Hamburg: The European Commission cleared the German capacity mechanism on 2 September 2026, approving up to €35 billion in state aid to keep electricity supply secure as older plants leave the system. The scheme rewards plants for being available when the grid needs them rather than for the power they sell. Berlin now has the legal certainty it needs to run the first auctions.
The German capacity mechanism starts delivering capacity in 2031, and contracts run for 15 years. It covers generation, storage, demand-side flexibility, existing capacity and cross-border resources, so batteries and flexible industrial users can compete with power plants. The first two auctions in 2026 each target 4.5 gigawatts, and further auctions follow from 2027 to 2029.
Costs will reach between €1 billion and €3 billion in 2031, according to the figures reported at approval. From 2032 to 2045 the annual bill falls to between €900 million and €2.3 billion. Those sums show the scale of the commitment behind the German capacity mechanism and the price of guaranteeing power on calm, dark winter days.
The approval comes with conditions that shape how the market will evolve. Open competitive auctions are required from 2031 onward, operators must run climate-neutral by 2045, and new gas plants must be able to burn hydrogen. New gas-fired plants feature prominently in the near-term auctions, which explains why the hydrogen requirement drew so much attention.
Industry welcomed the decision. Kerstin Andreae, a leading voice of the German energy industry, said that after three and a half years of intense negotiations the conditions for new dispatchable capacity now exist. Climate groups criticised the design as favouring gas, which shows how contested the technology choice remains.
The decision matters beyond Germany because Europe’s largest economy sets the tone for how other states design backup power. Countries with capacity mechanisms or plans, from Poland to Belgium, will watch whether the hydrogen-readiness test and the 2045 neutrality date hold in practice. The Commission applies state aid rules to every national scheme, so the German template may guide later cases.
Developers now face a clear decision on whether to bid in the first 4.5 gigawatt rounds. Competitive auctions, firm contracts and strict end dates give the German capacity mechanism a defined framework, and the Commission will keep monitoring compliance. The coming auctions will show how much new gas capacity Germany really needs and how fast storage and demand response can win a larger share of the German capacity mechanism.
