The European Commission has approved plans to put in place a reserve for four years to ensure sufficient electricity capacity in Southern Germany.
In July last year, Germany notified plans to pay power plants in order to establish a Network Reserve.
Under the capacity scheme, transmission system operators would pay power plant operators that have notified their intention to close down to remain available to the network.
In addition, foreign power plants located in Austria and Italy can also be contracted and subsequently required to increase or decrease production to keep the grid in balance if instructed by the transmission system operator.
The domestic power plants are granted a cost-based remuneration, whereas the foreign plants are selected on the basis of a call for interest.
The German energy regulator has estimated the costs of the Network Reserve to amount to €126 million (£107m) in 2016. The transmission system operators can pass these costs on to network users via the network tariffs.
The Commission said the scheme maintains security of supply without unduly distorting competition in the Single Market.