Significantly smaller than originally planned

After a long struggle, the federal government has agreed on a compromise to build new power plants. The power plant strategy initially calls for the construction of up to ten gigawatts of hydrogen-capable gas power plants.

He has recently made it clear again and again that Economics Minister Robert Habeck has great hopes for climate-friendly hydrogen. Today in Bremen: The conversion of Arcelor Mittal's large steelworks is to be supported with state funds in the future – old blast furnaces out, plants for green hydrogen for steel production in.

Habeck delivers the message on site, although the EU in Brussels still has to approve the whole thing in a final step. “Today is a reason to check the box,” the Green politician confidently calls out to the steel workers.

Habeck also has high hopes for climate-friendly hydrogen in electricity production. The question is what the German power plant fleet should look like in the future. The federal government's stated goal is for at least 80 percent of the electricity consumed to come from renewable energies by 2030 – primarily from wind power and solar systems.

But other power plants are also needed. On the one hand, to fill the remaining gap, and on the other hand, because electricity generation from wind and sun fluctuates greatly – depending on the weather.

Despite everything, Habeck is satisfied

Last year, a good quarter of the local electricity came from coal-fired power plants. The federal government wants to switch this off by 2030 if possible. So other solutions are needed.

Habeck presented a framework concept last August. With big numbers: Almost 25 gigawatts of power plant capacity should be put out to tender – that would be around 50 power plant blocks. These also include pure hydrogen power plants, but above all natural gas power plants, which should be converted to hydrogen by 2035. The energy industry calculated around 40 billion euros, most of which was to be raised through government funding.

Finance Minister Christian Lindner in particular found it too expensive. And there was once again a tough fight within the traffic light coalition. The basic principles of the concept that Federal Chancellor Olaf Scholz, Economics Minister Habeck and Finance Minister Lindner have now agreed on are now in place: First, the construction of ten gigawatts of power plants should be put out to tender.

Ten gigawatts corresponds to around 20 power plant blocks. So it should start significantly smaller than Habeck originally planned. He's still happy in Bremen. “We are now really making progress. We are closing one of the last gaps in the energy system,” said Habeck. He speaks of a “significant step”.

The conversion costs a lot of money

The industry welcomes the agreement and is pleased that there are now key points for the long-awaited strategy. RWE wants to take part in the first tenders for power plants, as does Uniper. Charlie Grüneberg from the Zukunft Gas industry association says it's good that something is finally making progress. “But in order to secure the supply in the long term and to stay on schedule for the coal phase-out, further steps are necessary,” said Grüneberg.

However, the conversion costs a lot of money. Green hydrogen is significantly more expensive than natural gas and is currently hardly available. Hydrogen-capable power plants have not yet been extensively tested.

The concept also wants to allow more time for the switch from natural gas to climate-friendly hydrogen. The target date is now 2040 at the latest instead of 2035. According to coalition circles, a lot of things cannot yet be planned precisely.

There are still many unanswered questions when it comes to financing. In the future, the power plant operators are to be supported by the Climate and Transformation Fund (KTF) and receive money for maintaining power plants that would primarily run during so-called dark lulls. According to the energy industry, these power plants cannot be operated economically without subsidies. Government circles are currently expecting a funding requirement of 15 to 20 billion euros over the next 15 years.

FDP is pushing forward Technology openness

However, exactly what the funding should look like still needs to be clarified. By the summer, the federal government wants to agree on what a so-called capacity mechanism could look like, what funding is available for the construction of power plants and how much for the operation or maintenance of the capacity.

The FDP is pushing for technological openness: the capture and storage of CO2 should also be promoted, and even support for the development of nuclear fusion is mentioned. This is likely to spark discussions, especially with environmental groups but also between the coalition factions.

And since it's all about extensive state aid, the EU Commission will ultimately have to agree. Industry experts expect the process to be lengthy, even though there have already been many preliminary discussions on the matter.

Clear criticism comes from the Union. Andreas Jung, the energy policy spokesman for the CDU/CSU parliamentary group, speaks of a deadlock that continues. “All important questions are unanswered. We don't know what it will cost and where the money will come from.”

The financial resources of the KTF remain unclear

In fact, it is already foreseeable that significantly fewer projects can be financed from the KTF since billions were cut from the fund following the Karlsruhe budget ruling. The future financial resources of the KTF are still unclear within the coalition.

Criticism also comes from German Environmental Aid. From their point of view, the federal government is relying too much on building new, climate-damaging gas power plants. Especially since it is unclear when these can actually be converted to climate-friendly hydrogen.

At least from the point of view of Economics Minister Habeck, it is clear that we should not hesitate now about the climate-friendly restructuring of the electricity sector, as he made clear in Bremen today: “Who would we be if we didn't believe that all of this can succeed?” Habeck's hopes for climate-friendly hydrogen are high.