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Understanding the UK Capacity Market

What is the Capacity Market?

The UK Capacity Market is a mechanism designed to ensure security of electricity supply by providing payments to reliable forms of capacity - both demand reduction and electricity generation - to be available when needed.

Key Objectives

  • Security of Supply: Ensuring adequate electricity capacity during peak demand periods
  • Market Stability: Providing revenue certainty for generators and demand response providers
  • Cost Efficiency: Delivering security at the lowest cost to consumers
  • Technology Neutral: Open to all forms of capacity including storage, demand response, and generation

How Capacity Market Auctions Work

The capacity market operates through competitive auctions where providers bid to supply capacity. There are two main types of auctions:

T-4 Auctions (Four Years Ahead)

These are the main auctions held four years before the delivery year, allowing time for new capacity to be built. T-4 auctions typically secure the majority of required capacity.

T-1 Auctions (One Year Ahead)

These fine-tuning auctions are held one year before delivery to account for changes in demand forecasts and capacity availability since the T-4 auction.

Secondary Trading

After the auctions, capacity obligations can be bought and sold through secondary trading. This allows providers to manage their positions, handle outages, or enables new market entrants to acquire capacity without waiting for the next auction. Learn more about secondary trading →

Capacity Market Participants

Capacity Market Timeline

The capacity market has evolved significantly since its introduction:

  • 2013: Capacity market legislation introduced
  • 2014: First T-4 auction for delivery year 2018/19
  • 2016: First T-1 auction
  • 2018: Market suspended following EU state aid ruling
  • 2019: Market resumed with EU approval
  • 2021: Post-Brexit arrangements confirmed

Current Market Status (2024-2028)

The current capacity market covers delivery years from 2024-25 to 2027-28, with over 40,000 MW of capacity secured across various technologies. Key trends include:

Key Statistics

Total Capacity: Over 40 GW secured

Technologies: 15+ different types

Companies: Hundreds of participants

Locations: Across England, Scotland & Wales