Gas-fired power plants instead of battery storage: 800 million euros wasted? A law that will decide the energy future

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Germany is at a turning point in its energy policy: While the expansion of private and commercial battery storage is progressing at record speed, making the country the undisputed leader in Europe, a new law threatens to massively slow this momentum. With the planned Electricity Supply Security and Capacity Act (StromVKG), the German government aims to set the course for the future of electricity supply. However, hidden beneath the guise of technological neutrality are criteria – such as an unrealistic 10-hour availability requirement – ​​that effectively exclude modern battery storage systems from the most important tenders. The beneficiaries of this regulation would be precisely those new, fossil-fueled gas-fired power plants. The price for this regulatory misstep is immense: In addition to cementing a permanent dependence on gas imports, annual economic savings potential of around 800 million euros is at stake. The following analysis explains why the current draft law ignores technological progress and how Parliament must now urgently make improvements to prevent Germany's energy future from being sacrificed to the fossil fuel dogmas of the past.

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A secret subsidy for gas? What's really behind the new capacity market law?

In the second week of May 2026, the German Federal Cabinet approved the draft of the Electricity Supply Security and Capacity Act (StromVKG). This decision followed a months-long consultation process, during which the Federal Ministry for Economic Affairs and Energy initially submitted the draft bill for inter-ministerial review and consultation with industry associations. What sounds like a technical formality in energy law is, in reality, one of the most far-reaching economic and industrial policy decisions since Germany's coal phase-out: The law determines which power plant technologies will be favored in a newly introduced capacity market – and thus whether Germany will be able to defend its current leading position in the European battery storage competition in the long term or jeopardize it through misguided regulation.

The core of the Electricity Supply Act (StromVKG) is the introduction of a capacity market that, for the first time in Germany, systematically compensates for the mere provision of generation capacity – regardless of whether electricity is actually delivered. The goal is to ensure that sufficient controllable power is available in the German electricity grid by 2031 to guarantee security of supply even during so-called "dark doldrums," i.e., periods of several days without significant wind and solar feed-in. The law provides for several rounds of tenders: initially, 9 gigawatts of so-called long-term capacity are to be tendered, followed by another 2 gigawatts without a specific long-term criterion, and finally, in 2027 and 2029, completely technology-neutral rounds. However, this very long-term criterion is the crux of the matter – and the starting point of a growing economic policy controversy.

The 10-hour criterion and its market-distorting effect

The long-term criterion in the German Electricity Supply Act (StromVKG) requires suppliers to ensure their plants can deliver electricity continuously over an extended period. The current version stipulates a minimum feed-in duration of ten hours. At first glance, this appears to be a technically sound requirement for security of supply. However, upon closer examination, it turns out to be a criterion that is de facto tailored to thermal power plants – i.e., gas-fired power plants – and effectively excludes battery storage systems, particularly commercially available lithium-ion systems, from the initial, highest-volume tendering rounds.

As Daniel Böhmer, energy market expert at Aurora Energy Research, explains in a technical analysis, the requirement in the current draft goes even further: The systems must be able to meet the ten-hour criterion again at any time, at the latest within one hour. In plain terms, this means that a battery storage system would have to be fully recharged within 60 minutes after ten hours of complete discharge – a technical requirement that is simply impossible to meet with lithium-ion batteries in this stringent form. In a favorable design scenario, it would be conceivable to combine several smaller storage systems or to not have to reserve energy for the full installed capacity – but the strict interpretation of the draft also precludes this flexibility. The result: Anyone who wants to win one of the first capacity auctions essentially has to build or operate a gas-fired power plant.

The German Energy Storage Association (BVES) addressed precisely this issue in its statement on the draft bill and called for an amendment to the relevant paragraph 15 to avoid structurally disadvantaging battery storage systems. The German Association of Energy and Water Industries (BDEW) also urged that the law be passed quickly through the parliamentary process, while simultaneously demanding that the 10-1-10-hour criterion be retained – a contradiction that demonstrates how divided even the industry associations are on this issue. The German Solar Association (BSW-Solar), on the other hand, is unequivocal: battery storage systems should not be disadvantaged compared to gas-fired power plants in power plant auctions due to unsuitable tendering criteria. Storage operators are now even considering legal action against the tender conditions.

Europe's leader risks its position

The full implications of this regulatory decision only become apparent when compared to other European countries. Germany is currently the leading battery storage market in Europe – by a considerable margin. While total installed battery capacity in Europe rose to over 17 gigawatts between 2024 and 2025, and is projected to exceed 80 gigawatts by 2030, Germany is the driving force behind this development. With an increase of 6.6 gigawatt-hours in 2025, Germany recorded the largest new installation in the EU, increasing its installed capacity by a further 0.5 gigawatt-hours compared to the previous year. Italy, which had previously shown similar dynamism, saw its capacity fall from 6.0 to 4.9 gigawatt-hours in the same year – a significant decline.

By the end of 2025, more than 2.5 gigawatts of battery storage capacity were connected to the grid in Germany – roughly double the amount from two years prior. Simultaneously, the number of installed battery storage systems rose to approximately 2.4 million, with a total storage capacity of over 25 gigawatt-hours. The boom continued in the first quarter of 2026: Between January and March 2026, over two gigawatt-hours of new storage capacity were commissioned, an increase of around 67 percent compared to the same period of the previous year. If this trend continues, between 8 and 10 gigawatt-hours of new capacity could be added by the end of 2026, and the total installed capacity could exceed 35 gigawatt-hours. Large-scale storage systems are the primary driver of this growth: In the first quarter of 2026, the expansion in this segment nearly quadrupled compared to the previous year.

This development is not politically imposed, but rather market-driven. The International Economic Forum for Renewable Energies (IWR) notes that the political focus has thus far been more strongly on state-funded, fossil fuel capacities, while the privately financed storage market has developed organically and robustly. This is precisely the industrial policy constellation that economists describe as optimal: a technology that proves itself in competition, generates economies of scale, and does not require permanent subsidies. A regulatory framework that deliberately slows down this dynamic in favor of technologies that require state capacity payments for 15 years to be economically viable is difficult to justify from a macroeconomic perspective.

800 million euros: What's at stake

Behind the abstract regulatory debate lie concrete economic figures. In 2025, around 8 terawatt-hours of electricity generated from wind and photovoltaic plants had to be curtailed in Germany – that corresponds to roughly 3 percent of total wind and solar power generation. Behind this stark statistic lie lost investment returns, avoided emissions that were never avoided, and above all: system costs that are ultimately borne by consumers.

Had the current pipeline of battery storage projects – that is, announced, approved, or already under construction projects with a combined capacity of approximately 10.5 gigawatts – been fully operational, about one-third of these curtailments could have been avoided. This corresponds to potential economic savings of around €800 million, comprised of avoided redispatch costs and unnecessary gas purchases. This figure is not a theoretical model calculation but is based on the actual curtailment volumes recorded by the Federal Network Agency and the empirically determined contribution of battery storage to grid stabilization. It clearly demonstrates that the question of technology preference in the capacity market has not only an energy policy dimension but also a significant fiscal one.

The total costs of German grid congestion management rose to around €3.1 billion in 2025 – four percent more than in the previous year, even though the curtailment volume remained almost constant at approximately 30.3 terawatt-hours. Conventional redispatch measures constituted by far the largest cost component at over €1.2 billion, followed by €1.4 billion for reserve power plants and €102 million for countertrading. In contrast, compensation for curtailed renewable energy amounted to only €433 million – less than one-seventh of the total costs. This finding refutes the claim, sometimes circulated in public debate, that renewable energies are the main cost drivers in grid congestion management. In reality, it is conventional capacities that account for the lion's share of the costs.

Particularly alarming is the structural shift in curtailment towards distribution networks. While three-quarters of redispatch measures occurred in the transmission network in 2024, this figure dropped to only two-thirds in 2025. The proportion of curtailments caused by bottlenecks in the distribution network has thus increased significantly – reaching a record high of 49 percent at times in the second quarter of 2025. This clearly indicates that the problem cannot be solved solely by expanding the transmission network, but that decentralized storage directly on-site is urgently needed.

The fossil fuel temptation: Gas dependency as a systemic risk

The decision to de facto favor gas-fired power plants in the capacity market would have significant consequences not only in the short term but also in the long term. Germany already imports around 70 percent of its primary energy needs. The import rate is 95 percent for natural gas, 98 percent for crude oil, and 100 percent for hard coal. The economic costs of this dependence are enormous: In 2024, Germany spent a net total of around 69 billion euros on fossil fuel imports – equivalent to about 1.6 percent of its gross domestic product. KfW Research even calculates a long-term average of 81 billion euros annually, which corresponds to around 2.5 percent of GDP and amounts to over 1,000 euros per capita per year.

Anyone building new gas-fired power plants now with 15-year capacity payment contracts is structurally cementing this import dependency well into the early 2040s. This is the economic paradox of German energy policy: In the name of security of supply, commitments are being made that permanently institutionalize long-term uncertainty – dependence on gas prices and suppliers. The 2022 energy crisis vividly demonstrated what happens when gas deliveries fail or become more expensive: Import costs for fossil fuels reached €146 billion – more than double the long-term average.

Battery storage systems, on the other hand, are not dependent on any energy commodity supply chain once installed. They enhance domestic wind and solar power, reduce the need for gas imports, and thus strengthen real, not just proclaimed, security of supply. Every kilowatt-hour that a battery storage system stores and later releases is one kilowatt-hour less that a gas-fired power plant needs to generate – and for which Germany has to import gas. This substantial economic advantage has so far received little attention in the tendering criteria of the German Electricity Supply Act (StromVKG).

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System stability: Batteries as an underestimated network actor

The role of battery storage in the electricity system is not limited to simply storing surplus renewable electricity. They also make a significant contribution to system stability, a factor that is systematically underestimated in debates focused solely on capacity. Battery storage systems can react to frequency fluctuations in the grid within fractions of a second, provide balancing power, and thus take on tasks that were previously the sole domain of thermal power plants.

From a systems perspective, it is particularly relevant that battery storage can reduce curtailment of wind and solar power plants without requiring the activation of conventional power plants. If sufficient storage capacity were available today, millions of tons of CO₂ emissions generated during redispatch by conventional power plants could be avoided. The combination of short-term responsive lithium-ion batteries, medium-term storage, and controllable thermal power plants for extreme events is considered by experts to be the optimal configuration from an economic perspective – not a one-sided preference for a single technology class.

A look at other European countries shows how things can be done better: Great Britain, Italy, and Australia have specifically developed tenders for long-term storage tailored to its particular characteristics. This creates investment security, enables economies of scale, and allows different technologies to be used where they are most valuable from a systemic perspective – instead of simulating a technology-blind competition that is in reality unilaterally focused on one technology class.

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Decentralized Revolution: Municipalities and Households as Drivers

The energy policy debate often focuses on large-scale projects, power plant fleets, and transmission grid infrastructure – overlooking a revolution taking place at the household and municipal levels. Around 2.5 million battery storage systems are currently in operation in Germany, distributed across millions of private rooftops and commercial properties. Their total capacity of over 28 gigawatt-hours is theoretically sufficient to cover the average daily electricity consumption of approximately three million households.

By 2030, 7 million single-family homes could be equipped with home storage systems – that would correspond to half of this type of residential building in Germany. Demand for storage solutions is also enormous in municipalities: By 2035, every third municipality could operate its own storage facilities. This trend is not driven by government subsidy programs, but by sound economic calculations: Battery storage reduces electricity costs for consumers, increases the self-consumption rate of solar power, and protects against price spikes on the electricity exchange.

The German Solar Association (BSW-Solar) states that installed battery storage capacity must quadruple from the current 25 gigawatt-hours to around 100 gigawatt-hours by 2030 to achieve the energy transition goals. This means that today's boom is not the end of a development, but its beginning. And this very beginning could be stifled by incorrectly adjusted tender criteria – not because the technology is not competitive, but because regulatory barriers counteract its natural market development.

The structural dilemma: long-term contract award versus technological dynamics

At the heart of the Electricity Supply Act (StromVKG) lies a structural dilemma that extends beyond the specific tender case. Capacity markets, as envisioned by the draft law, award contracts for 15 years. This is necessary to generate sufficient investment security for capital-intensive plants – this is immediately obvious in the case of a gas-fired power plant with investment costs in the hundreds of millions. However, applying the same contract duration to a technology undergoing rapid cost reduction and technological development leads to a distortion: Battery storage systems, which do not yet meet all the requirements today, may be technically and economically superior in five years – and yet they have been driven out of the market by 15-year gas contracts.

The cost development of lithium-ion batteries has undercut all forecasts in recent years. While redox flow batteries and other long-term storage technologies are still in an early stage of commercialization and have higher capital costs, they could become significantly more economically attractive by the time delivery becomes mandatory in 2031. By ignoring this technological dynamic and formulating static requirements that are currently tailored to a single technology – the gas-fired power plant – the draft legislation is making the same mistake that regulators in other sectors have repeatedly made: freezing a specific technological development stage in regulations that claim to extend far beyond that stage.

Furthermore, there is a financing aspect: Gas-fired power plants can point to proven cost and revenue structures and therefore meet with greater acceptance among institutional investors than novel long-term storage technologies. However, this financing advantage of gas plants is not a natural market feature, but rather a historically developed asymmetry – which would be further exacerbated by preferential tendering criteria instead of being systematically reduced.

International role models and their transferability

The challenge of combining security of supply with a technology-neutral capacity market is not unique to Germany. Great Britain, which represents the second-largest battery storage market in Europe after Germany, has created separate tender classes for storage technologies within its Capacity Market – with varying requirements depending on storage duration and response speed. This allows battery storage systems to compete in the segment where they offer the greatest systemic value, rather than competing against technologies designed for fundamentally different system functions.

In Italy, the government's MACSE program specifically promoted long-term storage, thereby creating an independent market for this technology class. Australia, which years ago was plagued by blackouts, has demonstrated through a differentiated capacity market design and targeted investments in large-scale battery storage – including the world's largest battery plant in South Australia – that security of supply is possible without new gas-fired power plants. These international experiences suggest that the real choice lies not between gas-fired power plants and battery storage, but between a differentiated system design that utilizes various technologies according to their systemic strengths, and a simplistic approach that effectively relies on a single technology and labels this as technological openness.

Political window of opportunity: What needs to be done now

The Electricity Supply Act (StromVKG) has passed the Cabinet but still needs to go through the parliamentary process before the first tenders can begin in summer 2026. This parliamentary window offers the last opportunity for adjustments that take market data and economic realities into account. Specifically, the following adjustments are needed: The long-term criterion should be reformed to also recognize combinations of multiple storage systems or staggered deployments. The one-hour charging time requirement for a full recharge after ten hours of discharge should be eliminated or significantly relaxed. And starting with the first round of tenders, a technology-neutral quota should be established, geared towards shorter-term supply gaps – because not every supply security challenge is a multi-day period of low wind and solar power generation.

Furthermore, fair access for battery storage companies to capacity tenders is not only an energy policy imperative, but also an industrial policy necessity. Germany has established a leading position in the European battery storage market, based on genuine economic and technological expertise. Tender rules that jeopardize this position not only harm the energy transition, but also German industry, which has built or is building manufacturing capacities, engineering expertise, and supply chains in this sector. The pipeline of over 10 gigawatts of new storage projects – of which around 1.5 gigawatts are already under construction – is the best testament to the industry's willingness to invest. To counteract this willingness to invest through unsuitable regulation would be a self-fulfilling prophecy of the worst kind: Investments would fail to materialize because they would be signaled that they are not welcome.

Market leadership as a political responsibility

Germany is at a crossroads in its energy policy. On the one hand, it boasts one of the most dynamic battery storage industries in Europe, a growing network of decentralized energy producers and storage facilities, and a societal awareness of the need for the energy transition. On the other hand, the new Capacity Market Act threatens to stifle the market-driven development of these technologies through tender criteria that are effectively tailored to gas-fired power plants and structurally disadvantage battery storage.

The €800 million in annual savings potential that could be realized through the accelerated expansion of battery storage is not a figure from a lobbyist brochure, but a sobering assessment of missed opportunities. It is emblematic of a broader economic truth: security of supply and cost efficiency are not mutually exclusive – provided the regulatory framework allows the best available technology to realize its systemic value. Those who, instead, favor certain technologies and discriminate against others through tender design are engaging in industrial policy – ​​and not a good one. They perpetuate a costly dependency and simultaneously undermine a competitive position that Germany has worked hard to achieve.

The parliamentary process for the Electricity Supply Act still offers a chance to correct this course. The data speaks for itself. The question is whether policymakers are willing to listen – or whether the dogma of guaranteed long-term capacity, historically rooted in a world of thermal power plants, will continue to dominate the design of an electricity market that has long since left that world behind.

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