Post: Final Capacity Market auction parameters set

Final Capacity Market auction parameters set

The government has confirmed the Capacity Market Auction Parameters 2026.

In a letter to the National Energy System Operator (NESO), published on 6 February, the government confirmed the final auction parameters for the next Capacity Market auctions (the one-year ahead (T-1) auction for delivery in 2026-27 and the four-year ahead (T-4) auction for delivery in 2029-30).

T-1 target for 2026-27 Delivery Year

For the upcoming T-1 auction covering the 2026-27 delivery year, the government has confirmed that it will adopt the recommendation put forward by the NESO to increase the previously established procurement target. Originally set in July 2025, the target has now been raised by 0.5GW, bringing the final T-1 auction target to 6.3GW.

T-4 target for the 2029-30 Delivery Year

The government has confirmed a final T-4 auction target of 39.4GW, with an additional 1GW set aside for a future auction. Consistent with NESO’s advice, the government has incorporated a 0.7GW increase to account for technical system requirements and the expected level of non-delivery risk within contracted capacity.

The government also made a further adjustment in light of the recent Heads of Terms agreement with Lynemouth Power Station for a Low Carbon Dispatchable Contract for Difference (CfD). As a result of this agreement, the T-4 auction target has been set 0.4GW lower than NESO’s overall recommendation. The inclusion of Lynemouth under a Low Carbon Dispatchable CfD framework means that its contribution to system reliability will sit outside the Capacity Market mechanism, reducing the volume of capacity that needs to be secured through the auction itself.

Impacts

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.

For market participants, the updated targets increase opportunity within the T-1 auction (6.3GW total) and maintain strong procurement levels in the T-4 auction (39.4GW total).

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.

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.

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

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.

30 January 2026

Taking part in the Capacity Market: what are the benefits

The Capacity Market 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. In this article we explore the benefits of taking part in the Capacity Market.

Learn more