The bidding window for Germany's first auction of long-term capacity under the new electricity supply security and capacity law, the StromVKG, closed on 8 September 2026. The next day the Bundesnetzagentur said the round had been clearly oversubscribed. The auction offered 4,500 MW of so-called reduced capacity, a measure that weights each plant's nameplate output by a statutory factor reflecting its real contribution to security of supply. Successful bidders will be obliged to keep their capacity available for 15 years in return for an annual payment set in competition, with a ceiling price in this round of EUR 244,000 per megawatt of reduced capacity per year. Plants must be able to provide secure output over long periods, including through extended spells without renewable generation or imports, and must meet technical requirements such as providing inertia for grid stability. The regulator will announce winners by 3 November, and a second round will be announced on 10 November. Reports citing ministry documents say plants awarded contracts must be in operation by 2031.
The auction is the first concrete step in the power plant strategy that Germany agreed in principle with the European Commission in January 2026, and which the Commission subsequently approved as a capacity mechanism worth up to EUR 35 billion. Our view is that strong participation is good news, because it suggests the 15-year contract and ceiling price are sufficient to attract investment. But oversubscription also raises the stakes of design. The auction's rules will determine where the plants are built, what technology wins, and how much consumers pay. Getting those right matters more than the headline volume.
Why Germany needs firm capacity
Germany is phasing out coal, has already closed its nuclear plants, and relies increasingly on wind and solar. During periods of low wind and sun in winter, such as the Dunkelflaute episodes of November and December 2024, it relies on gas plants, remaining coal units and imports. As coal retires, that gap widens. Without new firm capacity, Germany would face either rising risks to security of supply or greater dependence on neighbours during the same weather events that affect them.
The ten-hour criterion in the auction, which requires plants to sustain output for long periods, is aimed precisely at this problem. Batteries are excellent at daily balancing but cannot yet economically bridge multi-day shortfalls. As industry publication ZfK noted, the criterion makes the auction particularly suited to modern gas-fired plants.
Who wants to build
The list of bidders has not been published, but many companies had publicly declared interest, including RWE, EnBW, Uniper and LEAG, as well as municipal utilities and groups such as Trianel. LEAG, the Lusatian lignite operator, said it sees new gas plants as the technological back-up for its plans to combine renewables with gigawatt-scale battery storage, and is looking for follow-on uses at its coal sites at Jänschwalde, Boxberg, Schwarze Pumpe and Lippendorf.
Reusing coal sites has real advantages. They already have grid connections, cooling water and skilled workforces, and redevelopment eases the social impact of the coal exit. But many of them are in the north and east of Germany's grid, where wind generation is already abundant. That leads to the auction's most important design feature.
The regional question
Germany's transmission grid has long struggled to move power from the windy north to the industrial south. New firm capacity in the south is more valuable to the system, because it can run when northern power cannot get through. The auction includes a regional steering component. Once projects in the grid-technical north have won a third of the tendered volume, bids for plants in the south receive a bonus, applied as a discount of EUR 16,000 per megawatt of reduced capacity per year when bids are ranked.
This is a sensible compromise, but a modest one. A bonus of that size relative to a ceiling of EUR 244,000 will shift outcomes only at the margin. If northern bids dominate because they are cheaper, Germany could end up paying for plants that do less for grid stability than southern plants would have. The Bundesnetzagentur should publish the regional distribution of awards and the effect of the bonus, so that the design can be adjusted for later rounds.
Gas lock-in and hydrogen readiness
The power plant strategy was designed around plants that can eventually run on hydrogen, and the climate-neutral operation of new plants by 2045 is part of the framework. That is the right long-term direction, but the hydrogen economy that would supply them remains uncertain, and the cost of hydrogen-fired power is likely to be high. In practice, most of these plants will burn natural gas for much of their lives.
That is acceptable if they run rarely. A capacity mechanism is designed to pay for availability, not energy. If the plants are dispatched mainly during scarcity periods, their emissions will be limited and their gas consumption modest. The risk is that low wholesale prices for capacity encourage them to run more often than needed. Market rules and carbon pricing should ensure that they remain back-up plants rather than becoming a new baseload fleet.
What consumers pay
The capacity payments will be passed on to consumers, likely through network charges or a levy. At a ceiling price of EUR 244,000 per megawatt-year and 4,500 MW in this round, the maximum annual cost of the first round alone would be around EUR 1.1 billion, before competition lowers the clearing price. Oversubscription should push prices well below the ceiling, which is the main benefit of a competitive auction. The Bundesnetzagentur should publish clearing prices and volumes promptly, so that the public can see the cost of security of supply.
Our assessment
Germany's first capacity auction has attracted strong interest, which removes the risk that no one would build. The next challenge is to ensure that it buys the right plants in the right places at a reasonable price. The regional bonus, the hydrogen pathway and the cost to consumers will all be tested when the results are published in November. The government should treat this round as a learning exercise and be prepared to adjust the design, particularly the regional steering, before the larger rounds that are still to come.