Post: Capacity Market FAQs

Capacity Market FAQs

What is the GB Capacity Market?

The Capacity Market is a mechanism designed to ensure security of electricity supply by providing payments to capacity providers for being available to deliver electricity (or reduce demand) when the system is under stress.

Why was the Capacity Market introduced?

It was introduced to address concerns about security of supply as older power stations retire and more intermittent renewable generation comes online. The Capacity Market incentivises sufficient reliable capacity to meet future peak demand.

Who runs the GB Capacity Market?

The Capacity Market is run by National Grid Electricity System Operator (NESO) on behalf of the government, with oversight from the Department for Energy Security and Net Zero (DESNZ) and regulation by Ofgem.

Who can participate in the Capacity Market?

Eligible participants include:

• Existing and new generation assets
• Demand Side Response (DSR) providers
• Energy storage assets
• Interconnectors (subject to eligibility rules)

All participants must meet technical, legal, and qualification requirements.

How does the Capacity Market work?

Capacity is procured through competitive auctions held several years ahead of delivery. Successful bidders receive capacity agreements and are paid a steady capacity payment in return for an obligation to be available during system stress events.

What types of Capacity Market auctions are there?

The main auction types are:

• T-4 auctions: Held four years ahead of delivery
• T-1 auctions: Held one year ahead of delivery

Additional “top-up” or re-run auctions may be held if required.

What is a Capacity Market obligation?

A Capacity Market obligation requires providers to be available to deliver electricity or reduce demand when instructed during a system stress event. Failure to meet obligations can result in financial penalties.

How are Capacity Market payments calculated?

Payments are based on:

• The clearing price achieved in the auction (£/kW/year)
• The amount of capacity awarded

Payments are typically made monthly during the delivery year.

What happens if a capacity provider fails to perform?

If a provider does not meet its obligation during a system stress event, it may face penalties, including payment reductions or termination of its capacity agreement in severe cases.

How does the Capacity Market support decarbonisation?

While technology-neutral, the Capacity Market increasingly supports low-carbon solutions such as storage, demand response, and flexible technologies, helping to balance a power system with growing renewable generation.

Capacity Market Auctions 2025-Winners and losers

In this paper we take a look at results from recent Capacity Market auctions and examine which technologies emerged as the winners and how the mechanism could change in future auctions.

Learn more