Germany has placed a major bet on natural gas to ensure reliable electricity supply, as gas-fired projects dominated the country's first capacity auction. The auction allocated all 5.16 gigawatts (GW) of derated capacity to gas projects, with over half of these going to developments at existing coal sites. This outcome underscores the advantage that established power generators have in providing dependable backup during periods of low wind and solar output, known as Dunkelflaute. Batteries, meanwhile, missed out entirely on securing any capacity.
The success of gas projects was driven by the auction's design, which required participants to deliver at least 80% of their installed capacity for 10 consecutive hours. This rule favored gas generation and made it economically challenging for batteries to compete. LEAG and RWE secured more than 99% of the awarded capacity, with LEAG's achievements at its lignite sites highlighting the benefits of reusing existing infrastructure to reduce costs and development timelines.
The auction saw intense competition, with nearly 12 GW of bids vying for a 4.5 GW procurement target. The volume-weighted average award price was approximately €155,000 per derated megawatt per year, which was 36% below the ceiling but still higher than recent European benchmarks. Germany's focus on hydrogen-readiness in future auctions adds another layer of complexity, as the transition to hydrogen remains uncertain despite the potential market for hydrogen suppliers.
Future auctions may offer more favorable conditions for batteries and other flexible energy sources, depending on the duration requirements and contract terms. However, the immediate outcome reflects Germany's strategic priority of securing reliable backup power as it phases out coal and expands renewable energy capacity.