German Federal Government passes law on the provision of new capacity in the electricity market (StromVKG)

Why should I read this?

On 13 May 2026, the German Federal Government adopted the draft bill on securing electricity supply and providing new capacity (StromVKG) – previously referred to as the Power Plant Strategy – and introduced it into the parliamentary process. This marks the first time a capacity instrument has been introduced that fundamentally complements the existing market architecture of the German electricity system.

The focus is on the systemic transition from an energy-only market to a model that also provides independent remuneration for the provision of secured electrical capacity. The background to this is the structural transformation of the electricity system: the reduction of overcapacity resulting from the coal phase-out and the rising share of renewable energies mean that there are currently insufficient incentives for investment in controllable capacity.

The StromVKG addresses the identified capacity requirements for 2031 and establishes a framework for its competitive creation through tenders to be conducted by the Federal Network Agency between 2026 and 2029.

The following aspects are of particular importance to project developers and investors:

What do I need to know?

• Introduction of a capacity market as a supplementary market segment: Successful bidders must provide the reduced capacity they have bid for, i.e. the nominal capacity multiplied by a reduction factor applicable to the respective plant, from 1 November 2031 until 31 October 2032 at the latest (provision period) and then make the capacity available for a specified period of 1 to 15 years (commitment period). For this availability obligation, they receive an annual remuneration in EUR/MW of reduced capacity (capacity remuneration) from the relevant transmission system operator, as determined in the tender. The capacity remuneration is adjusted downwards via compensation payments in the event of under-performance or upwards via compensation premiums in the event of over-performance, depending on actual availability. Other than that, operators in principle  determine the operation of the plants independently and receive the remuneration achieved on the market for this. 
• Tender-based capacity expansion in several stages: The required capacity is put out to tender via a tiered model, with the tenders differing in key aspects (e.g. length of the commitment period). The draft bill distinguishes between:
• Tenders for long-term capacity (Ausschreibungen für Langzeitkapazitäten): Two tenders are planned for 2026 (8 September and 22 December), each with a tender volume of 4.5 GW. The commitment period is 15 years. 
• Tenders for generation capacity (Ausschreibungen für Erzeugungskapazitäten): A tender with a tender volume of 2 GW is planned for 18 May 2027. The commitment period is also 15 years.
• Tenders for capacity (Ausschreibungen für Kapazitäten): The tenders for capacity will take place on two dates: 1 December 2027 and 1 October 2029. The tender volume is to be determined by the Federal Network Agency in conjunction with the Federal Ministry for Economic Affairs and Energy, based on updated forecasts of capacity requirements. Bids may be submitted for commitment periods of 1 year, 7 years and 15 years.

• Maximum bid values: The maximum value in tenders for long-term capacity and in tenders for generation capacity is 173,000 EUR per MW of reduced capacity per year. In contrast, no uniform maximum values apply to tenders for capacity. Instead, these will still be determined depending on the respective commitment periods. The Federal Network Agency sets these limits as part of the tender announcement.
• Technology-neutral approach with temporal differentiation: The first tenders from 2026 onwards are limited to new plants and comprise exclusively tenders for long-term capacity with increased requirements regarding the duration of electricity supply (ten hours of continuous electricity supply with renewed supply after one hour at the latest), which de facto favour flexible gas-fired power stations as plants for these tenders. Tenders for generation capacity also primarily target new plants, but without a long-term criterion. Finally, the capacity tenders are designed to be completely technology-neutral and allow not only new plants but also existing plants, controllable loads and aggregated flexibility (e.g. virtual power plants).
• Participation requirements, including pre-qualification: The following requirements, among others, apply for participation in the tenders:
• Minimum requirements for the plants (in particular capacity, grid connection, emission limits),
• Requirements for bidders (in particular reliability, financial standing),
• Security deposits (bid security amounting to 15% of the maximum value multiplied by the reduced capacity bid)
• Exclusion of double funding (no simultaneous funding, in particular under the Renewable Energies Act (EEG) or Combined Heat and Power Act (KWKG)) and
• Additional requirements apply to longer-term capacity contracts (7 or 15 years), such as minimum investment thresholds; capacity contracts with a 15-year commitment period are also subject to resilience requirements (particularly regarding supply chain and security aspects).

A formalised pre-qualification system is also central. In tenders for capacity, pre-qualification is a prerequisite for submitting a bid. In tenders for generation and long-term capacity, no pre-qualification takes place prior to the submission of bids – however, the bid must include relevant information that allows a pre-qualification decision to be made after the bidder has been awarded.

• Award of contracts: Bids are awarded based on bid values (in EUR/MW/a), starting with the lowest value, provided that the total of the awarded reduced capacities does not exceed the respective tender volume.
• Obligations following the award and sanction mechanism: Successful bidders are subject to the following obligations in particular:
• Provision of a security for compensation payments and penalties amounting to the bid value and, for commitment periods of 7 or 15 years, a performance security amounting to 1.3 times or 1.8 times the bid value,
• Where applicable, completion of the preliminary pre-qualification process,
• Commissioning of the plant within the specified timeframe, 
• Provision of the guaranteed electrical power and proof of operational capability throughout the commitment period.

Failure to comply with these obligations will result in penalties, and compensation payments to the transmission system operator will be due in the event of insufficient availability when required. Conversely, exceeding the capacity obligation will result in compensation premiums.

• Peak price compensation (Preisspitzenausgleich): In addition, a peak price compensation mechanism is provided for, under which plant operators must make a payment to the relevant transmission system operator in every quarter-hour during which the spot market price for electricity exceeds a defined strike price. The payment is calculated as the difference between the spot market price and the strike price, multiplied by the reduced capacity bid. The payment obligation applies regardless of whether the plant operator has actually fed electricity into the grid, thereby creating an incentive to generate during periods of power scarcity.
• Decarbonisation requirements and H₂ readiness: All subsidised plants with a 15-year commitment period – including existing plants – must be operated in a climate-neutral manner from 2045 at the latest. For newly constructed plants, the requirement that they must be technically designed to allow for a subsequent conversion to hydrogen operation (‘H₂-ready’) will apply from 2026.

What does this mean for those affected?

• In general: Capacity remuneration does not fully replace market revenues. Projects remain significantly exposed to electricity price risk, whilst at the same time peak price compensation limits revenues during high-price periods. Economic viability therefore depends largely on the combination of capacity remuneration and market electricity revenues.
• Project developers and investors: The draft bill establishes a revenue mechanism for the provision of secured electrical capacity, thereby improving the financial viability of such projects. At the same time, it introduces significant regulatory requirements, particularly with regard to pre-qualification, reporting obligations and the risk of sanctions. These risks must be reflected in business models as well as in financing and contractual structures.
• Operators of gas-fired power stations: These stand to benefit particularly from the tenders for long-term capacity still scheduled for 2026, but at the same time face long-term commitments and significant investment requirements (particularly regarding H₂ readiness). For existing plants, opportunities to participate will only arise in later tender rounds, accompanied by a need to adapt in terms of flexibility and decarbonisation.
• Storage operators: Battery storage systems are, in principle, granted access to the capacity mechanism. However, their actual competitiveness in the tenders depends largely on whether the specific requirements (particularly the duration of power provision) can be met.

What should I do next?

Project developers should check whether existing or planned projects fall under the StromVKG and are suitable for participation in the tenders. In particular, it must be clarified whether the technical requirements (in particular long-term capability and H₂-readiness) are met and whether relevant approval and grid connection issues can be resolved in good time.

It is also advisable to prepare for pre-qualification at an early stage. In parallel, existing contracts (in particular EPC, O&M and financing documentation) should be reviewed and, where necessary, amended to adequately reflect availability obligations and penalty mechanisms.

Furthermore, potential bidders should develop a clear bidding strategy and decide whether it makes sense to participate in the early tenders (2026) or only in the later technology-neutral rounds. 

Finally, close monitoring of the parliamentary process is essential, as significant adjustments to the tender design and participation conditions may still be made at this stage. Furthermore, the European Commission’s final approval under State aid law is still pending, which ideally should be in place before the start of the tenders planned for this year.