Brussels approves German gas capacity market worth up to €35 billion

German electricity consumers face a bill that could reach €35.2 billion over the next two decades after the European Commission approved a capacity mechanism that critics say amounts to a subsidy programme for gas-fired power plants. The decision, announced on 2 September, clears the way for the first auction to close within a week, leaving almost no time for public scrutiny of Brussels' reasoning.

The approval covers Germany's Electricity Supply Security and Capacity Act, known by its German abbreviation StromVKG, which will run from 2031 through at least 2045. Germany's Federal Network Regulator, the Bundesnetzagentur, opens the first tender on 9 September. A second auction closes on 29 December. Between them, they will seek 9GW of new capacity, all of it contracted for 15 years.

A price tag paid by households

The mechanism's costs are substantial and will fall directly on electricity consumers. Initial estimates for the first auction range from €1 billion to €3 billion. Annual costs for subsequent rounds, covering the years 2032 to 2045, are projected at between €900 million and €2.3 billion. The total upper bound sits at €35.2 billion. Even the lower estimate of €15.6 billion represents a significant addition to German energy bills over a period when the country is supposed to be phasing out fossil dependence.

Transmission system operators will administer the payments, remunerating capacity that meets a reliability standard designed to guarantee electricity supply security. In practice, the beneficiaries will be generators who can promise to deliver power at times of peak demand. The question dividing policymakers, lawyers and energy companies is which technologies those rules actually favour.

Technical rules that exclude batteries

The Commission describes the auction as technology-neutral. That claim does not survive contact with the design details. To participate, a resource must be capable of feeding electricity into the public grid without interruption for at least ten consecutive hours at 80% of its installed capacity. For a combined cycle gas turbine, meeting that threshold is straightforward. For a battery storage system, it means discharging at 80% of capacity for ten hours straight and then recharging within three hours, a requirement that rules out virtually every commercial battery installation operating today.

The capacity credit system deepens the imbalance. Combined cycle gas plants receive an 85% credit, meaning nearly all their installed capacity counts towards the reliability standard. Battery storage systems receive just 58%. The practical effect is that a gas plant can bid with a smaller de-rating penalty than a battery of equivalent nameplate capacity, making it cheaper to offer the same volume of certified capacity.

Beyond Fossil Fuels, an environmental group, argues that this directly contradicts the EU Electricity Regulation, which requires that capacity mechanisms open to all resources must include energy storage and demand response on equivalent terms. The group contends that the first 9GW of auctions are effectively closed to both.

ClientEarth challenges the Commission's reasoning

The environmental law charity ClientEarth filed a formal State aid complaint in November 2025, alleging that the auction design amounts to a gas subsidy. Stéphanie Nieuwbourg, a lawyer at ClientEarth, described the Commission's approval as "astonishing." "Based on the legislation adopted by Germany, we do not see how the Commission could conclude that this measure complies with its own State aid rules," she said.

Nieuwbourg also pointed to the timing. The Commission published its decision just days before the first tender deadline, and the full text has not yet been released. Because the reasoning is not public, there is no opportunity to examine how Brussels reconciled the mechanism with its own competition rules before the first auction round closes. ClientEarth says it will scrutinise the published decision for the scale of the mechanism, its market-distorting potential and the burden on consumers.

The requirement that gas plants must be climate neutral by 2045 is, in ClientEarth's view, no safeguard at all. That deadline falls in the final year of the 15-year contracts, meaning consumers will subsidise the operation of fossil gas plants for the entire duration of the obligation. The plants need only demonstrate hydrogen-readiness; they do not need to run on hydrogen at any point before 2045.

Industry voices confirm the tilt towards gas

It is not only environmental organisations that see the problem. Nina Schmüser, regulatory affairs manager at the independent power producer Grenergy, said the initial design "strongly favours gas-fired generation" and that the first 9GW of tenders are "unlikely to be accessible for today's BESS projects." She warned that the scheme locks in gas capacity for years while reducing the merchant revenues that battery storage depends on.

Anselm Eicke, a partner at the consultancy Neon Neue Energieökonomik, identified an additional barrier: a requirement that battery cells must originate from European or associated countries. That condition further narrows the field for storage developers reliant on Asian supply chains.

What changes from 2027

The architecture of the capacity market is not entirely static. Starting next year, Germany will introduce so-called duration-neutral auctions, with roughly 2GW of capacity contracts on offer. From 2027, the StromVKG framework shifts towards technology-open tenders, which Grenergy's Schmüser said should give battery storage "a fair opportunity to compete as a carbon-free and increasingly cost-effective source of flexibility."

Philipp Hesel, senior associate at Aurora Energy Research, expects batteries to become the main participants in these later rounds. But he cautioned that derating factors for the duration-neutral auctions have not yet been published, and they are likely to remain "quite harsh," favouring longer-duration storage over the four-hour systems that dominate the current market. He also suggested that the German government will want to avoid subsidising short-duration batteries that would be built without support, meaning that even the technology-open auctions may not offer easy entry for four-hour assets competing against gas.

Precedent for other member states

The Commission's decision carries weight beyond Germany. Several EU member states are considering new capacity market mechanisms of their own. If Brussels has accepted that a mechanism structured around 15-year gas contracts and 10-hour duration requirements complies with EU rules, other governments will take note. Both ClientEarth and Beyond Fossil Fuels warn that the approval sets a template that could channel public money towards fossil generation across the continent, at a time when the EU's own climate legislation demands a rapid transition away from gas.

The Commission found the German mechanism "necessary and appropriate" to ensure electricity supply security and said the level of financial aid was proportionate. It has not yet published the detailed reasoning behind that conclusion. Until it does, the public and competing technology providers are left to read the legislative text alone, and that text, by the admission of multiple industry participants, is written for gas.