German cabinet approves gas plant tender, heating reform draft laws

Germany's coalition government on May 13 approved a reform of the heating law as well as the new Electricity Supply Security and Capacity Act (StromVKG), paving the way to tender support for 9 GW of new gas-fired power plants this autumn.

Approval of the two draft laws is a major step forward for energy minister Katherina Reiche, one year after taking over from Robert Habeck.

The focus of the heating law reform, now called the Building Modernization Act (GModG), is more pragmatism for gas-fired boilers that supply heat to about 56% of German flats, in addition to heating oil systems.

"We are replacing a law that has unsettled many people with one that is based on trust, technological openness, and feasibility," Reiche said in a statement. "We are also abolishing the 65% renewables quota, mandatory consultations, and heating bans with bespoke solutions for homeowners and their heating choices."

Germany's gas and hydrogen association said the reform paves the way for the use of green gases such as biomethane and hydrogen in the heat transition, emphasizing that the draft law creates additional options, particularly in existing buildings.

However, it remains unclear how the green gas quota and the so-called bio-step model are intended to interact in practice from 2029, it said in a statement.

Overall, it estimates that primarily due to building modernization, gas consumption in the building sector will be reduced by half by 2045, modeling remaining gas demand of about 120 TWh/year for the sector.

Initial volume requirements from the green gas quota and the bio-step model can be met with current production capacities, while increases from 2030 will require investment to expand these capacities.

"Meeting the further volume requirements at affordable prices is considered realistic," the association said.

Gas plant tenders

The Cabinet also approved the so-called gas plant tender law, which has been debated for years.

A slightly different approach by the new coalition received preliminary state-aid approval from the European Commission in January, which had previously been seen as the main hurdle.

The draft law, which requires parliamentary approval and final EU state aid approval, establishes two auctions for 4.5 GW of hydrogen-ready gas-fired plants this September and December.

New plants have to be online by November 2031 to help with dispatchable generation capacity following coal and lignite plant closures around 2030, while grid operators already secured a so-called grid reserve of older hard-coal plants until winter 2031.

Energy sector association BDEW called for final state aid approval from the European Commission to be secured before tenders launch.

"If auctions proceed without EU clearance, bidders must be allowed to withdraw awarded contracts without financial penalties," it said in a statement.

"New secured capacity is central so that our electricity supply remains reliable even in times of low feed-in from wind and solar," said BDEW chairwoman Kerstin Andreae. "For this capacity to be available in 2031, the schedule must be adhered to."

Beyond the initial auctions, the draft law's long-term capacity auctions represent the first step toward making new secured capacity available on time, BDEW said.

The group urged retention of the duration criterion, requiring facilities to be capable of feeding electricity into the grid for at least 10 consecutive hours after a maximum one-hour startup.

BDEW warned that subsequent burdens from the grid fee reform process (AgNes) must not undermine the economics of already-awarded projects.

The association said collateral requirements and penalties must be proportionate and not effectively exclude small and medium-sized market participants.

"The StromVKG can become a central building block for security of supply," Andreae said. "For this, it must actually enable investments, limit costs and maintain a diversity of actors.

Some of Germany's biggest power generators -- RWE, Uniper and EnBW, during this week's first-quarter calls called for a swift final approval of the StromVKG to allow the tenders to go ahead as planned.

The three companies alone proposed more than 5 GW of projects linked to coal or lignite site closing over the coming years, with other generators like Leag, Steag and Onyx Power proposing similar projects at their former coal sites.

Gas plant developers require state aid or similar guarantees as Berlin aims for a 80% share of renewables by 2030, with gas plants often only needed as backup.

The so-called clean spark spread for an average 50% efficient gas unit for 2027 was pegged May 12 at minus Eur11.52/MWh, according to assessments by Platts, part of S&P Global Energy.