Berlin. The Federal Ministry of Economics is intervening at short notice in the tendering mechanism for reserve power plants: The ministry is preparing “a more precise definition of the requirements for new investments” for the upcoming tender, Handelsblatt learned from government circles. The aim is to “increase clarity in the industry”.
The house of Minister Katherina Reiche (CDU) is reacting to the criticism from politics and the energy industry that was leveled after the announcement of the first auction results on Tuesday last week. There are two points at the center of the criticism.
Point one: Ten of eleven awards went to only two companies, the Essen-based RWE Group and the electricity producer Leag from Cottbus in Brandenburg. Critics warn that the market power of the two major electricity producers will continue to grow.
Point two: Leag won the race in six of its seven projects with retrofitting instead of a new building. Leag is converting existing lignite-fired power plants into gas-fired power plants. Only the burner is replaced and the fuel is changed (“fuel switch”).
The construction of the reserve power plants is one of the most important energy policy projects in the Reich. In the future, the systems will always step in when electricity from renewable sources is not sufficient to cover electricity needs. Their construction is therefore an important prerequisite for the coal phase-out. The coal-fired power plants are currently still taking on a large part of the back-up function.
The construction of the new reserve capacities is subsidized. This is regulated in the “Law to secure the security of electricity supply and to provide new capacities” (StromVKG). The grants are awarded through auction procedures. The law had been fought over for a long time. The previous government had already worked on a regulation - without success.
The first tenders for the construction of reserve capacities are tailored to gas power plants, and battery storage and other technologies are likely to be used in subsequent rounds.
There isn't much time left to specify the requirements: the changes should be in place as early as Tuesday. That was the plan, it was said in government circles.
The second round of tenders will be announced on this day. Bids can be submitted from December 29th and awards will be accepted no later than February 23rd next year.
The ministry's planned “clarification of the requirements for new investments” is likely to be aimed primarily at the “fuel switch”. Although it is far more cost-effective than building a completely new power plant, it is not technologically advanced.
Modern gas power plants use gas and steam turbine (CCGT) technology. A combined cycle power plant uses the combination of two turbine processes by using the hot exhaust gases from a gas turbine directly to generate steam for a downstream steam turbine.
A modern combined cycle power plant achieves an efficiency of up to 65 percent. With the conventional technology that Leag relies on, it is around 35 percent. The consequences are higher gas consumption, higher CO₂ emissions and correspondingly higher costs for electricity generation.
What the specification of the requirements should look like remained unclear at first. A change in the law is not planned, it was said in the circles.
Some voices that are critical of the results of the first auction are also warning against a change in the law. Their argument: A change in the law would stop the entire auction process and further delay the construction of the power plants.
Section 85, paragraph 2 of the StromVKG offers the possibility of specifying the conditions without changing the law. This is an authorization to issue regulations. For example, it enables the Federal Ministry of Economics to “specify the regulations on the creditability of investments towards reaching the minimum investment thresholds”. The minimum investment threshold is currently 431,000 euros per megawatt.
An applicant who wins the auction must prove by 2031 at the latest that they have invested at least this amount. “If he cannot provide this proof, in the worst case scenario the contract will be forfeited and the applicant will have to pay a high contractual penalty,” explains Sebastian Helmes, partner and energy law expert at the Dentons law firm. In addition, the allocated capacity would then not be available.
If the value of 431,000 euros is increased, this could mean the end of the comparatively inexpensive fuel switch bids.
But other clarifications of the requirements for a new investment are also conceivable: Thanks to Section 85 Number 2 of the StromVKG, the Federal Ministry of Economics can instruct the Federal Network Agency to make “specific specifications” through so-called specifications. Such rules would be legally binding and the Federal Network Agency would also monitor compliance with them.
The Federal Ministry of Economics did not want to comment on the plans to specify the requirements for new investments. The ministry said the first tender was deliberately designed to be open to technology. "All bids were checked according to uniform legal criteria. The fuel switch projects are then permitted," said a ministry spokeswoman.
When it comes to profitability, it is the overall calculation that counts: the higher production costs are offset by significantly lower funding costs, the spokeswoman continued. Since the systems are expected to determine prices on the electricity exchange in just a few hours, the impact on the price of electricity is likely to be limited. Claims that there would be billions in additional costs for electricity consumers are “by no means proven”. Leag also made these arguments.
