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The German government has approved plans to provide subsidies for gas power plants capable of transitioning to hydrogen. This move aims to support the integration of intermittent renewable energy sources and accelerate the shift to low-carbon energy generation. The decision follows industry pressure for details after a commitment made by the government last year, as Germany looks to hydrogen to reduce dependence on gas and coal.
Shares in German utilities RWE and EnBW rose following the announcement, with the CEOs of these companies advocating for progress in this direction. The government plans to initiate a tender process for four gas plants with a total capacity of up to 10 gigawatts (GW), with the transition to hydrogen expected between 2035 and 2040. Additionally, the government will subsidise power plants exclusively running on hydrogen with a capacity of up to 500 megawatts for energy research purposes.
A new design for the electricity market will introduce a market-based capacity mechanism by mid-year, operational by 2028, reflecting the increased share of renewables in Germany's energy mix. This move addresses concerns from environmental campaigners about subsidising fossil fuel production through capacity mechanisms.
The German government, in collaboration with the European Commission, had previously agreed to tender 9 GW of new hydrogen plants and an additional 15 GW initially running on natural gas before transitioning to the hydrogen grid by 2035. Disagreements between Berlin and Brussels on how to subsidise these gas plants have led to ongoing discussions.
The government is considering further gas capacity beyond the planned 10 GW, and measures have been agreed upon to remove obstacles to the construction and operation of electrolysers, which use renewable energy to produce hydrogen from water. The power plant strategy, delayed due to a constitutional court ruling, is crucial for convincing coal producers to phase out coal-fired stations earlier than the official 2038 date and meeting Germany's greenhouse emissions targets.
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