Germany has given the green light to one of the most anticipated reforms of its electricity market: the Security of Electricity Supply Act ( StromVKG ) , which enables the contracting of 11 GW of new dispatchable capacity to be operational by 2031. The framework was definitively approved after its passage through the Bundestag and the Bundesrat.
The auctions will seek to incorporate resources capable of responding during periods of low wind and solar production. The scheme will support the gradual phase-out of coal and the growth of renewables, with two calls for bids totaling 4.5 GW in 2026 and another for 2 GW in 2027 .
“One of the most anticipated reforms of the electricity market in Europe has finally been decided,” said Matthias Janssen , executive director of Frontier Economics, referring to a debate that for years pitted positions against each other regarding the need for the mechanism, its technological neutrality, and its regional distribution.
The regulation redefines the technical and economic conditions that projects must meet. Among the most significant changes are the relaxation of long-term requirements and the increase in the maximum price that participants can submit .
One of the main changes affects assets considered long-duration. These resources will be required to deliver power for ten consecutive hours in situations of scarcity , although they will no longer be obligated to operate at 100% of their installed capacity.
“Long-term capacity must be able to continue operating for 10 consecutive hours during shortage events, but now only at 80% instead of 100% of installed capacity,” the Frontier Economics executive explained.
The modification reduces the effective requirement and could benefit storage projects that, under the previous version, had greater difficulty demonstrating full service availability. However, the ten-hour requirement remains high for conventional short-life batteries .
Energy-constrained technologies will also be able to pause for three hours , instead of one, before resuming power for another ten-hour block. Extending this interval reduces operational pressure and allows for the recovery of some of the energy needed to cope with a new critical event.
“Energy-constrained technologies may need a 3-hour break instead of 1 before needing to deliver another 10 hours,” Janssen explained.
The adjustment places at the center of the analysis the possibility of BESS systems effectively competing with dispatchable thermal power plants. "Will this allow batteries to compete with gas-fired power plants?" the executive asked.
The answer will depend on the reduction factors applied to each technology, the lifespan of the systems, investment costs, and the projects' ability to combine revenue streams from different markets. Connection availability, asset location, and the guarantees required during the process will also play a role.
The debate comes at a time of rapid expansion of European storage. The continent already has more than 100 GWh in operation and added around 36 GWh during 2025 , with Germany and the UK among the markets with the largest installed capacity.
Some jurisdictions register high annualized revenues. The European map shows figures exceeding €800,000 per MW per year in Poland and values up to €654,000 per MW in Italy , although the differences between countries reflect varying regulatory structures, saturation levels, and flexibility needs.
The evolution of these markets reinforces the industry's call for a European Battery Storage Action Plan that eliminates regulatory barriers, accelerates permits and connections, and generates predictable signals for investments.
The StromVKG offers a new remuneration method, but it does not in itself guarantee balanced participation. The design of the criteria must consider the availability, duration, responsiveness, and actual contribution of each asset to system security, without favoring a solution solely based on its technological configuration.
The first tenders will target facilities capable of maintaining production over extended periods. In the case of thermal power plants, requirements will be added related to their future conversion to hydrogen and the availability of assets throughout the contract period.
The approved structure includes two bidding dates for long-duration capacity: September 8 and December 22, 2026 , with 4.5 GW in each process. The 2027 call for bids will add 2 GW and may incorporate other generation and storage alternatives.
The first tender will require the German Federal Network Agency (Bundesnetzagentur) to finalize the procedures, platforms, and operational requirements within a short timeframe. Interested parties must complete their authentication and registration by September 1st to submit bids by September 8th, 2026.
“Bundesnetzagentur needs to design and launch the auctions very quickly, with the first auction scheduled for September 8,” Janssen warned.
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The limit is 244,000 euros per MW per year
The parliamentary review also increased the maximum allowable value of bids. The limit rose from €173,000 to €244,000 per MW of reduced capacity per year , an adjustment intended to reflect the increased cost of projects and additional technical requirements.
“The maximum bid has increased from 173,000 euros to 244,000 euros per MW of declassified capacity per year,” said the Executive Director of Frontier Economics.
The new cap aims to prevent developers from being excluded due to a lack of economic viability. A lower limit could reduce the number of participants and lead to processes with fewer contracts than anticipated.
“Given the rising investment costs and additional technical requirements, such as hydrogen readiness, it was deemed necessary to reduce the risk of undersubscribed auctions,” Janssen explained.
Preparing to consume hydrogen adds financial and technological complexity. Projects must consider from their design stage the possibility of gradually replacing fossil fuels, even though the future availability of renewable hydrogen, its price, and the necessary infrastructure remain subject to uncertainty .
This requirement coincides with the demand of the Energy Ministers of the 16 German federal states , who asked the European Commission for a relaxation of the rules applied to the production of renewable hydrogen.
Regional authorities believe that European requirements regarding additionality, temporal correlation, and electricity origin increase costs and delay final investment decisions. For developers, these conditions make it difficult to ensure a competitive supply for power plants that will need to be converted to the new fuel.
Technical compatibility alone does not guarantee operational change. Deployment will depend on electrolyzers, transmission networks, storage systems, supply contracts, and sufficient demand to sustain the value chain .
Germany will need to coordinate the StromVKG allocations with its national hydrogen strategy and with EU support instruments. The European Commission has already backed a €1.3 billion German scheme to boost renewable production through the European Hydrogen Bank's auction-as-a-service mechanism.
The combination of aid, regulatory simplification, and industrial demand will be crucial to ensure that hydrogen-ready power plants are not limited to a design specification without sufficient fuel to operate.
A bridge to the 2032 capacity market
The StromVKG will cover only a portion of the firm power that Germany will need during the transformation of its energy mix. The legislation will serve as a transitional instrument until a comprehensive capacity mechanism comes into effect in 2032 .
“The StromVKG is just the beginning. It only covers part of Germany’s future firm capacity needs and is intended to serve as a bridge to a comprehensive Capacity Mechanism from 2032 onwards,” Janssen said.
The next model will need to define how many MW the system will contract, what criteria will be used to compare technologies, and how costs will be distributed. The analysis will include generation, storage, demand response, and cross-border capacity.
The participation of flexible loads will be a key issue. The initial scheme allows generation and storage facilities to compete, but excludes dispatchable loads from some calls for proposals, even though these can reduce consumption during periods of high demand and lessen the need to build new assets.
A technologically neutral mechanism will need to reward the effective contribution to security of supply. This will require comparing available time, response speed, location, reliability, energy constraints, and performance during prolonged events .
The cross-border dimension will also require specific rules. Germany will need to determine what portion of the capacity located in neighboring countries can be considered available during a critical situation and how to prevent multiple systems from simultaneously accounting for the same resource.
The distribution of costs will raise another political and regulatory debate. The government will have to decide what proportion of the mechanism will be financed by consumers, retailers, or other participants, and how to limit its impact on electricity bills and industrial competitiveness.
Janssen summarized the questions that will guide the next stage: how much capacity should be acquired, how generation, storage, flexible demand and cross-border resources can compete on a level playing field, and how costs should be allocated .
Frontier Economics is involved in the design along with r2b energy consulting GmbH, REDEKER SELLNER DAHS and DIgSILENT GmbH , in support of the Federal Ministry for Economic Affairs and Energy.
The approval of the StromVKG clears the way for the first stage of a broader transformation. Germany must convert the planned 11 GW into bankable, connected, and operational projects by 2031 , while designing a market that combines security of supply with competition among batteries, hydrogen-ready power plants, flexible generation, and demand management.