Brussels clears Germany's capacity mechanism, and storage is eligible from the start

Share

Stay up to date on the latest market insights through our free newsletter

Select your company type:

Select a type of user first

Corporate Energy Producer

Enter your company email:

Input your professional email

Stay up to date

You're now registered to receive newsletter updates

News

The European Commission has approved, under EU State aid rules, a capacity mechanism for Germany available from 2031. The decision was published on 2 September 2026, and it puts the mechanism on a cleared legal footing with an estimated total cost of between 15.6 billion and 35.2 billion euros. The aim is to secure enough capacity to produce, store or flexibly consume electricity so that supply consistently meets expected demand. For operators watching the German build-out, this is the piece that had been missing: the framework existed on paper, but the state-aid clearance is what lets the auctions run with certainty behind them.

The mechanism is open to all technologies, covering generation, storage and demand response, and it takes both existing and new capacity as well as capacity located in a neighbouring Member State with a direct network connection to Germany. Contracts run for up to 15 years, and capacity is selected through competitive auctions with delivery starting in 2031. Two conditions attach to the long contracts: any capacity on a 15-year contract has to operate in a climate-neutral way by 2045 at the latest, and every new gas-fired plant bidding for a 15-year contract must be hydrogen-ready so it can switch in due course.

For storage the headline is simple. Battery capacity is eligible alongside generation and demand response, so a 15-year capacity contract becomes a revenue line a BESS project can bid for rather than a scheme it is shut out of. The sequencing matters, though, and it is worth stating precisely. The first auctions, held in 2026 and in 2027 if undersubscription occurs, are reserved for additional long-term capacity based in Germany. The subsequent auctions, in 2027 and 2029, are the ones open to all technologies and to both existing and additional capacity. The estimated cost is 1 to 3 billion euros for 2031, then between 0.9 and 2.3 billion euros a year from 2032 through 2045, subject to auction results.

Two elements sit outside this particular decision. Germany intends to introduce a structural capacity mechanism in 2027 to address security of supply from 2032 onward, and that future mechanism carries a separate budget and is not part of the clearance granted here. Separately, the decarbonisation tenders that support the switch of gas capacity to hydrogen, 2 GW by 2040 carried out by 31 December 2027 and a further 2 GW by 2043 carried out between 2032 and 2035, are being notified and assessed on their own track. Reading either as already approved would overstate what Brussels has signed off.

For an operator the practical effect is that a technology-neutral capacity payment, running as long as 15 years, is now a real part of the German revenue picture rather than a proposal waiting on Brussels. Storage in particular gains an option to stack a long-dated capacity contract against merchant spreads, balancing income and any PPA it can sign. Working out what that stack is worth, auction by auction and against capture prices across the market, is exactly the kind of modelling SEMT is built for. You can explore it at https://synertics.io/signup/ or reach us at info@synertics.io to talk through how it applies to your portfolio.