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Posted 11 hours ago | 4 minute read
Q&A: Understanding the Capacity Market
The Capacity Market is essentially the UK’s insurance policy for electricity supply. It’s designed to make sure there’s enough reliable capacity available to meet peak demand, particularly during periods of system stress like cold winter evenings. Providers are paid not just for generating or reducing demand, but for being available when the system needs them.
Here we spoke to GridBeyond Head of Demand Response UK, Shawn Duckett about programme.
Q: How has the role of demand response changed within the Capacity Market?
A: Demand response has moved from being a marginal participant to a core part of the market. As demand grows and margins tighten, controllable demand is increasingly valued alongside traditional generation. The Capacity Market now recognises that reducing demand at the right moment can be just as effective as building new power stations.
Q: What types of assets can participate in the Capacity Market today?
A: It’s a broad mix. You have conventional generation, batteries, interconnectors and, increasingly, demand-side response from industrial and commercial customers. Aggregation plays a key role here, allowing smaller or more complex flexible loads to participate as part of a portfolio rather than on a standalone basis.
Q: What have recent Capacity Market auctions told us about market conditions?
A: Recent auctions have reflected a system under pressure. Clearing prices have been higher and more volatile than in earlier years, which signals tightening supply-demand margins and growing reliability concerns. That price signal is important because it encourages both new investment and better use of existing flexible assets, including demand response.
Q: How do Capacity Market obligations actually work for demand response providers?
A: Successful bidders commit to delivering a contracted level of capacity during system stress events, known as Capacity Market Stress Events. For demand response, that typically means reducing load on instruction. Performance matters: providers must be able to deliver reliably when called, or they face penalties. That’s driven a much stronger focus on automation, monitoring and verification.
Q: What challenges do industrial and commercial customers face when participating?
A: The biggest challenge is balancing operational risk with market opportunity. Capacity payments are attractive, but customers need confidence that they can deliver without disrupting core processes. That’s why detailed baselining, asset testing and automated controls are so important to reduce risk and make participation predictable rather than reactive.
Q: How does the Capacity Market interact with other GB flexibility routes, like the Balancing Mechanism or wholesale markets?
A: The Capacity Market is about availability, not optimisation. It provides a stable revenue floor, but it doesn’t replace other markets. The real opportunity comes from stacking value by combining Capacity Market revenues with participation in balancing services, wholesale price optimisation and local flexibility markets. That does add complexity, but it also significantly increases the overall value of flexibility.
Q: What role do aggregators play in making this work?
A: Aggregators are essential. They manage the technical, commercial and operational complexity on behalf of customers, pool assets to meet minimum thresholds and ensure compliance with market rules. As the system becomes more granular and data-driven, that role is only becoming more important.
Q: Looking ahead, how do you see the GB Capacity Market evolving?
A: The Capacity Market will continue placing value on assets that are flexible, dispatchable and verifiable. Demand response fits that direction very well. Over time, better data, tighter performance requirements and closer integration with other markets will favour sophisticated, well-managed portfolios rather than one-off or manual solutions.
Q: What’s your key takeaway for large energy users considering the Capacity Market?
A: The Capacity Market isn’t just a one-off payment opportunity but part of a broader flexibility strategy. For organisations willing to invest in understanding and managing their flexibility, it can provide predictable revenue, improved resilience and a pathway into wider market participation.
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