The energy supplier Steag Iqony is taking legal action against what it considers to be inadequate compensation for backup power plants. „We will submit the statement of claim to the Higher Regional Court of Düsseldorf by the end of February“, CEO Andreas Reichel said in an interview with Börsen-Zeitung. „The lawsuit is directed against the Federal Network Agency. We are demanding fair compensation, not just cost reimbursement.“ According to Reichel, this claim is supported by the Energy Industry Act.

At Steag – once Germany’s largest hard coal power producer – six coal-fired power plants are affected by the current reserve regulation. These plants were originally slated for decommissioning, but were classified as system-relevant by the Federal Network Agency. This means they must always be operational to stabilise the power grid if necessary. „We have to maintain full operational readiness including a complete workforce“, Reichel explains.

What frustrates the Steag Iqony CEO is that while cost reimbursement is provided, there is no additional „entrepreneurial profit“. „That is neither fair nor smart.", he says.

But Reichel is also coming forward with another proposal – one aimed at making the energy transition more efficient. He suggests that the rarely used but system-relevant coal-fired power plants in reserve should be utilised more frequently. This would be a more sensible energy policy, he argues. „These power plants should not only be allowed to produce electricity to stabilise the grid, but also to dampen price spikes in the electricity market.“

Currently, system-relevant backup power plants are prohibited from participating in the market. As a result, during recent „dark doldrums“ (cold periods with low wind and solar power generation), not all theoretically available conventional power plants were online and producing electricity. This led to a sharp increase in electricity prices – at one point in early December, prices at the electricity exchange surged to nearly 1,000 euros per megawatt-hour.

Reichel proposes a reform: „The idea is to allow reserve power plants to operate temporarily – for example, when the day-ahead electricity price remains above 150 euros per megawatt-hour for more than three hours.“ This, he argues, would be beneficial for all parties: „Consumers would benefit from lower electricity prices, and power plant operators could generate income, which could then be reinvested – for instance, in the planned new hydrogen-ready backup gas power plants.“

Regardless of the lawsuit, Reichel believes it is the responsibility of the new federal government to allow more operational flexibility for backup power plants. He also sees this as an early step toward the capacity mechanism scheduled to be introduced in 2028. Similar regulations already exist for the decommissioning of gas storage facilities under the Energy Industry Act and have been coordinated with Brussels, he notes. „If electricity volumes or capacities were simultaneously auctioned off to mitigate price spikes, the new system could be organised very cost-effectively.“

Reichel has already discussed his proposal with energy policymakers from the various parties and has received positive feedback. „It is clear to everyone that the coal phase-out targeted for 2030 in the coalition agreement is no longer realistic“, he says, citing delays in the Power Plant Security Act, which the government failed to pass through parliament. „Our proposal is very pragmatic, requires only a minimal regulatory framework, and comes at the right time.“

Reichel expects that the regulatory framework for new gas and hydrogen power plants will not be in place before mid-2026. As a result, the first of these new plants are unlikely to be operational before 2032 – further delaying the coal phase-out. „We will likely have to keep existing coal-fired power plants running until the mid-2030s to ensure both grid stability and energy security in Germany“, states the CEO. „The government is aware of this reality.“

Currently, there are approximately 8.6 gigawatts (GW) of reserve capacity in the German electricity market, with nearly 6.4 GW coming from hard coal. Companies like Uniper and EnBW also operate backup plants. However, Steag provides more than half of the coal fired reserve capacity, and considers itself the most impacted company under the current regulatory framework.

Steag has also undergone an ownership change, leaving it financially weaker than some competitors. In 2023, the Spanish infrastructure investor Asterion acquired the utility for 2.6 billion euros from six Ruhr-area municipalities, which had taken over Steag in two stages starting in 2011.

The company could certainly use additional revenue from system-relevant power plants. Steag intends to participate in tenders for the new backup gas power plants, Reichel notes. This will be pursued in partnership with other companies, and the new owner supports the initiative. „But we will have to finance part of the investment ourselves“, says Reichel. „New-generation backup power plants can easily cost between 800 million and 1 billion euros.“