Germany receives EU approval for €35.2 billion electricity capacity mechanism

The European Commission has approved a new capacity mechanism for Germany, allowing the government to provide state aid estimated between €15.6 billion and €35.2 billion to ensure electricity supply security. The mechanism, set to take full effect in 2031, aims to maintain grid reliability while the country transitions toward a decarbonized energy system.

The scheme will support various technologies, including power generation, energy storage, and demand-side flexibility. It will be open to both existing and new infrastructure, as well as cross-border capacity. To align with climate goals, any facilities receiving long-term contracts must be capable of operating in a climate-neutral manner by 2045. Specifically, new gas-fired power plants must be designed to be hydrogen-ready.

Capacity will be selected through competitive auctions. The first auctions are expected to begin as early as this year or 2026, depending on the specific tender type. While the initial costs for 2031 are estimated between €1 billion and €3 billion, annual costs from 2032 to 2045 are projected to range from €900 million to €2.3 billion. The Commission concluded that the measure is necessary, proportionate, and compatible with EU state aid rules.