Post: Capacity Market auction parameters set

Capacity Market auction parameters set

The government has confirmed the parameters for the 2027 Capacity Market auctions, as storage, demand-side response and interconnectors assume a growing role in maintaining security of electricity supply.

In a letter to the National Energy System Operator (NESO), published on 14 July, the government confirmed the final auction parameters for the Capacity Market auctions set to take place in March 2027.

For the upcoming T-1 auction for the 2027-28 Delivery Year the target capacity has been set at 5GW.  For the T-4 auction for the 2030-31 Delivery Year total target capacity has been set at 41.4GW, of which 0.5GW will be set aside for the associated T-1 auction, leaving a target capacity of 40.9 GW to be procured through the T-4 auction itself. 

As the UK continues its transition toward a more resilient, flexible and low-carbon electricity system, the 2026 Capacity Market auctions will play a critical role in ensuring reliable supply for households and businesses across Great Britain.

The government adopted the targets following recommendations from the National Energy System Operator’s 2026 Electricity Capacity Report and an independent assessment by the Panel of Technical Experts.

What is the Capacity Market?

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.

Unlike wholesale power markets, the Capacity Market exists as a separate scheme, with its own rules written into UK legislation. Auction parameters, such as total capacity to procure and the cap on bid prices, are set annually by the UK’s Secretary of State for Energy Security and Net Zero.

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:

• T-1: secures capacity one year before delivery.
• T-4: secures capacity four years ahead, providing long-term investment signals.

Who can participate?

The Capacity Market is a technology-neutral mechanism in which most types of capacity can participate, including:

• new and existing on- or offshore generation plant (all types of generation plant including combined heat and power (CHP))
• storage
• demand-side response (DSR)
• interconnector capacity

How does it work?

The Capacity Market pays for availability, not actual generation. This means participants are rewarded for being ready to deliver electricity or reduce demand if required, even if they are not ultimately called upon. The mechanism is only triggered during stress events. These are extreme situations when electricity supply is tight. During these events

1. the National Energy System Operator (NESO) issues a Capacity Market Notice (CMN) to warn participants up to four hours before a potential shortage
2. If the notice is not cancelled and NESO takes demand-control action, a stress event is confirmed
3. Capacity Providers must deliver the contracted capacity volume or face penalties for underperformance

How GridBeyond can help

• Auction participation: our experts oversee the entire auction process, from registration through to final bidding, ensuring your assets achieve the most competitive agreements available
• Satisfactory Performance Days (SPDs): we work closely with customers to help them meet their capacity commitments by achieving SPDs and confirming asset performance during periods of critical system demand
• Maximising revenue: taking part in the Capacity Market does not always limit your ability to generate revenue from other flexibility services. We ensure your assets can benefit from the Capacity Market while also participating in additional income-generating opportunities
• Asset assessment and preparation: we prepare and qualify a diverse range of assets for Capacity Market participation, including both new and existing generators, flexible loads, and energy storage systems. This includes verifying metering configurations to ensure they meet all compliance standards
• Connection and operational integration: your assets are integrated with our 24/7 Network Operations Centre (NOC) via API or hardware, allowing for continuous communication and real-time data transfer. When a Capacity Market Notice is issued, our operators work directly with your site to ensure assets are ready and able to respond
• Contract support: we support businesses with Capacity Market Agreements throughout the full term of their contracts. Using advanced data analytics and intelligent scheduling, we help ensure performance obligations are met. If operational circumstances change and a site cannot fulfil its commitment, our Secondary Trading Clearing House enables the buying or selling of capacity obligations with other qualified participants. This reduces the risk of penalties and provides flexibility to adapt to changing conditions

Whether you are a new entrant seeking prequalification or an established participant aiming to enhance performance and manage trading, GridBeyond delivers the expertise, tools, and market insight needed to succeed in the Capacity Market.