Evaluating the Impact of Germany’s Capacity Market on Battery Energy Storage Systems

The Capacity Market in Germany: Will it Benefit or Hinder BESS?

The Capacity Market (CM) in Germany presents a potential new revenue source for Battery Energy Storage Systems (BESS), but opinions among developers and operators are mixed. This topic was a focal point during a panel discussion at the Energy Storage Summit Germany held on June 3, 2025, titled “The Impact of a German Capacity Market: Revenue Lifeline or Regulatory Trap?” The session was moderated by Lars Stephan from system integrator Fluence.

Capacity Markets have been established in several European countries, including the UK, Italy, Belgium, and Poland, where BESS technology has increasingly secured long-term revenue contracts. In some regions, such as Poland, these contracts form the foundation of the BESS business model.

**A Critical Situation**

Germany has debated launching a Capacity Market for around 12 years, initially believing that investment signals from the energy market would suffice. However, the current scenario has become more urgent, with inadequate new capacity investments, as explained by Sebastian Schleich, a senior specialist for national and European capacity mechanisms at transmission system operator TransnetBW. The latest coalition government aims to establish a CM by 2028 while also calling for an additional 20GW of gas-fired power capacity. Several sources at the event indicated that the CM might primarily serve to facilitate gas investments, which raises concerns about its technology neutrality.

**Concerns About the Capacity Market**

Some panelists expressed strong opposition to the proposed CM. Philipp Merk, founder and managing director of Kyon Energy, described it as a “terrible idea” for two reasons. Firstly, he emphasized the importance of maintaining price signals, citing the inefficiencies caused by excessive government intervention in other markets, such as Germany’s train system. Secondly, he highlighted a potential “lock-in” effect if the CM is designed predominantly around gas, undermining its technology-neutrality. Merk proposed a redesign of the current market structure that would require balancing managers to consider forecasted load reliability, thus keeping price signals intact and avoiding unnecessary expenditures on gas-fired plants.

Echoing Merk’s concerns, Tobias Nitsch from Fluence remarked that if the CM is not designed properly, with a fair de-rating factor, it could inadvertently incentivize gas usage over BESS contributions. He urged regulators to maintain a technology-agnostic approach.

**Diverging Perspectives on the Capacity Market**

In contrast, Kilian Leykam, head of energy storage at Aquila Clean Energy, supported the idea of a Capacity Market. He believes it could provide a framework to structure the ongoing political discussions about necessary capacity in Germany, which currently lacks coherence. By allowing different assets to be compared based on their contributions to system security, a CM could enhance the overall dialogue.

Andreas Metschke, vice president of energy origination at Copenhagen Infrastructure Partners, shared a more neutral stance, emphasizing the need for simplicity in the implementation of the CM to avoid unnecessary complications.

**The Role of BESS in the Capacity Market**

A key question raised during the discussion was how the CM would affect the BESS business case. Merk presented two perspectives: an optimistic outlook where a well-designed CM provides a stable revenue baseline and a pessimistic view where the design favors gas plants, complicating BESS competitiveness. He pointed out that current BESS developments are occurring without taxpayer funding, which could change if they are forced to compete with subsidized gas options.

Leykam added that while the CM may not drastically alter BESS returns, it could stabilize revenue throughout the year, counteracting high-price scarcity events that BESS typically capitalizes on. He noted that in many cases, the CM contributes a modest percentage to BESS project revenues, suggesting that the influence of government subsidies may not be as significant as some fear.

**Conclusion**

As discussions around the Capacity Market in Germany continue, stakeholders in the energy storage sector remain divided. While some see it as a necessary step towards a structured energy market, others warn of potential pitfalls that could favor gas over cleaner technologies. The future of BESS in Germany will largely depend on how the CM is designed and implemented, with the hope that it can facilitate a balanced and competitive energy landscape.