The European Commission approved, under EU state aid rules, Germany’s capacity mechanism under the StromVKG, which is due to take effect in 2031. The legislation also provides for two additional tenders this year, each covering 4.5 GW of capacity, which are expected to be awarded largely to new gas-fired power plants.

The measures are intended to secure sufficient generation, storage and demand-side flexibility to ensure reliable electricity supply. Following the Commission’s approval, the German government can allocate an estimated €15.6 billion ($18.1 billion) to €35.2 billion to support the required capacity.

The Commission said the capacity mechanism must be open to all technologies, including generation, storage and demand-side response, as well as existing and cross-border capacity. Capacity required from 2031 will be procured through competitive auctions. Contracts will run for 15 years, while participating facilities must operate on a climate-neutral basis by 2045 at the latest. New gas-fired power plants will therefore have to be capable of running on hydrogen.

The first two auctions under the StromVKG scheme are still scheduled to take place this year, with the first due to begin on Sept. 8. Further auctions for long-duration capacity are planned between 2027 and 2029.

According to the Commission, the measure is expected to cost between €1 billion and €3 billion in 2031, depending on the auction results. Annual costs from 2032 to 2045 are estimated at between €900 million and €2.3 billion.

The Commission concluded that the measures are “necessary and appropriate” and that the aid is “proportionate” to the funding required.

“Just in time for the first bid submission date – Sept. 8, 2026 – the European Commission has granted state aid approval. After three and a half years of intense negotiations, evolving drafts and repeated delays, the conditions for new dispatchable capacities have thus been established,” the Executive Director of the German Association of Energy and Water Industries, Kerstin Andreae, said following the approval.

“It is now crucial for the Federal Network Agency to quickly award the contracts so that the facilities can be implemented rapidly. The next step is to design the broad capacity market – open to all technologies – for the period starting in 2032. This should be based on the requirements outlined in the StromVKG,” Andreae added.