Germany's new energy minister Tuesday promised power companies to address disruptions in the country's electricity market caused by subsidies for renewable energy sources.
Sigmar Gabriel, energy minister in Chancellor Angela Merkel's government, made the announcement after months of lobbying by German and European utilities, whose profits have plunged because subsidized renewables are displacing their conventional power plants.
Mr. Gabriel's reassessment shows the challenges Germany faces in attempting a radical and expensive shift from fossil fuels and nuclear power to such green energy sources as wind and solar. Many other countries are watching how Germany, one of the world's richest countries, handles the transition.
The government will this year start discussions with energy companies on possible financial support for fossil-fuel powered plants to balance subsidies for renewables, Mr. Gabriel told an energy conference.
"We will have to provide an answer to this problem, or at least guidance, by the end of the year," Mr. Gabriel said.
At stake is more than corporate profits. Renewables aren't yet sufficiently developed to provide reliable and constant electricity flows, so power grids still depend on backup supplies from traditional sources, such as coal and gas.
But because power providers face eroding demand for wattage from these massive fossil-fuel generators, which are designed for efficiency at high output, the companies are mothballing or closing unprofitable power plants. This threatens to remove the necessary backup supply.
Leonhard Birnbaum, executive board member at German power company E.ON EOAN.XE +1.18% SE, welcomed the government's pledge to address power-market woes. "This is absolutely inevitable, because earnings in conventional power generation are deteriorating to such an extent that many utilities will not survive for much longer," he told a press conference.
Mr. Birnbaum singled out gas-fired power plants as particularly hard hit. "There is no gas-fired power plant on the European continent that generates profits at present," he said.
Europe imports most of its natural gas and prices remain high. This has put Europe at a competitive disadvantage against the U.S., where natural gas prices have plunged thanks to new domestic sources.
Germany's gas-fired power plants are greatly affected by renewables because they are designed to meet daytime peak demand—the same hours when renewables are generally available.
Utilities, including E.ON and RWE AG RWE.XE +2.70% , have dominated Germany's power market for decades. But the growth of subsidized renewables has undermined the companies' long-standing business model.
Compounding the problem is Europe's economic weakness, which has cut industrial demand for power and added to the growing capacity glut.
"The situation of the power industry in Germany and all of Europe is miserable," said RWE Chief Executive Peter Terium at the Berlin conference. "We're in the deepest structural crisis this industry has ever seen."
In November, RWE said it swung to a net loss for 2013's third quarter, blaming poor performance of its power generation business due to low power prices and reduced utilization rates.
Mr. Gabriel said that coal- and gas-fired plants will remain essential for many years as backup, and the surge of plant closures raises concerns about the stability of future electricity supplies despite the glut.
"Until around 2016, there's sufficient capacity, in fact, power plant operators are complaining about overcapacities," he said.
To ensure constant supply, other European countries, including France and the U.K., have established systems that will compensate operators for providing backup capacity, even when it sits idle. Utilities are urging Germany to set up a similar system.