The new StromVKG establishes a capacity market for electricity in Germany for the first time. The Electricity Supply Security and Capacity Act (Strom-Versorgungssicherheits-und-Kapazitätengesetz, “StromVKG”) implements the agreement-in-principle reached with the European Commission on Germany’s Power Station Strategy and aims to ensure that sufficient dispatchable capacity is available to safeguard security of supply from 2031. In particular, that will underpin the continued expansion of renewable energy and the statutory phase-out of coal by 2038 at the latest through competitive auctions that provide financial incentives for new investment and the modernisation of existing facilities. A comprehensive, permanent capacity market is planned for the period from 2032 onwards, with the necessary legislative framework to be established as early as 2027.
Background: Why the capacity market is necessary
Germany’s electricity system is undergoing far-reaching transformation. Excess conventional power plant capacity has largely been eliminated, partly as a result of the statutory phase-outs of coal and nuclear power. Meanwhile, the renewables’ share of gross electricity consumption continues to grow and is expected to reach around 80% by 2030 (see also the recent amendment of the Renewable Energy Sources Act). Consequently, there is a growing need for dispatchable generation capacity to ensure the security of electricity supply even during periods of low wind and solar power generation.
According to the Federal Network Agency (Bundesnetzagentur)’s latest scenarios from September 2025, between 12.5 GW and 25.6 GW of additional dispatchable capacity will be needed by 2035 to ensure security of supply. At the same time, however, investment in new power plant capacity remains subdued, particularly for large-scale, capital-intensive projects with long payback periods. Overall, the necessary investment in power plant capacity has so far been slow to materialise – or has failed to materialise at all.
The StromVKG entered into force on 22 July 2026 and is complemented by the Grid Connection Package, which is intended, among other things, to streamline connections to the electricity grid and improve connection procedures, and by the Infrastructure Future Act, which aims to accelerate planning and approval procedures for construction projects.
Key instrument: Competitive auctions and capacity payments
Section 3(1) StromVKG provides for three types of auctions targeting different technologies and investment profiles:
- Dates for the long-term capacity auctions pursuant to section 4(1) StromVKG are 8 September and 29 December 2026 with a volume of 4.5 GW each. These auctions specifically target new facilities and additional capacity at existing facilities pursuant to section 12 StromVKG.
- They will be followed by a 2 GW generation capacity auction pursuant to section 5 StromVKG, to be held on 18 May 2027.
- Capacity auctions pursuant to section 6 StromVKG will take place on 1 December 2027 and 1 October 2029. Under section 13(1) in conjunction with section 2, no. 10 StromVKG, these auctions are open to all technologies, including power plants, storage facilities and controllable loads, and to both new and existing facilities. The auction volume will be determined on the basis of the Bundesnetzagentur’s security-of-supply monitoring.
Long-term capacity auctions (section 4(1) StromVKG)
Dates for the long-term capacity auctions are 8 September and 29 December 2026 with a volume of 4.5 GW each and with a 15-year commitment period (sections 4(1) and 12 StromVKG). They are intended to provide sufficient capacity during prolonged periods of low supply, for example when wind and solar generation is low.
Under section 12(3) StromVKG, bids can only be accepted for sites at which, as at the reference date of 30 June 2026, either no generating facility was in operation or one or more facilities were in operation that each met any of the following criteria: The facility had not used gas as its main fuel for electricity generation during the preceding five years (point (a)); the facility had previously been designated as system-relevant and its operator had given notice of permanent closure (point (b)); the facility had been maintained as a capacity reserve facility (point (c)); the facility had used gas as its main fuel but either would be able to operate at full load simultaneously with the facility covered by the bid with both facilities feeding all the electricity generated into the grid, or was to have its installed capacity increased by the nominal capacity specified in the bid (point (d)). This is designed to ensure that new capacity is developed primarily at sites without active gas-fired generation facilities and at existing gas-fired sites only in narrowly defined exceptional cases.
A further requirement is that the generation facilities be capable of providing 80% of their installed capacity continuously for at least ten consecutive hours (section 12(5) StromVKG).
New gas-fired power plants must also be designed to be hydrogen-ready (section 17 StromVKG) and must be capable of providing system inertia (section 16 StromVKG). In addition, all participating facilities must comply with the CO₂ emissions limit of 550 g of carbon dioxide from fossil fuels per kilowatt-hour of electricity generated set out in section 9(1) StromVKG.
Generation capacity auction (section 5 StromVKG)
A further auction will be the 2 GW generation capacity auction pursuant to section 5 StromVKG, which will take place on 18 May 2027. This auction also provides for a 15-year commitment period and is open only to the generating facilities specified in section 12(3) StromVKG (see above). Unlike long-term capacity, however, the criterion set out in section 12(5) StromVKG does not apply, meaning that the facilities are not required to be capable of providing their capacity continuously for ten hours.
Capacity auctions (section 6 StromVKG)
Capacity auctions pursuant to section 6 StromVKG will take place on 1 December 2027 and 1 October 2029. Under section 13(1) in conjunction with section 2, no. 10 StromVKG, these auctions are open to all technologies, including power plants, storage facilities and controllable loads, and to both new and existing facilities. The available commitment periods under section 13(2) StromVKG are one, seven and 15 years.
The auction volume will be determined on the basis of the Bundesnetzagentur’s security-of-supply monitoring. 75% of the identified requirement will be auctioned in 2027, followed by 100% in 2029 (section 6(3) StromVKG).
General auction terms
Under section 74(1) StromVKG, remuneration will take the form of a competitively determined capacity premium on a pay-as-bid basis. Capacity providers will receive annual remuneration based on their bid and the derated capacity offered. Derated capacity is defined in section 22(1) and (2) in conjunction with section 2, no. 30 StromVKG and is calculated using technology-specific derating factors (section 23 StromVKG) to reflect a facility’s contribution to security of supply. The decisive factor is therefore not a facility’s installed capacity, but the capacity attributable to it for capacity market purposes. For energy-limited technologies such as battery storage systems, that depends in particular on the maximum duration for which the facility can provide power. Facilities with the same installed capacity may therefore be assessed differently in the auction process.
In return, providers will undertake to keep their capacity available when demand threatens to exceed supply (section 65(1) StromVKG). Capacity providers will be required to make compensation payments to the grid operator for availability shortfalls under section 76(1) StromVKG, while availability surpluses will attract additional remuneration under section 77(1) StromVKG.
The system also includes a reliability option under section 81 StromVKG: When prices peak, capacity providers will be required to pay transmission system operators the difference between the electricity price and the strike price calculated in accordance with Annex 7 to the StromVKG. This mechanism is intended to limit windfall revenues, mitigate revenue risk and protect consumers against extreme price spikes.
Eligible market players and technologies
Only generating facilities, i.e. power plants and electricity storage facilities (section 2, no. 10 StromVKG), are eligible to participate in the long-term capacity and generation capacity auctions; controllable loads – meaning demand-response resources that can reduce their consumption when required – will not be eligible. Battery storage systems will be largely ineligible for the long-term capacity auctions, because the two-hour standard configuration of battery storage systems currently available does not satisfy the requirement to provide electricity continuously for ten hours. Storage facilities will be eligible to participate as a separate technology class in the capacity auctions under section 6 StromVKG, which are open to all technologies.
State aid clearance
Capacity mechanisms are generally permitted under EU law, but must be non-discriminatory, open to all technologies and market-based (Article 22(1), letters (b), (d) and (g) EU Electricity Regulation). However, the introduction of the capacity market constitutes State aid and therefore requires approval from the European Commission under Article 108(3) TFEU. Accordingly, section 87 StromVKG made parts of the Act conditional on that approval.
The European Commission granted State aid approval for the ad hoc capacity mechanism established by the StromVKG on 2 September 2026. That fulfils the central State aid requirement for holding the planned auctions, which can therefore proceed as scheduled.
Complementary measures under the FlexBG: Accelerating project delivery
Alongside the StromVKG, the Federal Ministry for Economic Affairs and Energy recently presented the ministerial draft of its Act to Increase Flexibility in the Electricity System and Ensure Security of Supply (Gesetz für mehr Flexibilität im Stromsystem und zur Gewährleistung der Versorgungssicherheit, “FlexBG”), which includes measures to facilitate the practical implementation of projects that receive awards under the StromVKG. Section 1(1) FlexBG applies in particular to power plants and electricity storage facilities that have received an award under the StromVKG. The FlexBG therefore does not address the auction and remuneration mechanism itself. Instead it is concerned with the subsequent approval and implementation of the facilities that receive awards.
One of the FlexBG’s key instruments is the classification of power plants that have received an award under the StromVKG as projects in the overriding public interest and in the interests of public security (section 2 FlexBG).
That means that the power plants covered would be given priority in administrative balancing decisions and court proceedings. Under section 11c EnWG, electricity storage facilities are already considered to be in the overriding public interest, meaning that the same already applies to them. See also our article on the Infrastructure Future Act, which discusses the implications of the “overriding public interest” in detail.
Further measures to accelerate proceedings concern the approval procedure under emissions control law and judicial review by the administrative courts, including a binding four-month deadline under section 3 FlexBG for decisions permitting an early start pursuant to section 8a Federal Emissions Control Act (Bundes-Immissionsschutzgesetz, “BImSchG”), which is intended to provide project developers with early planning certainty. In addition, section 4 FlexBG streamlines the process by allowing the approval procedure to proceed without public hearings.
These provisions are accompanied by measures simplifying judicial review by the administrative courts. Under section 12 FlexBG, objections and rescissory actions – including those challenging approval decisions – will generally no longer have suspensive effect. This will prevent projects from being temporarily halted solely because an objection or rescissory action has been brought. Section 13 FlexBG also confers first-instance jurisdiction directly on the higher administrative court with the aim of expediting proceedings by eliminating one level of judicial review and allowing disputes to be resolved through a final and binding decision at an earlier stage.
Conclusion and outlook
The StromVKG establishes a capacity market in Germany for the first time, using competitive auctions to ensure that additional firm capacity is developed by the 2031 delivery year. Although the StromVKG entered into force on 22 July 2026, a number of practical questions remain, particularly regarding its impact on storage technologies, decentralised facilities and the regional distribution of new capacity. However, the State aid approval granted by the European Commission on 2 September 2026 means that the key EU law requirement for the planned auctions has been satisfied.
Energy companies, particularly operators of conventional power plants, storage facilities and controllable loads, should incorporate the provisions of the StromVKG into their strategic planning early on. Operators of battery storage systems should note that they are unlikely to be eligible to participate until the capacity auctions open to all technologies begin in 2027. Finally, companies should also be mindful of the complementary provisions of the FlexBG, which provide for expedited approval and judicial review procedures with a view to facilitating timely project delivery.
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