The European Commission has approved a German electricity capacity mechanism that could cost up to €35.2 billion, in a major move to shore up the country’s power supply while pushing its energy system toward climate neutrality.
The scheme, which will begin delivering capacity from 2031, is designed to ensure Germany has enough electricity generation, storage and flexible demand to meet expected power needs.
The Commission said the measure is expected to cost between €15.6 billion and €35.2 billion overall. Annual costs are estimated at €1 billion to €3 billion in 2031, falling within a range of €0.9 billion to €2.3 billion a year from 2032 through 2045, depending on auction results.
Under the market-wide mechanism, Germany’s transmission system operator will pay for the capacity needed to meet the country’s reliability standard. Generators, storage operators and demand-response providers will compete in auctions for contracts lasting as long as 15 years.
The scheme is open to existing and new capacity, including cross-border capacity, although the first tenders will be reserved for additional capacity located in Germany.
The plan ties state support to Germany’s long-term decarbonisation goals.
Any new gas-fired power plant seeking a 15-year capacity contract must be hydrogen-ready, allowing it to switch away from natural gas over time. All supported capacity receiving 15-year contracts must operate in a climate-neutral way by 2045 at the latest.
Germany will also launch separate decarbonisation tenders aimed at converting gas-fired capacity to hydrogen. Tenders covering 2 GW by 2040 are due to be carried out by the end of 2027, with another 2 GW targeted for conversion by 2043 through tenders held between 2032 and 2035.
The hydrogen-switching support is not part of Wednesday’s Commission approval and will be assessed separately.
Germany plans to hold its first capacity auctions in 2026, with a second round possible in 2027 if demand for the initial contracts is insufficient.
Further auctions are scheduled for 2027 and 2029 and will be open to all eligible technologies and to both existing and additional capacity.
Foreign capacity will also be eligible, provided it is located in an EU member state with a direct electricity network connection to Germany.
The approved scheme is only part of Germany’s broader plan.
Berlin intends to introduce a structural capacity mechanism in 2027, designed to address security-of-supply concerns more extensively from 2032 onward. That future mechanism will have a separate budget and is not covered by the Commission’s decision announced Wednesday.
The Commission said the package is intended to provide investors with greater certainty over future electricity supply.
Brussels assessed the German scheme under EU State aid rules and concluded that it was necessary, appropriate and proportionate. It said competitive auctions and safeguards would limit the impact on competition and trade between EU member states.
The Commission also stressed that capacity mechanisms must be designed carefully so they do not raise electricity prices for consumers, give unfair advantages to energy companies or restrict electricity flows across EU borders.
The approval marks a significant step in Germany’s effort to secure reliable electricity as it transforms its power system — while ensuring new state-backed capacity is increasingly aligned with its 2045 climate-neutrality target.
