Capacity Market 2026: What the Electricity Act Means for Battery Storage Investors
Germany is introducing a capacity market. This opens up a new source of revenue for battery storage in the long term—though there will still be hurdles to overcome in 2026. What the Electricity Capacity Market Act (VKG) entails.
The short answer
A capacity market compensates for the mere provision of guaranteed capacity—not just for the electricity fed into the grid. With the Electricity Capacity Market Act (Strom-VKG), which was enacted in July 2026, Germany is introducing such a mechanism. This creates a potential additional source of revenue for battery storage investors; however, storage systems are structurally disadvantaged in the first tenders in 2026. The maximum rate for long-term capacity is 244,000 euros per MW per year.
As the share of wind and solar power in electricity generation grows, the energy transition system requires reliable capacity to cover periods of low wind and low sunlight. A capacity market provides the economic incentives for this. This article is aimed at investors, project developers, and decision-makers in the fields of battery storage and flexible power plants; the “Guide to Battery Storage as an Investment” provides an overview of potential returns.
What is a capacity market?
A capacity market is an electricity market design in which compensation is provided not only for actual electricity generation but also for the mere provision and maintenance of guaranteed capacity. It rewards the willingness to be able to supply electricity at any time. Capacity markets thus ensure security of supply: They compensate for the provision of power plant capacity and offer financial incentives for the construction of new flexible power plants and battery storage systems that would otherwise not be financially viable.
The Energy-Only Market and Its Limitations
In today’s energy-only market, power plants only earn revenue when they actually supply electricity. This leads to the “missing money” problem: reserve power plants that operate only rarely cannot cover their costs through the electricity price alone. Capacity payments close this gap by compensating for the provision of generation capacity—thereby incentivizing investments in flexible power plants, storage facilities, and controllable loads.
Why Germany Needs Guaranteed Performance
The need is foreseeable. With the phase-out of coal and the nuclear phase-out already completed, more than 30 gigawatts of secured capacity will be removed from the grid by 2030, while peak load is growing toward 98 gigawatts due to rising electricity demand—driven by electric vehicles, heat pumps, and industry. According to the Supply Security Monitoring Report, there will be a shortfall of at least 15 gigawatts of secured capacity by 2031; the need for additional controllable capacity is estimated to reach up to approximately 35 gigawatts by 2035.
An Overview of the Electricity VKG
The Electricity VKG moved swiftly through the legislative process in 2026: a draft bill from the Federal Ministry for Economic Affairs in April, a cabinet decision in May, passage by the Bundestag on July 9, and approval by the Bundesrat on July 10, 2026. The law still awaits publication in the Federal Law Gazette and approval under EU state aid law by the European Commission. The goal is to ensure sufficient controllable capacity by 2031; a fully-fledged, technology-neutral capacity market is planned to be in place starting in 2032.
Key Details of the Solicitations
| Parameters | Value |
|---|---|
| Highest Bid Value for Long-Term Capacity | 244,000 €/MW·a (up from 173,000 €) |
| Procedure | Pay-as-bid |
| Initial Calls for Proposals | September 8 and December 29, 2026 |
| Volume per appointment | 4.5 GW reduction in capacity |
| Service Period | 15 years (long-term capacity) |
| Technology-Neutral RFP | 2 GW on May 18, 2027 |
| Regional Guideline | at least one-third in the north |
| Source: BMWE / Bundestag / BDEW / pv magazine (July 2026) | |
The maximum value was raised by 41 percent compared to the government’s draft to ensure a sufficient number of bidders and adequate power plant capacity. In addition, a minimum of 50 percent of key components must be manufactured in the EEA or in EU free-trade partner countries.
What does this mean for battery storage?
Battery storage systems are eligible to participate in the tenders but must meet certain technical requirements: The final version stipulates ten hours of uninterrupted output at at least 80 percent of installed capacity, after which a three-hour interruption is permitted. For many storage systems with shorter storage durations, this is virtually impossible to meet—meaning that the first approximately nine gigawatts of long-term capacity will effectively go to gas-fired power plants. Capacity payments are an additional component of multi-use operation alongside arbitrage, balancing energy, and self-consumption, as demonstrated in the article “How Battery Storage Turns Negative Electricity Prices into Revenue.”
Criticism and Open Deadlines
The design is not without controversy. The bne association warns that raising the cap by 41 percent sends the wrong signal; if fully utilized, the electricity surcharge passed on to consumers via grid fees could rise to 0.54 cents per kilowatt-hour. Despite revisions, the German Renewable Energy Federation sees no genuine openness to different technologies in the initial rounds. For investors, the pending EU state aid approval remains the most significant concern. The article “Section 14a of the Energy Economy Act (EnWG) for Battery Storage Investors” provides an in-depth look at the regulatory framework for storage systems.
Have a storage project evaluated
Are you planning to invest in battery storage and want to know how the capacity market, arbitrage, and balancing energy collectively contribute to your return on investment? We’ll evaluate your project within a multi-use context and show you which revenue streams are reliable.
Frequently Asked Questions (FAQ)
What distinguishes the capacity market from the energy-only market?
In the energy-only market, power plants earn revenue only when they actually feed electricity into the grid. The capacity market pays an additional fee simply for the provision of guaranteed capacity—even if a plant is never called upon. This is intended to solve the “missing money” problem associated with reserve capacity.
When exactly will the German capacity market launch?
The first auctions will take place on September 8 and December 29, 2026, each offering 4.5 GW of long-term capacity with a 15-year commitment. A fully-fledged, technology-neutral capacity market is planned to begin in 2032.
Can battery storage systems participate in the first tenders?
Yes, technically—but with some hurdles: ten hours of continuous output at 80 percent capacity, followed by three hours of refilling. For storage facilities with a shorter storage duration, this is virtually impossible to achieve; the first nine gigawatts or so effectively go to gas-fired power plants.
What is the maximum capacity payment?
Up to 244,000 euros per MW of reduced capacity per year (highest bid, pay-as-bid) – increased from the original 173,000 euros to ensure a sufficient number of bidders.
Why does Germany even need a capacity market?
With the phase-out of coal and nuclear power, more than 30 gigawatts of firm capacity will be removed from the grid by 2030. According to the Supply Security Monitoring Report, there will be a shortfall of at least 15 gigawatts by 2031. The capacity market is intended to encourage investment in firm capacity and reduce the risk of blackouts.
Is the law already in effect?
The Bundestag and Bundesrat approved the measure in July 2026. It still needs to be published in the Federal Law Gazette and receive EU approval under state aid law. Without these, calls for bids can begin, but no contracts can be awarded.
Conclusion: A foreseeable opportunity—but not yet for 2026
The capacity market presents a clear opportunity for battery storage investors. The Electricity Capacity Act (VKG) establishes the framework, but structurally disadvantages storage systems in the first long-term capacity auctions; the first approximately nine gigawatts will effectively go to gas-fired power plants. The relevant windows are the technology-neutral round in May 2027 and the full market starting in 2032.
Until then, capacity payments are an additional, uncertain component: The Battery Storage Guide and the article on instantaneous reserve as a new market show how storage systems are already generating revenue today. Our page on PV battery storage for commercial use provides the basics.
References
- BMWE: Draft Bill to Ensure the Security of Electricity Supply
- pv magazine: Bundestag Holds Final Debate on the Electricity VKG (July 6, 2026)
- BDEW: Electricity VKG Adopted (July 13, 2026)
- topagrar: New capacity surcharge of 244 €/kW (July 9, 2026)
- pv magazine: Security of Supply Monitoring (September 3, 2025)
- Federal Network Agency: Capacity Mechanism / Tenders
Related Articles: Section 14a of the Energy Industry Act (EnWG) for Battery Storage · Instantaneous Reserve Market
