Germany's €35 Billion Capacity Market Approved by EU
The European Commission has approved Germany's capacity mechanism under EU state aid rules, clearing the way for up to €35.2 billion in support for reliable electricity supply.
The European Commission has approved Germany's national capacity mechanism under EU state aid rules. The scheme, governed by the StromVKG law, is scheduled to take effect in 2031. It is designed to secure reliable electricity supply by ensuring sufficient generation, storage, and demand-side flexibility.
Following this approval, the German government can allocate between an estimated €15.6 billion and €35.2 billion to support the required capacity. The Commission stated the aid is necessary and appropriate and proportionate to the funding required.
Scheme Design and Technology Rules
The approved mechanism must be open to all technologies. This includes generation, storage, and demand-side response capabilities, as well as existing and cross-border capacity. From 2031 onward, the required capacity will be procured through competitive auctions.
Contracts awarded will run for 15 years. A key condition is that all participating facilities must operate on a climate-neutral basis by 2045 at the latest. Consequently, new gas-fired power plants built under the scheme will have to be capable of running on hydrogen.
Auction Timeline and Initial Tenders
The legislation provides for two additional tenders this year, ahead of the main market's 2031 start. Each of these 2026 tenders will cover 4.5 gigawatts of capacity. They are expected to be awarded largely to new gas-fired power plants.
The first auction under the StromVKG is due to begin on September 8, 2026. Further auctions for long-duration capacity are planned between 2027 and 2029.
Projected Costs
According to the European Commission's assessment, the measure is expected to cost between €1 billion and €3 billion in its first full year of operation in 2031. The final cost will depend on the results of the competitive auctions.
Estimated annual costs for the period from 2032 through 2045 are projected to be between €900 million and €2.3 billion per year.
| Cost Period | Estimated Annual Cost Range |
|---|---|
| 2031 | €1 billion - €3 billion |
| 2032 to 2045 | €900 million - €2.3 billion |
Industry Reaction and Next Steps
Kerstin Andreae, Executive Director of the German Association of Energy and Water Industries (BDEW), welcomed the timely approval. She noted that the decision followed three and a half years of intense negotiations.
She emphasized the urgency for the Federal Network Agency to quickly award the contracts from the initial tenders so that facilities can be built rapidly. Andreae added that the next step is designing the broader, technology-neutral capacity market for the period starting in 2032, which should follow the requirements outlined in the StromVKG law.
The Commission's approval finalizes the regulatory framework for Germany's strategy to ensure grid stability alongside its expanding renewable energy portfolio.
