EU Approves German Capacity Mechanism Effective 2031, Up to €35.2 Billion

en.Wedoany.com Reported - The European Commission has approved Germany's capacity mechanism under the StromVKG, in accordance with EU state aid rules. The mechanism is expected to take effect in 2031. Under the StromVKG, two additional tender rounds are scheduled for 2026, each covering 4.5 gigawatts of capacity, with winning projects expected to come primarily from newly built natural gas power plants.

The measures are designed to ensure that power generation, storage, and demand-side flexibility resources remain sufficient to guarantee a reliable electricity supply. Following the Commission's approval, the German government may allocate funding estimated at approximately €15.6 billion (equivalent to $18.1 billion) to €35.2 billion to support the required capacity.

The European Commission stated that the capacity mechanism must be open to all technologies, covering power generation, storage, demand-side response, as well as existing and cross-border capacity. From 2031 onward, the required capacity will be procured through competitive auctions with contract terms of 15 years. Participating facilities must achieve climate-neutral operations by 2045 at the latest, meaning that newly built natural gas power plants must be capable of operating on hydrogen.

In line with the StromVKG deployment, the first two auction rounds remain scheduled for 2026, with the first round expected to launch on September 8. Further auctions for long-term capacity will be held between 2027 and 2029.

The European Commission estimates that, depending on auction results, the expected cost of the measure in 2031 will range from €1 billion to €3 billion; annual costs from 2032 to 2045 are estimated at between €0.9 billion and €2.3 billion. The Commission considers these measures "necessary and appropriate," with the scale of aid "proportionate" to the funding required.

Kerstin Andreae, Executive Director of the German Association of Energy and Water Industries, stated that the European Commission's approval of this state aid came just ahead of the first bid submission date of September 8, 2026; after three and a half years of intensive negotiations, multiple draft revisions, and repeated delays, the conditions for new dispatchable capacity have now been established. She also noted that the key priority now is for the Federal Network Agency to award contracts promptly so that the relevant facilities can be implemented quickly; the next step should be designing a broad capacity market open to all technologies for the period beginning in 2032, building on the requirements outlined in the StromVKG.