I. Introduction

The German Federal Ministry for Economic Affairs and Energy (BMWE) is currently clearing key hurdles to secure cabinet adoption and formally launch the legislative procedure for the draft of the Electricity Supply Security and Capacity Act (Strom-Versorgungssicherheits- und Kapazitätengesetz – StromVKG), the long-awaited vehicle for the coalition’s power plant strategy. Following the leak of a first draft of the StromVKG, an updated draft dated 27 April 2026 was just recently shared with the Länder and associations for consultation (Länder- und Verbändeanhörung). The draft remains subject to change during cabinet, parliamentary and EU state aid proceedings, but the core architecture, including volumes, timing, commitment terms and remuneration, is unlikely to shift fundamentally. The StromVKG is conceived as the first building block of the general capacity market scheduled from 2032.

II. What is tendered - and when

Generally, the StromVKG provides for three auction segments with distinct timelines and eligibility profiles:

• Long-term capacity auctions: the first round is planned for 1 September 2026, and the second round is planned for 8 December 2026. Each round will tender 4.5 GW of reduced capacity (rMW), with capacities being carried over into the second round if round one remains undersubscribed.
• Generation capacity auction: the StromVKG prescribes a single 2 GW tender on 18 May 2027.
• General capacity auctions: the first round is planned for 1 October 2027, whilst the second round is planned for 1 October 2029. In the 2027 tender, 75% of the tender volume determined for the service period will be auctioned. The tender volume will be increased to 100% in the 2029 tender.

Out of these three segments, the long-term capacity auctions are the commercially most significant and time-critical tenders, with the first round being planned for 1 September 2026. Therefore, the following assessment will focus on those auctions.

III. Eligibility and auction process for long-term capacity auctions

Potential bidders should start preparing as soon as possible if they intend to participate in the upcoming auction. Facilities must satisfy a broad set of eligibility criteria summarised below.

1. 1. Technical and environmental requirements

To be eligible, facilities must be technically capable of continuous output for at least ten consecutive hours. Energy-limited generation technologies, including storage, must be able to deliver the full ten hours of dispatch within at most one hour’s lead time, at any time during the commitment period.

Bidders must also be able to confirm that the relevant facility does not emit more than 550 g CO₂/kWh from fossil fuels. For gas-fired plants using natural gas as their main fuel, 100% hydrogen-readiness is required, meaning that the plant must be planned and constructed in a way that allows it to switch to hydrogen as its main fuel through modifications to components or plant operation. All awarded plants must operate climate-neutrally from 2046 onwards.

1. 2. Bid size, grid connection and investment threshold

Only bids of at least 1 rMW will be considered. Bidders must also prove grid connection or provide a binding confirmation from the network operator that capacity will be available for the commitment period.

The commitment period spans 15 years, and a minimum investment threshold of EUR 431,000/rMW applies, acting as a qualifying hurdle, not as a cap.

1. 3. Resilience and supply-chain requirements

A resilience requirement stipulates that the end product and at least 50% of essential components must be manufactured within the EEA. However, this requirement does not apply to gas-fired plants, which creates an additional market-entry barrier for storage bidders.

1. 4. Site and geographic eligibility

Sites with gas-fired generation in the past five years are generally excluded from the auctions, but eligibility is retained for system-relevant decommissioning sites and sites where new capacity does not replace existing capacity (e.g. lignite-to-gas projects).

Participation is restricted to facilities located in Germany and, under certain conditions, Luxembourg. Facilities from other EU Member States can only participate in auctions with a one-year commitment period and are therefore excluded from the 2026 and 2027 segments. Moreover, cross-border pooling is not permitted.

1. 5. Prequalification, award and post-award security

Bidders must provide required information for preliminary prequalification, with compliance being confirmed after the award (so called final prequalification). The auction operates on a pay-as-bid basis, with bids ranked from lowest to highest, subject to a statutory ceiling price.

A southern deduction (Südbonus) of EUR 16,000/rMW/a will be applied to bids from plants in the grid-defined South, including North Rhine-Westphalia, applicable to two-thirds of the awarded long-term volume.

Post-award, the winner must post a completion bond (Realisierungssicherheit) equal to the maximum non-realisation penalty (twice the bid value × awarded rMW), within 20 working days.

1. 6. Practical takeaway

Bidders should immediately (i) assemble grid connection evidence, (ii) verify site eligibility against the five-year exclusion, (iii) initiate H₂-readiness design certification with their EPC, (iv) test EEA sourcing for any non-gas components, and (v) start detailed business-case modelling. Overall, the eligibility criteria are likely to favour gas-fired plants over competing technologies. In particular, the 10-hour dispatch requirement and the resilience requirement favour such plants, despite the formally technology-neutral design.

IV. Remuneration – What Operators Earn and What They Risk

A final assessment of how much operators can earn is not possible at this point. However, a general overview of the relevant mechanisms that determine the operator’s remuneration can already be made.

• Capacity payment (Kapazitätsvergütung): This is an annual pay-as-bid claim against the TSOs, calculated as bid value × awarded rMW. Payment will be made 20 working days after each commitment year.
• Availability netting: Complex mechanism based on the following principles. Operators are not penalized for every individual outage. Availability is checked during high-price periods and then assessed across the system. Charges arise only when shortfalls exceed surplus availability at system level. In that case, operators with shortfalls must pay an availability charge (Ausgleichszahlung), while operators that overperform may receive an over-performance premium (Ausgleichsprämie). This makes the mechanism less punitive for isolated outages but still creates a financial incentive to be available when the system is tight.
• Reliability option (Preisspitzenausgleich): Operators are only allowed to retain spot revenues up to the daily strike price. Above it, revenues are clawed back. Operators will owe an amount equal to (spot price − strike price) × awarded rMW if spot prices exceed the daily strike price. In effect, this mechanism is a self-hedge for dispatched plants and a pure cash outflow for offline plants.

The risk architecture directly follows from the remuneration design. Downside protection is one-way, becauseoperators cede price-spike upside through the reliability option but no longer enjoy the CfD's floor against low spot prices, meaning that the capacity payment, which remains fixed, acts as the sole hedge.

Performance risk, by contrast, is softened through the availability netting, a force majeure defence and an individual stop-loss cap (Stop-Loss), meaning that operators only incur significant costs for unplanned outages when there is a widespread system shortage.

Additionally, penalties are imposed for failure to realize projects or meet key deadlines (Nichtrealisierungspönale). The non-realization penalty is set at twice the bid value per rMW and is secured by a realization security. These penalties are intended to cover unanticipated cost increases (typically between 30-60%) during project execution, such as unexpected price hikes for materials or unforeseen construction delays.

V. Spotlight: Generation capacity auction (May 2027)

The 2 GW generation capacity auction of 18 May 2027 merits separate attention. Eligibility remains limited to generation facilities, with pooling allowed only for facilities within the same technology class. Key requirements such as site exclusion, the 15-year commitment, EEA sourcing for listed technologies (such as BESS), H₂-readiness for gas-fired plants, and climate-neutrality from 2046 apply in parallel.

Unlike the long-term segment, this auction dispenses with the ten-hour dispatch requirement and the one-hour rule for energy-limited technologies, making it, in theory, the first entry point for large-scale storage under the StromVKG. In practice, however, the resilience requirement may limit this opportunity considerably, as the ≥ 50% EEA sourcing threshold for storage end products is likely difficult to meet, given global supply chain constraints.

VI. Stakeholder Feedback from the Verbändeanhörung

The consultation has produced a polarised response. The BDEW and the TSO Transnet BW support the draft, the latter expressly endorsing the Südbonus as essential for southern Germany given the parallel coal phase-out. The DGB backs the package overall but criticises the Südbonus as disadvantaging structurally weaker eastern and northern regions — a concern echoed by the eastern operator LEAG.

The critical voices are more numerous. The Bundeskartellamt has warned that the draft risks entrenching market concentration in the generation sector. The VKU criticises the exclusion of existing gas sites and gas engines (Gasmotoren) as discriminating against decentralised and municipal projects. The BNE rejects the centralised mechanism altogether, advocating an Absicherungspflicht as a less interventionist alternative, and points to comparatively low storage derating factors (58% for 10-hour storage in Germany versus, inter alia, 77% in Belgium and >92% in the most recent UK T-4 auctions). On the EU level, DUH, ClientEarth, Octopus Energy, Green Planet Energy and 1KOMMA5° have filed a formal complaint with the European Commission, alleging breach of the state aid framework and foreclosure of decentralised flexibility.

Adjustments to the technical participation criteria, the Südbonus and the storage derating factors appear realistic in the further legislative procedure; the Commission’s state aid review will, however, be the decisive arena.

VII. Outlook

Cabinet approval timing is expected shortly. The StromVKG should face less intra-coalition conflict than the ongoing EEG and grid package reforms, although the consultation reactions described above suggest non-trivial pressure for amendments during the parliamentary procedure and the EU state aid review.

We would like to thank Tammo Eilts and Fabio Knipper for their valuable support in preparing this article.