The European Commission has approved a German scheme that could mobilise up to €35.2 billion to strengthen electricity security and ensure the country has enough power
capacity to meet demand from 2031.
The state-aid decision clears the way for a nationwide capacity mechanism designed to support electricity generation, storage and flexible demand as Germany moves towards a climate-neutral energy system.
The programme is expected to cost between €15.6 billion and €35.2 billion over its lifetime. The precise cost will depend on the results of competitive auctions.
Under the scheme, Germany's transmission system operator will pay providers for maintaining sufficient capacity to meet the country's electricity reliability standard.
The mechanism will be open to a wide range of technologies, including power stations, energy-storage facilities and demand-response services. Existing and new projects will be eligible, while capacity from neighbouring EU countries directly connected to Germany's grid will also be able to participate in most auctions.
Contracts could run for up to 15 years, with capacity selected through competitive bidding. The first auctions are scheduled for 2026, with a further round possible in 2027 if the initial tenders do not attract enough capacity.
The first auctions will be restricted to additional long-term capacity located in Germany. Subsequent tenders, planned for 2027 and 2029, will be open to existing and new capacity and all eligible technologies.
The Commission said the mechanism was necessary to address potential electricity-supply risks and was compatible with EU energy-market rules.
It also stressed that the scheme contains safeguards intended to prevent excessive distortions of competition. Companies will compete on the level of support they require, with projects selected through transparent and non-discriminatory auctions.
Climate requirements form a central part of the programme. Capacity receiving 15-year contracts must operate in a climate-neutral manner by 2045 at the latest.
New gas-fired power plants seeking long-term capacity contracts will also have to be hydrogen-ready, allowing them to switch away from natural gas as Germany's energy transition progresses.
Germany estimates that the mechanism could cost between €1 billion and €3 billion in 2031. Annual costs from 2032 to 2045 are expected to range between €900 million and €2.3 billion.
The Commission's decision comes as Germany prepares a broader overhaul of its approach to electricity security.
Berlin plans to introduce a separate structural capacity mechanism in 2027, which is intended to address supply concerns more extensively from 2032 onwards. That programme will have its own budget and was not covered by the Commission's latest decision.
Germany is also preparing separate tenders to encourage the conversion of gas-fired generation to hydrogen. Plans call for 2 GW of capacity to switch to hydrogen by 2040 and another 2 GW by 2043.
Those measures will require separate approval under EU state-aid rules.
The Commission said capacity mechanisms can play an important role in maintaining reliable electricity supplies as Europe reduces its dependence on fossil fuels and expands renewable energy.
However, Brussels has warned that such schemes must be carefully designed so they do not unnecessarily raise consumer prices, give preferential treatment to particular energy companies or restrict electricity flows between EU member states.
The detailed decision will be published in the EU State Aid Register under case number SA.106805 once confidentiality issues have been resolved. Photo by Reinhold Möller, Wikimedia commons.