Germany shut down 20 GW of nuclear power. Now consumers are paying billions for new gas plants 🏭
On 3 November, Germany announced the results of its first major tender for new gas-fired power plants covering 5.2 GW.
The operators will receive around 12 billion euros in capacity payments over 15 years, paid by electricity consumers, and according to Germany’s own regulator, Bundesnetzagentur, Germany will need between 22.4 and 35.5 GW of additional dispatchable capacity by 2035.
Meanwhile, Germany has phased out its entire nuclear fleet of 17 reactors, amounting to around 20 GW of installed capacity.
The new gas plants will not only be paid for being available. They will also be able to sell electricity into the wholesale market. That means consumers will both fund the plants through the capacity mechanism and pay market prices when they generate electricity.
And because of the merit-order principle, gas can account for a relatively small share of electricity generation while setting wholesale prices in a much larger share of hours. A recent analysis by the European Central Bank (ECB) highlights how nuclear power in France has helped reduce the frequency with which gas sets electricity prices.
Before anyone points out that wind and solar have helped phase out fossil fuels in Germany, I agree. Renewables have made a substantial contribution to reducing fossil fuel generation. My criticism is directed at Germany's decision to shut down 20 GW of existing low-carbon nuclear capacity.
By shutting down low marginal cost nuclear power, Germany has increased the need for other sources of firm generation. That leaves gas and coal setting the power price more often than if the reactors had stayed online.
As we speak, Germany and neighbouring countries are facing a prolonged Dunkelflaute, with electricity prices reaching levels otherwise associated with the energy crisis in 2022. Many are quick to point to the Hormuz crisis and Europe’s continued dependence on Russian gas, which are real factors. But we should also remember that Europe has helped put itself in this position. When perfectly functional nuclear power plants are shut down, they have to be replaced by something.
We now see this clearly in Germany. The country removed a large source of reliable, low-carbon electricity and is now paying billions to replace part of it with gas.
On 3 November, Germany announced the results of its first major tender for new gas-fired power plants covering 5.2 GW.
The operators will receive around 12 billion euros in capacity payments over 15 years, paid by electricity consumers, and according to Germany’s own regulator, Bundesnetzagentur, Germany will need between 22.4 and 35.5 GW of additional dispatchable capacity by 2035.
Meanwhile, Germany has phased out its entire nuclear fleet of 17 reactors, amounting to around 20 GW of installed capacity.
The new gas plants will not only be paid for being available. They will also be able to sell electricity into the wholesale market. That means consumers will both fund the plants through the capacity mechanism and pay market prices when they generate electricity.
And because of the merit-order principle, gas can account for a relatively small share of electricity generation while setting wholesale prices in a much larger share of hours. A recent analysis by the European Central Bank (ECB) highlights how nuclear power in France has helped reduce the frequency with which gas sets electricity prices.
Before anyone points out that wind and solar have helped phase out fossil fuels in Germany, I agree. Renewables have made a substantial contribution to reducing fossil fuel generation. My criticism is directed at Germany's decision to shut down 20 GW of existing low-carbon nuclear capacity.
By shutting down low marginal cost nuclear power, Germany has increased the need for other sources of firm generation. That leaves gas and coal setting the power price more often than if the reactors had stayed online.
As we speak, Germany and neighbouring countries are facing a prolonged Dunkelflaute, with electricity prices reaching levels otherwise associated with the energy crisis in 2022. Many are quick to point to the Hormuz crisis and Europe’s continued dependence on Russian gas, which are real factors. But we should also remember that Europe has helped put itself in this position. When perfectly functional nuclear power plants are shut down, they have to be replaced by something.
We now see this clearly in Germany. The country removed a large source of reliable, low-carbon electricity and is now paying billions to replace part of it with gas.
