Germany and the EU's Natural Gas Power Plant Agreement: An Expensive Energy Security Gamble
16/01/2026
In the early hours of Wednesday Berlin time, an official permit document from Brussels arrived at the German Federal Ministry for Economic Affairs. This document pressed a crucial forward button for what German Chancellor Friedrich Merz called "the world's most expensive energy transition." The European Commission has, in principle, approved Germany's plan to subsidize the construction of large-scale natural gas power plants while also greenlighting an industrial electricity price reduction scheme worth billions of euros. Upon the news, Germany's political and industrial circles breathed a sigh of relief, while environmental organizations voiced sharp criticism. This is not merely a green light for an energy infrastructure project but also a profound strategic document that reveals the difficult balancing act of Europe's largest economy on the path toward a "post-nuclear era" and "coal phase-out."
Strategic Shift: From "Abandoning Nuclear and Coal" to "Embracing Natural Gas"
In 2023, Germany permanently shut down its last three nuclear power plants, marking the end of a political decision that had spanned over a decade. Almost simultaneously, German law had already clearly set a final deadline for the complete phase-out of coal-fired power by 2038. These two decisions were once hailed as Germany's "pioneering banner" in leading the global green transition. However, as the banner fluttered loudly in the wind, cracks in the foundation began to emerge. Chancellor Merz's recent candid admission in front of entrepreneurs tore a corner of this banner: "Abandoning nuclear energy was a serious strategic mistake. We are now undergoing the world's most expensive energy transition."
This statement is not merely a political reflection, but a direct commentary on the current energy predicament. The core contradiction of Germany's energy transition lies in the difficult-to-bridge gap between its ambitious renewable energy expansion plan—anchored by wind and solar power—and the baseload and flexible power sources required for grid stability. Calm winds and cloudy skies mark moments of vulnerability for Germany's power system. The inherent intermittency of renewable energy necessitates that Germany find a "bridging technology" capable of rapid start-up, shutdown, and flexible peak-shaving to fill the power gap caused by "Dunkelflaute" (dark doldrums—periods of no wind and no sunlight).
It is precisely within this context that natural gas has been brought to the forefront. Compared to coal, natural gas power generation produces significantly lower carbon emissions; compared to nuclear energy, it has a shorter construction cycle and offers greater operational flexibility. The statement from the German Federal Ministry for Economic Affairs clearly outlines the contours of this strategy: through public tenders, construction is to commence before the year, with the goal of adding up to gigawatts of power generation capacity by the year. Among these, gigawatts will be allocated to "modern, highly efficient natural gas power plants," accompanied by a "long-term standard"—these plants must be designed to be "hydrogen-compatible" and achieve full decarbonization through phased retrofits no later than the year.
This means that Germany is playing a game of trading time for space. Natural gas power plants are positioned as transitional infrastructure on the path to a future 100% renewable energy plus hydrogen system. However, the cost of this move is exceptionally high. Constructing new power plants themselves requires massive investment, and their continued operation will, for the foreseeable future, still rely on fossil fuels, generating carbon dioxide emissions. The environmental organization "Deutsche Umwelthilfe" (DUH) bluntly criticized this as "bad news for electricity consumers and climate targets," stating it will lead to "unnecessary costs and CO2 emissions."
The EU's Green Light: The Delicate Balance Between State Aid and the Single Market
The reason why Germany's plan requires the "green light" from Brussels lies at its core in the involvement of substantial state subsidies. According to EU rules, government aid provided by member states that may distort competition within the internal market must be approved by the European Commission. This is underpinned by the principle of a "level playing field," which the EU has long been committed to upholding.
The analysis reveals that the European Commission's approval this time is based on a complex set of trade-offs. On one hand, the Commission acknowledges the urgency for Germany to ensure electricity supply security, especially after the Russia-Ukraine war has fundamentally reshaped Europe's energy landscape. German industry, particularly energy-intensive sectors such as steel and chemicals, is mired in a "deep industrial crisis," with high energy prices continuously undermining its international competitiveness. The Merz government has made reducing industrial electricity prices a core commitment, and the multi-billion-euro aid package is tailor-made for this purpose.
The plan consists of two parts: a billion-euro relief measure for small and medium-sized enterprises, and an expansion of the scope of an existing billion-euro carbon cost compensation scheme. The latter is particularly critical, as it enables large energy-intensive enterprises (such as steel producers) that might otherwise be excluded from SME subsidies to also receive support, given that they already benefit from carbon cost compensation. The European Commission's approval of this "combined package" essentially represents a compromise in recognition of Germany’s unique industrial structure and the high pressure from energy costs.
On the other hand, the EU has also established "guardrails" for this assistance. Power plants must commit to transitioning to hydrogen energy and ultimately achieving climate neutrality, ensuring that Germany's short-term energy security measures do not contradict its long-term legal goal of "annual climate neutrality." From the EU's perspective, this approach respects member states' sovereignty in energy choices while pragmatically addressing the complex realities of the transition path within the framework of the European Green Deal. The green light from Brussels signals "conditional support."
Costly Bets: Triple Risks in Economy, Geopolitics, and Society
What Merz refers to as the "most expensive energy transition" goes far beyond the direct fiscal expenditures of building new power plants and subsidy programs. This strategic shift, which uses natural gas as a bridge, actually entails three layers of risk.
First is economic risk. The industrial electricity price subsidy, amounting to billions of euros, can temporarily alleviate pressure on businesses, but its funding sources and long-term sustainability are questionable. This massive expenditure will ultimately be borne by taxpayers or converted into future public debt. Meanwhile, locking in natural gas as a medium- to long-term "bridge" means that Germany's energy system will remain exposed to price fluctuations in the global natural gas market for the next ten to twenty years. Although Germany has significantly reduced its dependence on Russian pipeline gas by building receiving terminals, the global natural gas market, especially the liquefied natural gas (LNG) market, is highly susceptible to geopolitical factors, extreme weather, and supply-demand dynamics. The energy crisis of recent years serves as a stark reminder—partially anchoring energy security on a highly volatile international market is, in itself, an economic gamble.
Next is geopolitical risk. Although Germany has made efforts to diversify its sources of natural gas supply by importing from countries such as the United States and Qatar, its energy lifeline remains closely tied to complex international relations and global shipping routes. The impact of the Red Sea crisis on shipping serves as a recent vivid example. Additionally, the large-scale shift toward natural gas may objectively slow down the pace of extreme investment and innovation in domestic renewable energy, energy storage technologies, and the hydrogen energy industry chain. In the long run, this could weaken Germany's leading position and strategic autonomy in next-generation energy technologies.
Finally, there are social and political risks. The opposition from environmentalists and some members of the public to new fossil fuel infrastructure will not cease. Their criticism represents a significant portion of public opinion, which views this as a betrayal of climate commitments and believes it will lead to "unnecessary emissions." Meanwhile, the industry receives substantial subsidies, while ordinary households still face relatively high electricity prices. This "dual-track" system may exacerbate feelings of social injustice and spark political controversy. For the Merz government, explaining to the public why money is being spent on building carbon dioxide-emitting natural gas power plants after shutting down zero-emission nuclear plants is a challenging political communication task.
Germany's Dilemma and the Microcosm of Europe
Germany's natural gas power plant strategy is by no means an isolated national decision. It represents a concentrated reflection of the common challenges faced by Europe's energy transition as it enters the "deep-water zone." The idealized linear "renewable energy leap" has encountered real-world complexities: grid stability, industrial competitiveness, technological maturity, social acceptance, and geopolitical shocks collectively form a series of obstacles that must be navigated with strategic detours.
Germany has chosen a "detour" path through natural gas. This path acknowledges the incompleteness of the existing renewable energy system and attempts to use a relatively clean fossil fuel as both a technological and geopolitical buffer. Its ultimate goal—hydrogen compatibility and complete decarbonization by the year—remains lofty, demonstrating that it has not abandoned its long-term climate ambitions. However, the costs and risks of this path are equally conspicuous.
Observations indicate that Germany's case serves as a mirror for the entire European Union. It reveals the significant costs required to maintain energy security and economic competitiveness following radical nuclear and coal phase-outs. It tests the flexibility boundaries of the EU's state aid rules—namely, how to strike a balance between preserving the fairness of the single market and allowing member states to address special crises. More importantly, it raises a fundamental question: Should the pace and sequence of the energy transition be driven solely by climate goals, or must they also comprehensively consider economic affordability, technological feasibility, and geopolitical security?
The agreement reached between Berlin and Brussels is a product of compromise and a declaration of realism. It marks the transition of Germany's, and indeed Europe's, energy transformation from an idealistic "goal-setting" phase into a "hardcore implementation" phase fraught with complex trade-offs and costly sacrifices. By the time these gas-fired power plants are connected to the grid in 2024, Germany's share of wind and solar power generation is destined to be higher than it is today. Yet, during windless and sunless nights, the defining feature of its power system will still, for the time being, be the flickering blue flame. Whether this "world's most expensive transition" can ultimately reach the shores of hydrogen and renewable energy depends not only on technological breakthroughs and the scale of investment but also on the political wisdom and strategic patience of Germany and Europe in navigating economic, geopolitical, and social risks in the coming years. The stakes have been laid, and the game has just reached its mid-point.