The Capacity Market in Germany will offer a new potential revenue stream for BESS, but not all developers and owner-operators are convinced.
Industry experts were divided on the topic during a panel discussion at the Energy Storage Summit Germany yesterday (3 June), titled ‘The Impact of a German Capacity Market: Revenue Lifeline or Regulatory Trap?’, moderated by system integrator Fluence’s Lars Stephan.
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Capacity Markets (CM) have been launched in the UK, Italy, Belgium and Poland to name just a few in Europe, and battery energy storage system (BESS) technology has won increasingly large shares of the long-term revenue contracts they provide. In some places, like Poland, it provides the bedrock of the BESS business case.
The Energy Storage Summit Germany is co-located with Informa’s The Battery Show Europe 2025, and the two events run side by side for three days, collectively covering both the European battery industry and the downstream battery energy storage system (BESS) deployment market in Germany.
‘Situation is much more critical this time’
Germany initially debated launching a CM some 12 years ago but decided that the investment signals from the energy market would suffice. The debate has resurfaced now, but the situation is much more critical as the new capacity investments that are needed have not happened, explained transmission system operator (TSO) TransnetBW’s senior specialist for national and European capacity mechanisms, Sebastian Schleich.
The most recent coalition has said that it wants to launch a CM, with 2028 touted as a potential date, but also separately said that it wants 20GW of new gas-fired power plant capacity. Numerous sources during the event have said that the former is being used as a way for it to achieve a latter, meaning it won’t truly be technology-agnostic.
‘CM is a terrible idea for Germany’
Some panellists pulled no punches discussing it. Developer Kyon Energy‘s founder and MD Philipp Merk said it was a terrible idea for two reasons.
“We need to keep the price signals in tact. One great example of what happens when the state meddles too much with a market is the (notoriously unreliable) German train system,” he said.
“Point two. We recently ran a study along with other companies that are concerned about a ‘lock-in’ effect and a capacity market that’s tailored completely around gas. It’s definitely not technology-agnostic.
“We are proposing an update of the current market design where balancing managers need to take into account the reliability of forecasted load to cover their demand and do more to hedge those risks. This would keep price signals intact. I think this would be a way where we don’t end up paying billions for gas-fired power plants that we would not need in the end and that are not the most economic way of going about it.”
His comments followed those from Fluence’s growth manager Tobias Nitsch earlier in the day, on a different panel, who made a similar point about the CM not being technology-agnostic.
“If it is designed in a proper way such that BESS can contribute, the revenues will be like a toll and banks and insurers really like that. But, if for example the de-rating factor is too high then it’s little more than an incentive for gas. We implore the regulators to keep it technology-agnostic,” Nitsch said.
Harmony Energy’s Stefan Tait similarly said: “Technology moves much faster than regulation. There is a danger you frame a market to be too focused on a certain technology.”
Germany should follow other examples
Kilian Leykam, head of energy storage for developer-operator Aquila Clean Energy, had a very different view.
“We think it’s a good idea to implement a capacity market, not because it’s needed for the battery business case in Germany but because it helps to structure the overall political discussion that we are having,” he said.
“The capacity markets seen elsewhere structure the discussion of what capacity in a country is needed. Because in Germany, we currently see a very unstructured discussion. Finding an optimal size for each specific technology is very difficult if you do it separately. Having a market which makes basically different assets comparable to how they contribute to system security, we think is really beneficial for structuring the discussion.”
“This is something where Germany does not need to go a new way. There are numerous examples across Europe which look fairly similar. There is an EU-approved concept which can be implemented relatively quickly. We need to just stick to the simple mechanism that has been proven in other European countries.”
Investor Copenhagen Infrastructure Partners’ (CIP) VP energy origination Andreas Metschke was more on the fence but agreed slightly more with Leykam, also stressing the need to stick to what has worked.
“If we are going for this, let’s not have the complexity explosion that sometimes happens in the German context. Let’s keep it simple and get it done with if we need to have it. I agree it’s probably going that way. So get it done already and keep it simple,” he said.
TransnetBW’s Schleich also, perhaps unsurprisingly, agreed it was needed: “We, as a system operator, think that the implementation of a capacity market, is is necessary to ensure security of supply. And I agree with not making it too complex. We’d vote for a centralised CM with a local component.”
“And it must be designed in a technology-neutral way. I do not agree that it would be designed around gas-fired power plants. And we see that BESS play a really important role in the CM in other countries.”
He added that he was sceptical that an implementation of the CM in Germany by 2028 was possible. Separate auctions to procure the stated gas capacity may come before then.
How will it impact the BESS business case?
The next, big question was about how the CM would impact the business case for BESS. Kyon’s Merk said the optimistic view was that it was well-designed, with a fair de-rating factor, and provided a baseline of revenues which helped financing projects.
“The more pessimistic view, which I tend to take, is it is designed with gas plants in mind and then we’ll need to deal with it. We will put up a viable business case. Remember all this BESS being built right now is doing so with zero taxpayer money, and suddenly we’ll be competing with something that’s to a large part subsidised by the government,” he added.
Leykam agreed with some of what Merk said but emphasised that the CM will not drastically lower or increase the returns for BESS.
The CM will, Leykam explained, smooth revenues out over the year for BESS, not necessarly make them higher or lower. That is because it will in theory reduce some of those high-price scarcity events – which BESS normally capitalise on – but that would be paid back to the BESS via the CM premium over the year. That would, as Merk said, help finance projects.
Leykam also said that in most cases the CM ends up being a low double-digit percentage of a BESS projects revenue, so the element of being a ‘government-subsidised’ asset is not that strong, he said.
“I don’t think it will lead to big distortion of of the market signals here, and there will be still a very fair playround for for all investors,” Leykam added.
