Capacity Mechanism: Germany’s Current Roadmap

As the share of renewables continues to grow, the logic of Germany’s power system is changing. Wind and solar are supplying increasing volumes of electricity and are driving down wholesale prices in many hours. At the same time, they are not available on a firm basis at all times. During periods of low wind, low solar generation and high demand, the system still requires capacity that can reliably step in.

Today, power generators in the so-called energy-only market primarily recover their costs through electricity actually generated and sold. For assets that run only rarely but are needed in critical situations, this model is becoming increasingly challenging. These assets need to be built, maintained and kept operational, while generating revenues in only a limited number of hours.

This is where the idea of a capacity mechanism comes in: remuneration is no longer limited to electricity generation itself, but also includes the provision of firm capacity. Operators receive payments for ensuring that their asset is available when needed, creating a source of predictable capacity revenues. The objective is to provide an investment framework for new dispatchable capacity.

The Federal Government's Proposal

The German Federal Government proposes a two-step approach to introducing a capacity mechanism.

As a first step, the Power Supply Security and Capacity Act — the Strom-Versorgungssicherheits- und Kapazitätengesetz, or StromVKG — is intended to implement the power plant strategy and establish an ad hoc capacity market. This first step is designed around the 2031 delivery year. The objective is to ensure that additional dispatchable capacity is available in the power system by then.

As a second step, a separate law for the long-term capacity market is expected in 2027. This broader mechanism is intended to apply from the 2032 delivery year onwards.

Therefore the initial entry into a capacity market is to be regulated through the StromVKG. The permanent design of Germany's long-term capacity market, however, remains subject to a separate legislative process.

The Debate Around the StromVKG

With the StromVKG, Germany now has a concrete legal framework for the first stage of a capacity mechanism. The draft provides for several auction segments:

• In 2026, two auctions for so-called long-duration capacity are planned: on 1 September and 8 December, each with a volume of 4.5 GW. Volumes not awarded in these auctions may be transferred to an additional auction date. A statutory maximum bid value of EUR 173,000 per MW of de-rated capacity per year has also been set to prevent strategic bidding.

• On 18 May 2027, an additional auction for generation capacity with a volume of 2 GW is planned. This segment also provides for a 15-year commitment period. However, the strict long-duration criterion requiring ten hours of electricity generation does not apply.

• Technology-neutral capacity auctions are intended to be open to both generation assets and controllable loads. The auction dates are scheduled for 1 October 2027 and 1 October 2029.

Fig.: The German federal government's proposal for the capacity mechanism in Germany

The draft StromVKG was adopted by the Federal Cabinet in May 2026, but remains subject to criticism. One central concern is that the specific technical requirements may primarily favour gas-fired power plants.

The key issue is the design of the long-duration capacity segment. Assets in this segment must be able to feed electricity into the grid at the level of their installed capacity for at least ten consecutive hours. In addition, this capability must be restorable at short notice. Requirements relating to European value chains also apply.

As a result, battery storage assets are effectively excluded from the first 9 GW of auctions.

This matters because storage is not a solution for every extended scarcity event, but it can make an important contribution to power system flexibility. Batteries can respond quickly, shift electricity from periods of high renewable generation to periods of higher demand, and smooth short-term residual load peaks.

What Other Countries Show: Storage Can Support Capacity Markets

A look abroad shows that battery storage can be meaningfully integrated into capacity market systems.

Belgium is currently one of the clearest examples. Capacity is procured through a Capacity Remuneration Mechanism, or CRM. In the most recent auctions, battery storage played a central role: in 2025, transmission system operator Elia organised three CRM auctions in parallel for the first time — Y-4, Y-2 and Y-1 — securing a total of 15,058 MW of capacity. According to Elia, batteries made a strong contribution, with many battery projects deliberately opting for the Y-4 auction with a longer lead time.

Great Britain follows a different approach. Battery storage participates in the Capacity Market, but is assessed using de-rating factors. These factors reflect the fact that a storage asset with limited duration cannot provide the same availability in every scarcity situation as an asset capable of continuous generation. Storage is therefore not excluded; instead, it is credited according to its expected contribution to system adequacy. In the T-4 auction for 2028/29, market data indicates that almost 1.8 GW of de-rated battery storage capacity secured 15-year capacity agreements, representing a significant share of new capacity commitments.

Poland illustrates how strongly the specific market design can shape investment signals. In recent years, substantial battery storage capacity has been contracted through the capacity market. In the main auction in December 2024, around 2.5 GW of storage capacity was contracted, up from 1.7 GW in the previous year. At the same time, more recent developments show that changes to availability assessment can quickly affect the market: if the de-rated contribution of storage is reduced significantly, its competitiveness in the capacity market also declines.

The international comparison makes one point clear: storage assets do not need to be treated as if they were gas-fired power plants. They can be integrated through de-rating factors, differentiated products, shorter delivery durations or dedicated prequalification rules.

Conclusion

Germany’s current roadmap for a capacity market provides greater clarity for the first time: auctions for long-duration capacity are set to begin in 2026, followed by additional generation and technology-neutral capacity segments in 2027. From 2032 onwards, a broader capacity market is expected to apply.

For battery storage, this roadmap is ambivalent. In the short term, the requirements for long-duration capacity mean that batteries risk being effectively excluded from the first auctions. In the long term, however, they can become an important component of a more efficient capacity market — provided the design reflects their actual system value.

The examples of Belgium, Great Britain and Poland show that storage can be part of capacity mechanisms. Not as a replacement for every form of firm capacity, but as a contribution to flexibility, resilience and cost efficiency.

Germany’s capacity market should therefore not simply procure capacity. It should organize security of supply in a differentiated way — with a clear view of what different technologies can actually contribute.