​For years, Germany's government promised a capacity mechanism without committing to a design. The previous coalition floated multiple models. Political signals then suggested the new government favoured a centralised auction system like GB or Belgium, rather than California's decentralised resource adequacy approach.

Last week, the government confirmed its choice. An energy ministry non-paper, confirmed by the minister last week, reveals Germany has secured European Commission approval for a concrete timeline: first auctions in 2026, capacity delivery from 2031, and 41 GW of total procurement split across three auction tranches.

Like in other European countries such as Spain, the need for a capacity market has become stronger in recent years. The government committed to building new gas plants to cover Dunkelflaute (low wind and solar output) periods as the coal phase-out progresses. The EU pushed for technology-neutral auctions instead.

As a compromise, the EU has now approved a schedule of auctions - some gas-specific, some technology-neutral - to bridge the gap until a full-fledged capacity market launches from 2032. In some of the auctions, batteries will now compete directly against gas plants, cross-border imports, and existing capacity. Germany's capacity market could become Europe's largest this decade. Energy storage can access 31 GW of the 41 GW of the bridging auctions, but competitiveness depends on still-undefined de-rating factors.

Batteries already generate positive merchant returns without long-term contracts. Capacity markets may reduce peak prices that set battery revenues. But firm long-term revenues improve project gearing and debt financing terms - in Great Britain, the capacity market accounted for 10% of BESS revenues in 2025, rising to 15% by Q4. This could be a critical advantage given the financing challenges around Germany's 2029 grid fee reforms.

For any further information on this topic, reach out to the author - till@modoenergy.com

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