Gas Projects Win Germany’s First Capacity Auction

Derated capacity adjusts for each project’s expected contribution to security of supply. As Germany phases out coal generation and expands renewables, it needs backup power for extended spells of low wind and solar output, known as Dunkelflaute. Capacity payments compensate operators for keeping that supply available.

LEAG and RWE won more than 99% of the awarded capacity. LEAG’s success at existing lignite sites points to the value of reusing grid connections and other infrastructure, which can help cut investment costs and development timelines.

The auction required projects to provide at least 80% of installed capacity for 10 consecutive hours. That duration requirement favored gas generation and made it difficult for batteries to compete economically. Almost 12 GW of bids were submitted against a procurement target of 4.5 GW. The volume-weighted average award price was about €155,000 per derated megawatt per year, 36% below the ceiling, but above recent European capacity-auction benchmarks. Direct comparisons are limited because Germany is procuring new long-duration capacity with hydrogen-readiness requirements, while some other markets also support existing assets.

Later auctions may offer better conditions for batteries and other flexible sources, depending on duration rules and contract terms. The winning gas plants could also create a future market for hydrogen suppliers, but readiness to switch fuels does not guarantee hydrogen consumption; the economics of that transition remain unresolved.