Capacity Market: Proposals to integrate low carbon technologies and enhance delivery assurance ahead of Prequalification 2026

Overview

The government has recently published a consultation on proposed changes to the Capacity Market Rules and Regulations. Alongside this, a set of urgent reforms have been identified which require changes to the Capacity Market Rules and Regulations.

This consultation forms part of the government’s commitment to regularly review the function and requirements on the participants of the Capacity Market. This is to ensure the scheme remains fit for purpose and reflects changing market conditions. The proposals in this consultation aim to reform the Capacity Market to improve security of supply, align the scheme with the government’s net zero goals, and improve the functioning of the scheme, and strengthen delivery assurance. 

This consultation includes proposals to address the following:

• Managing the transition of Existing Generating Capacity Market Units (CMUs) into alternative schemes: Ensuring that where a Contract for Difference (CfD) has been awarded following a Secretary of State direction, the relevant Generating Unit can continue participation in the CM, so long as there are no periods where the unit would be supported by both the schemes concurrently. The change recognises the strategic importance of these assets for the UK's energy transition and to Security of Supply.
• Long Duration Electricity Storage Cap and Floor (LDES C&F): Capturing the interaction between the LDES C&F and the CM by proposing CM eligibility criteria for participating LDES Cap and Floor projects. The proposals consider where any adaptations to existing Rules are necessary. These include mitigations against market distortions and addressing scope for delays to projects becoming operational having succeeded in CM auctions.
• Improving Delivery Assurance: Strengthening the CM delivery assurance framework by proposing two approaches to making the termination framework in the CM more stringent: either raising all fees by 30% in line with inflation from 2016 to today, or by simplifying the regime to have one fee, set at  £45,500/MW, to reflect inflationary changes to the current highest fee level since 2016. Both approaches improve the regime by incentivising delivery of CM agreements. We are also proposing to hold Credit Cover until a New Build CMU has completed commissioning in order to further incentivise Capacity Providers to build their CMUs and fulfil their obligations. Credit Cover will be increased to align with the new uprated Termination Fee levels.  
• Clarifying Rules around Secondary Trading entrants and CMU transferors: Providing greater certainty on the eligibility criteria for Applicants who wish to become an Acceptable Transferee through the Secondary Trading Entrant process. The proposal also aims to improve the clarity of the Rules, removing barriers to entry.
• Introducing additional measures for Multiple Price Capacity Market (MPCM) eligibility to ensure eligible capacity provides genuinely new capacity and offers value for money. This includes a new requirement to meet a higher capital expenditure (CapEx) threshold in order to qualify for the second, higher price cap. In addition, eligible capacity will be required to provide evidence of a certificate of disconnection where new builds are located on a previously commissioned site. The Delivery Body will also have the ability to request additional evidence to ensure all projects, whether eligible for the MPCM or not, are meeting the necessary Total Project Spend requirements.

The consultation is open to anyone to respond to, but will be of particular interest to:

• energy industry
• consumer groups
• academia
• think tanks
• other organisations who have an interest in security of supply and decarbonisation