The German capacity mechanism, a scheme worth up to €35.2 billion, won European Commission approval under EU State aid rules on 2 September, and the first tender opened a week later. The decision shapes how Europe’s largest economy secures electricity supply from 2031, and it is already drawing sharp criticism from environmental lawyers and battery developers.
Under the German capacity mechanism, Germany will pay for capacity through contracts of up to 15 years for generation, storage and demand response, covering both existing and new projects. Transmission system operators fund the contracts, and the Bundesnetzagentur runs the auctions under the Electricity Supply Security and Capacity Act, adopted in July 2026. The Commission put the total cost between €15.6 billion and €35.2 billion, with annual costs of €1 billion to €3 billion in 2031 and €0.9 billion to €2.3 billion a year from 2032 to 2045.
Two conditions stand out. New gas plants that win 15-year contracts must be hydrogen-ready, and all contracted capacity must operate in a climate-neutral way by 2045 at the latest. Bidders must also deliver power for at least ten consecutive hours at 80% of installed capacity. The Commission found that the German capacity mechanism is necessary for security of supply, with a competitive process and safeguards for competition and cross-border trade.
The timetable is tight for the German capacity mechanism. Two auctions in 2026 each seek 4.5 GW, for 9 GW in total, and the second submission deadline falls on 29 December. From 2027, technology-neutral auctions should offer about 2 GW of contracts. Capacity from neighbouring EU countries with a direct grid connection to Germany may also take part outside the initial reserved tenders.
Critics say the German capacity mechanism favours gas. ClientEarth lawyer Stéphanie Nieuwbourg called the approval astonishing, and the charity argues that a 2045 neutrality deadline clashes with EU climate goals. Beyond Fossil Fuels says the 9 GW round is effectively closed to batteries and demand response, which the EU Electricity Regulation requires to be included. Capacity credits support that view, since gas combined-cycle plants receive 85% while battery storage receives 58%.
Industry voices add a commercial angle on the German capacity mechanism. Nina Schmüser of Grenergy said the initial design strongly favours gas-fired generation, and Anselm Eicke of the consultancy Neon pointed to a requirement for battery cells from European or associated countries. Aurora Energy Research expects batteries to become the main participants from 2027, although harsh derating factors could still favour longer-duration plants.
The wider stakes reach beyond Berlin. Other member states weighing capacity markets will study how the Commission balanced security of supply against competition and climate rules, and ClientEarth has said it will examine the decision. Whether the German capacity mechanism becomes a template or a legal test case will depend on the first auction results and on the Commission’s reasoning, which had not been published when the approval was announced.
