Post: 2026 Capacity Market auction parameters set

2026 Capacity Market auction parameters set

The government has confirmed the procurement target in the Capacity Market for the upcoming auctions.

In a letterto National Grid ESO, published on 15 July, the government confirmed the parameters for the next Capacity Market auctions (the T-1 and T-4 auctions planned to take place in March 2026).  These include a total target capacity of 40.1GW for that Delivery Year, of which I 1GW is to be set aside for the associated T-1 auction, leaving a target capacity of 39.1GW to be procured through the T-4 auction. For the T-1 auction for 2026-27 Delivery Year target capacity is set at 5.8GW.  This followed a report by the Department for Energy Security and Net Zero (DESNZ) independent Panel of Technical Experts (PTE) that considered the target capacity recommendations by NESO

The Capacity Market scheme was introduced in 2014 as part of the Electricity Market Reform scheme. It is the government’s principal mechanism for securing sufficient electricity supplies to meet future peak demand. The scheme ensures security of electricity supply by providing a payment for reliable sources of capacity, alongside their electricity revenues, to ensure they deliver energy when needed.

The programme has an annual delivery cycle. Two auctions are held each year with the auction targets set in July and later updated just ahead of the auctions. Capacity can apply to prequalify for the auctions from July to September, with auctions taking place a minimum of ten weeks from the Prequalification Assessment closing.

The programme secures electricity capacity through competitive auctions held four years ahead of the delivery year, known as the T-4 auction; and one year ahead of the delivery year, the T-1 auction, to effectively “top up” capacity closer to the delivery year should we need to (based on the latest information available such as the latest electricity demand forecast, and any commercial information).

Capacity providers receive regular payments in exchange for their capacity being available when consumers need it most i.e., when consumer demand is high compared to available electricity supplies. Capacity providers may face financial penalties if they fail to deliver against their agreements. The auctions are a competitive process therefore it is not possible to precisely know what the costs of each auction will be in advance and there is no set budget. The costs depend on the number of entrants/ volume of capacity bidding into each auction, which can drive the clearing price up or down, though this is limited to what is proportionate and necessary through the parameter setting process and various controls embedded into the scheme.

Providing pre-qualification services prior to the deadlines, enabling projects to meet project-specific milestones, and facilitating the bidding strategies across both the T-4 and T-1 Auction’s in 2024 GridBeyond supported our clients to achieve 597MW of agreements covering between 1 and 15 years. In addition, through our Secondary Trading Clearing House, since 2020 GridBeyond has supported businesses with an existing Capacity Market Agreements. Using data analysis and scheduling our technology can ensure satisfactory performance is demonstrated –throughout the lifetime of your agreement. In addition, where circumstances are changed and sites cannot deliver on their obligation, GridBeyond’s Secondary Trading Clearing House allows users to buy and sell existing contracts with other qualified users to avoid a penalty under the mechanism.