects were required to provide at least 80 percent of their installed capacity for a continuous period of 10 hours. These conditions favored gas production and made economic competition difficult for batteries. Additionally, competition in this auction has helped lower prices, although costs remain significant.
About 12 gigawatts of bids competed against a target supply of 4.5 gigawatts. The weighted average price of the bids was approximately €155,000 per megawatt of reduced capacity per year, which was 36 percent below the set ceiling. However, this price was higher than recent benchmarks for capacity auctions in Europe.
Germany is securing new capacity with hydrogen preparation requirements, which limits direct comparisons with markets that also support existing assets. Future opportunities depend on the design of upcoming auctions, which could provide better conditions for batteries and other flexible resources.
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