Germany is set to introduce a comprehensive capacity market mechanism to secure power supply as of 2032. As an immediate first step and to address urgent demand, competitive tenders for up to 11 GW of new capacity reserve power plants are scheduled to run still in 2026 and 2027, offering immediate opportunity for new revenue streams. The details will be spelled out in the Electricity Supply Security and Capacity Act (Strom-Versorgungssicherheits- und Kapazitätengesetz, StromVKG), which has passed the legislative process and will come into force shortly.
What bidders need to know
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Two tenders for 4.5 GW each are planned for 2026 (bid deadlines: 8 September and 29 December). Another 2 GW tender will be launched in May 2027.
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The 2026 tenders factually target new gas-fired power plants because the stringent technological requirements (continuous power generation for 10 hours, maximum downtime of 3 hours between cycles) are difficult to meet by any other asset class. The 2027 tender will be more accessible to other technologies, primarily BESS.
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Generally, any asset class is eligible to provide capacity services, provided their emission intensity does not exceed 550 g CO2/kWh from fossil fuels. However, asset classes are subject to individual de-rating factors reflecting different levels of reliability, which will disadvantage any kind of intermittent power generation.
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Government support is structured as annual payment over a period of 15 years, starting after November 2031. Payments are capped at EUR 244,000 / rMW per year and bidders compete in reverse auctions over the lowest amount of government support needed (“pay as bid”). These capacity payments come on top of any other revenues generated with the asset.
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Projects must be located in Germany (or Luxembourg) and grid connection must be secured by November 2031 at the latest. Projects in the south of Germany benefit from a bid adjustment (EUR 16,000/rMW), but only after one-third of the tendered capacity has been awarded to projects in the north of Germany.
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The tenders are open to all (experienced) bidders, but non-EU bidders may face increased scrutiny (and exclusion) in case of security concerns.
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At least 50% of critical components for a project must be sourced from within the EEA or countries with EU free trade agreements.
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While projects do not have to be "ready to build", a bidder's commitment is tested by substantive penalties for late commissioning, backed by securities that have to be provided: A pre-bid security (15% of capacity x EUR 244,000/rMW) and project securities following the award.
What bidders need to do
- Familiarize yourself with the tender process details published by the German Federal Network Agency.
- Assess whether pipeline projects meet eligibility requirements.
- Secure “Made in EU” compliant equipment.
- Ensure financing is available for security deposits and initial CAPEX. No double funding with other government support is permitted.
- Model the business case including capacity payments, bonus payments for excess capacity, and penalties for unavailability or late commissioning.
- Align internal approval processes with the tenders’ ambitious timelines. Bids are binding once submitted, with limited opportunity for clarification questions.
Background
Germany’s last coal-fired power plant is scheduled to go offline in 2038. To nevertheless ensure reliable capacity when the growing amount of renewables cannot meet demand, Germany needs new and reliable generating capacity. And since capacity is not built as needed, Germany decided to introduce a government sponsored capacity mechanism, which is spelled out in the StromVKG.
As an immediate action point, the StromVKG calls for capacity tenders totalling 11 GW in 2026 and 2027. These capacities are scheduled to come online by November 2031 at the latest. This is where the immediate opportunities lie. The German government has also voiced a clear preference for gas-fired power plants and structured eligibility requirements for the 2026 tenders (amounting to 9 GW) accordingly – a decision that has been subject to political and legal debate. Future tenders beyond 2027 are planned, but the details are still vague and the tendered capacity will depend on actual demand.
Besides addressing this immediate demand, the StromVKG also sets the framework for a more comprehensive capacity market as of 2032, opening up new capacity-based revenue streams beyond the traditional “energy only” markets in Germany.
Tenders will be administered by the German Federal Network Agency (Bundesnetzagentur), which already has significant experience running similar capacity-based tenders. The first tender is expected to be published by 21 July 2026 at the latest to meet the initial 2026 deadline: The first awards are scheduled for early November.
State aid approval by the European Commission is, however, still required for most of the tender design. While a general understanding on the capacity tender mechanism was reached in spring 2026 between Germany and the European Commission, a formal review of the finalized StromVKG has not yet taken place. Given the ambitious timelines, the Federal Network Agency will likely start tenders on a conditional basis, with final award decisions pending state aid approval. In fact, the Federal Network Agency has already begun to publish practical information regarding the tender design on its website.
Other author: Neele Schauer, Associate
