4TSO study on the development of a capacity mechanism for the German electricity market

The power plant strategy announced by the German government to promote the construction of 10.5 GW of new power plants makes an indispensable contribution to security of supply in Germany and must therefore be implemented as quickly as possible. Analyses by the four German transmission system operators and the current European Resource Adequacy Assessment (ERAA 2023) of the European Transmission System Operators (ENTSO-E) as well as the Federal Network Agency's 2030/31 security of supply monitoring show a considerable additional demand for secured capacity of around 20-25 GW, which far exceeds the planned tender volumes of the power plant strategy. At the same time, the current market environment clearly does not provide sufficient incentives for plant operators to build the necessary number of new plants outside of the planned tenders. An effective and efficient instrument is therefore required to ensure sufficient investment in secured capacity in the medium and long term beyond the power plant strategy and at the same time enable the coal phase-out. It is therefore a good thing that the German government has also agreed to introduce a capacity market from 2028. The four transmission system operators had already commissioned Consentec and the Ecologic Institute in 2022 to prepare a study to develop a specific capacity market for the German electricity market.

A special feature of the capacity market described in this study is the implementation of a local component. From the point of view of the four transmission system operators, this is an essential prerequisite for efficient interaction between the transmission grid and flexible generation and consumption facilities, as it enables synergies to be leveraged - particularly in the provision of ancillary services.