The European Commission has announced that it has approved, under EU state aid rules, a German electricity capacity mechanism available from 2031, with an estimated total cost of between €15.6 billion and €35.2 billion, aimed at ensuring security of electricity supply during the country's transition toward a decarbonized power system.
Under the market-wide mechanism, transmission system operators will remunerate the capacity required to meet Germany's reliability standard. The scheme will be open to electricity generation, storage and demand-response technologies, as well as existing and new capacity and eligible cross-border capacity. Beneficiaries will be selected through competitive auctions and contracts may have a duration of up to 15 years.
All capacity receiving 15-year contracts will be required to operate in a climate-neutral manner by 2045 at the latest. In addition, all new gas-fired power plants bidding for 15-year capacity contracts will have to be hydrogen-ready to enable their subsequent conversion.
First capacity auctions to be held in 2026
The first auctions will be organized in 2026 and, in the event of undersubscription, in 2027, and will be reserved for additional long-term capacity located in Germany. Subsequent auctions scheduled for 2027 and 2029 will be open to all technologies and both existing and additional capacity, with delivery starting in 2031. The mechanism is estimated to cost between €1 billion and €3 billion in 2031, depending on auction results, while annual costs between 2032 and 2045 are expected to range from €0.9 billion to €2.3 billion.
Germany also plans decarbonization tenders to support the conversion of gas-fired power generation to hydrogen. Tenders for the conversion of 2 GW of gas-fired capacity to hydrogen by 2040 will be held by the end of 2027, while tenders covering another 2 GW to be converted by 2043 are planned for 2032-35. This support is not covered by the Commission's present approval and will be assessed separately.
In addition, Germany intends to introduce a structural capacity mechanism in 2027 to address security of supply requirements more extensively from 2032 onwards. The planned mechanism will have a separate budget and is also outside the scope of the Commission's latest decision.
