Capacity Market charges ahead – record results and scheme improvements

United Kingdom

On 2 March 2021, the year ahead Capacity Market (“CM”) Auction (“T-1 Auction”) for delivery from 1 October 2021 cleared at a record high of £45 per kW per year (see National Grid Electricity System Operator’s (“NGESO”) Auction Results published here). This is significantly higher than the 2020/2021 T-1 Auction, which cleared at a much lower £1.00 per kW per year.

In addition, on 10 March 2021, the four year ahead Capacity Market Auction (“T-4 Auction”) for delivery from 1 October 2024 cleared at £18 per kW per year (see NGESO’s Provisional Auction Results published here). This is marginally higher than the 2023/24 T-4 Auction , which cleared at £15.97 per kW per year.

In this article, we consider the CM results in further detail, including the key drivers behind these clearing prices.

T-1 Auction

Projects with a total of 2.3 GW of capacity were awarded Capacity Market Agreements (“CM Agreements”) in the T-1 Auction, which is a higher amount than the previous auction and follows an increase in the auction capacity target as set by the Department for Business, Energy & Industrial Strategy (“BEIS”) earlier this year. 53.11% of the total Capacity Market Units (“CMUs”) which participated in the T-1 Auction secured CM Agreements.

The fuel type with the greatest share of capacity awarded was coal (at 19%), followed by gas (at 16%).

Commentators attribute the marked surge in the T-1 clearing price to the following factors:

  • the administration of Calon Energy, which has resulted in two CCGT power stations going offline;

  • the increase in the auction capacity target set by BEIS;

  • 4.3GW of capacity entering the T-1 Auction (a relatively low excess above the auction target); and

  • the fact that any coal generators which participated in the auction are preparing for decommissioning by the mid-2020s and therefore face high fixed costs to remain online, including high carbon prices (which was reflected in their bids).

T-4 Auction

The T-4 Auction was the first in which coal power plants were unable to participate given the deadline for phasing-out coal from the energy system being brought forward to 1 October 2024.

40.8 GW of capacity was awarded CM Agreements in the T-4 Auction, with 79% of the eligible capacity of the CMUs entering the T-4 Auction securing agreements.

74.6% of the total capacity was awarded to existing CMUs (which benefit from one-year agreements), while 4.25% was awarded to new-build (which benefit from 15-year agreements).

The key clearing technologies were gas at 65% followed by interconnectors (17%), pumped storage (5%) and nuclear (5%). Full details of awarded capacity per fuel type are set out below:

CMU Type

Awarded Capacity (rounded to nearest MW)

Total % of Awarded Capacity







Storage – Pumped






Demand-side response (DSR)















Storage – Battery



Onshore Wind







These were the first CM auctions in which onshore wind and solar projects could participate following a change in the CM Auction Rules. Due to the intermittent nature of these technologies, they carry a high de-rating factor of 8% and 2.5% respectively, which can make the CM unattractive in comparison with the CfD regime.

The record clearing prices at the T-1 Auction did not come as a surprise to some commentators in the industry. With the uplift in the capacity target to 2GW and coal plants being able to exit the auction early, many forecasted the possibility of a high clearing price for T-1 as a result of the tighter auction.

The T-4 Auction cleared largely in line with previous auctions with a small increase from last year’s T-4 auction. While it is challenging to predict the outcomes of capacity auctions, some commentators expect prices to generally stay high for short term procurement over the next few years.

A low number of new-build projects have been awarded CM Agreements in the auctions (4.25% of capacity in the T-4 Auction), as a large proportion of existing projects have remained successful. Some commentators have noted that the CM market is no longer achieving its original aim to incentivise new-build capacity but rather is ensuring existing plant stays online. 

Consultation launched on technical improvements to the Capacity Market

Alongside the auctions, BEIS published a consultation seeking views relating to ten areas of incremental and technical improvements to the CM following engagement with stakeholders last year. The ten proposals are as follows:

  1. requiring all CMUs to be registered as Balancing Mechanism Units (“BMUs”);

  2. implementing changes to certain formulae and clarifications to the legislation relating to Emissions Limits in the CM;

  3. giving the CM Delivery Body greater flexibility to consider information which corrects administrative or clerical errors in prequalification applications;

  4. preventing certain secondary trades from being rendered ineffective when the transferor’s Capacity Agreement is terminated;

  5. reviewing the existing Covid-19 easements (for an overview of initial easements introduced, read our Law-Now here);

  6. extending the deadline for meeting the Extended Years Criteria so that it aligns with the requirement to provide Evidence of Total Project Spend, and make the sanction for breaching both (a reduction in agreement length) subject to the Secretary of State’s discretion;

  7. allowing refurbishing plant to have the same Long-Stop Date as new-build plant;

  8. disabling the net welfare algorithm for T-1 Auctions that are held only to meet the 50% set-aside commitment;

  9. maintaining the minimum capacity threshold at 1MW; and

  10. other minor corrections to relevant legislation.


Of the ten proposals put forward by BEIS, the most eye-catching has been the requirement for all CMUs to be registered as BMUs.

BEIS reports that a significant portion of distribution-connected capacity qualifies for an exemption to the requirement to hold a generation licence and as such, does not need to be a party to the Balancing and Settlement Code (“BSC”) or register as a BMU.

By requiring CMUs to register as BMUs, this will improve NGESO’s visibility and utilisation of these assets and therefore its ability to manage system security. In the consultation, BEIS notes that inefficiencies in the existing scheme ultimately increase end-consumer energy bills, and these outcomes are contrary to the CM’s primary objective of ensuring security of supply at least cost to the consumer.

While it is envisaged that this proposal will create a more level playing field between market participants by ensuring shared responsibility for managing system balance, commentators note that requiring CMUs to register as BMUs in isolation fails to deal with greater challenges around the treatment of distributed assets and their integration into the electricity system and market framework. As such, this will be an interesting development to watch.

The consultation is open for responses until 16 April 2021 and interested parties can respond here.