Capacity Market
The Capacity Market (CM) is a critical mechanism within the Electricity Market Reform programme that ensures the UK has sufficient capacity to meet future electricity demand.
The CM aims to ensure the future security of our electricity supply at the lowest cost to consumers. It provides a competitive process where energy providers can secure payments for being available when required. This page will guide you through the key stages of participating in the Capacity Market: Capacity Setting, Pre-qualification, Auction, Agreement Management and Delivery. Each stage plays a vital role in ensuring the Capacity Market functions efficiently.
Capacity Market (CM) Interactive
The first step in the Capacity Market process is determining how much electricity capacity is required to meet the UK’s future needs. This decision is crucial to ensuring the country’s energy security. The EMR Modelling Team plays a key role in this by conducting detailed analysis and producing the Electricity Capacity Report, which helps the government decide how much capacity to secure in each auction round.
Key Aspects of Capacity Setting
Each year, the EMR Modelling Team creates an Electricity Capacity Report that outlines proposals for the capacity needed to maintain the security of supply.
You can access past reports here
This process involves refining the demand curve to reflect practical factors and ensure that the auction secures the right amount of capacity. As part of the Capacity Market rules and regulations, we are required to advise the Secretary of State if any adjustments should be made to the demand curve following the pre-qualification process or in light of any additional relevant information. Our recommendations for adjustments, particularly for the T-1 and T-4 auctions, are included in the Demand Curve Adjustment Report which is published in this section.
The Capacity Market considers that no electricity generation technology is available 100% of the time. De-rating factors are applied to reflect the expected availability of different types of generation, such as wind and solar, whose output can vary. Learn more about how these factors help ensure that the capacity secured meets the government’s reliability standard and projects related to de-rating factors.
Pre-qualification is the process that allows companies to register and confirm their eligibility to participate in the Capacity Market auction. It is designed to ensure that all participants meet the required standard to deliver capacity when needed.
Steps in Pre-qualification
Participants must register on the EMR portal [Link to EMR Portal], create user credentials, and then set up their Capacity Market Unit (CMU) and associated components. The registration window is open all year for interested parties. Once registered, prospective Capacity Market Participants can add additional users to their portal account, add companies to their portfolio and create generating units they wish to prequalify for the Capacity Market Auctions.
Once registered, participants submit their pre-qualification applications, which must include all relevant exhibits and supporting information. This process typically takes place over an eight-week period, usually between July and September. Applications must be created and submitted through the EMR DB Portal.
Applications are reviewed, and the results are released on pre-qualification results day. If a participant is conditionally prequalified, they must complete additional activities such as addressing any outstanding requirements.
Should an applicant disagree with the outcome made by the EMR Delivery Body following the prequalification assessment, they may raise a dispute in the EMR DB Portal to have the decision reviewed.
Once all applications have been assessed and the disputes process has concluded, successful applicants will be entered into the capacity auction and must complete any relevant pre-auction activities.
The Capacity Market Auction is a competitive process designed to award Capacity Market Agreements to meet the target for the specified delivery year. Only Capacity Market Units (CMUs) that have successfully prequalified and, when required, confirmed their entry will be eligible to participate in the auction.
The auction operates through a descending clock format, where participants bid by indicating the lowest price at which they are willing to provide capacity. The auction continues until the required capacity is secured at the most cost-effective price.
- Pre-Auction Activities: Before the auction, participants can attend practice auctions, webinars, and other training sessions to optimise their bidding strategy. They can also review the final Capacity Market Register.
- D-15 to D-10 activities: Eligible applicants should complete activities relevant to their CMU type such as confirmation of entry, max obligation period and DSR bidding capacity.
- Mock Auction: Applicants will take part in the Mock Auction. This is also an opportunity to review the data, test Auction system credentials and learn about the Auction system.
- Auction Results & CAN Release: Eight working days after the auction clears, the final results are published. The Capacity Agreements (CANs) are then issued 20 working days later. Find further guidance documents here.
Capacity Market Rule 5.5.18 Requires the Auctioneer to Announce and Publish the following information prior to the start of each Bidding Round:
- The bidding round price spread.
- The potential clearing capacity at the bidding round price floor for that bidding round.
- The Excess Capacity at the start of the Bidding Round, (except in relation to the first Bidding Round)
The bidding round price spread will be £5/kW for each bidding round, as described in the auction guidelines. The "Potential Clearing Capacity" is identical to the demand curve at a given price. The excess capacity is the excess of supply over demand at a particular price. The excess capacity is rounded to the nearest 1 GW, where the excess capacity falls below 1 GW, "Below 1 GW" will be displayed. Once the (unrounded) Excess Capacity falls below zero, the auction will clear, subject to capacity market rule 5.9.
These values are displayed in the table below and charted in Figure 1. They will be updated approximately 5 minutes prior to the start of each Bidding Round. This coincides with the release of this information to bidders.
The graph below shows the rounded excess capacity added to the potential clearing capacity, that is, the remaining capacity, or supply. The supply will only be shown at a bidding round price cap/floor, with a linear interpolation within a round. Two curves will be shown, giving upper and lower bounds for the supply, given the rounding to the published excess capacity figures.
By examining the capacity market register, it can be verified that the capacity entering the auction is 9457.137 MW de-rated capacity. This capacity is the supply at the auction price cap in Figure 1 below.
All prices are in 22/23 prices.
The T-1 DY 25/26 round-by-round auction results will be available to bidders starting 4th March 2025. The T-4 28/29 round-by-round results will be accessible from 11th March 2025. This area will be updated with the results on these respective dates.
Once capacity agreements are awarded, participants enter the agreement management stage, where they must fulfil their obligations as outlined in the capacity market rules. Different types of capacity market units (CMUs) have different requirements, depending on whether they are new, existing, or demand-side response (DSR) units.
Types and requirements
Prospective CMUs (New Build & Refurbishing CMUs) have obligations relating to the progress of their project delivery before they are commissioned and operational. These obligations ensure that the project will be ready to deliver for the relevant delivery year to which their capacity agreement relates and for the duration of that agreement.
Existing CMUs are sites that are already established, commissioned and operational. Existing CMUs are required to ensure that they can deliver during the relevant delivery year to which their capacity agreement relates.
Demand Side Response (DSR) CMUs are categorised into proven and unproven depending on the status of the unit at the time they prequalify. A proven DSR has an obligation to ensure that they can deliver during the relevant delivery year to which their capacity agreement relates. An unproven DSR has the same obligation but must first complete a test to confirm that it is operational.
Other useful information
A capacity agreement can be terminated if a CMU fails to meet its key obligations outlined in the CM Rules. The delivery body (DB) issues a termination notice to the capacity provider when a termination event occurs. Capacity providers then have the option to either submit a dispute to the (DB) or send a request to the Secretary of State to either have the termination notice withdrawn or extended.
Capacity Market participants face a risk of being penalised should they be unable to meet their capacity obligation. This risk could be mitigated pre-emptively either through 'Secondary Trading' their capacity obligation to another provider or after a stress event through 'Volume Reallocation’ to another provider.
Capacity Providers can request the delivery body to review the following for any of their CMUs:
- A request to change address for any prospective or DSR CMU;
- Register a security interest;
- Transfer a CMU to another company;
- A request to investigate a factual inaccuracy on any relevant capacity market register or capacity agreement.
Once the capacity agreements are in place, providers must deliver against their obligations during the delivery period, which runs from 01 October to 30 September.
For example, the 2024 delivery year runs from 01 October 2024 to 30 September 2025.
Capacity Market Notices
A Capacity Market Notice is a signal four hours in advance that there may be less generation available than National Energy SO, acting as System Operator, expects to need to meet national electricity demand on the transmission system taking into account additional operational reserve requirements. The notices are intended to be a signal that the risk of a System Stress Event in the GB electricity network is higher than under normal circumstances.
Capacity Market Notices are communicated automatically by National Energy SO systems to the following website: gbcmn.nationalenergyso.com.
During a System Stress Event
Providers must supply their committed capacity during times of system stress, which can occur due to shortages in electricity generation or demand spikes. Providers who fail to deliver during these events may face financial penalties.
This structured process ensures the Capacity Market functions effectively, securing the UK’s electricity supply while providing opportunities for energy providers to participate in this essential market. If you are interested in getting involved or need further information, visit our detailed knowledge Site.