EU clears German subsidy plan for new gas-fired power plants

Germany has secured long-awaited approval from the European Union to move forward with a subsidy plan for new gas-fired power plants.

Chancellor Friedrich Merz announced that the European Commission’s decision reached his government in Berlin this morning. He added that a 12 billion euro ($14 billion) package aimed at reducing electricity prices for the country’s struggling industrial sector can now also be implemented.

Speaking at an event in Halle, Saxony-Anhalt, Merz noted that the plan required EU clearance because it involves substantial state subsidies.

The Merz government aims to launch tenders this year for the construction of 8 gigawatts of new gas-fired power plant capacity, with a target for these facilities to be operational by 2031. An additional 4 gigawatts of capacity is planned for low-carbon energy sources or gas plants capable of a rapid transition to hydrogen.

Having shuttered its final nuclear power plants nearly three years ago and aiming to phase out coal, Germany requires flexible energy sources, such as gas-fired plants, to provide backup during periods when wind and solar energy are unavailable.

Regarding the reductions in industrial electricity prices, Merz stated, “The European Commission will also approve a combination of several options.”

Companies will be able to access support through two primary mechanisms: a 7.5 billion euro aid measure for small and medium-sized enterprises (SMEs), and an existing 4.5 billion euro program designed to reimburse the costs of carbon allocations, which will now be expanded to a broader pool of businesses.

This expansion will benefit large, energy-intensive companies, such as steel producers, who were previously excluded from the former subsidy because they were already recipients of the latter.

The EU maintains a policy of restricting excessive subsidies by member states to prevent market distortions and ensure a level playing field within the bloc.