The Capacity Market pays providers to make electricity capacity available at times of system stress, such as a cold, still winter evening. Introduced in 2014, it is designed to keep the lights on as older plants close and more power comes from weather-dependent sources. Providers that receive payments must deliver when called on or face penalties.
How the auctions work
Contracts are awarded in competitive auctions run by NESO as the Delivery Body, with Ofgem overseeing the rules:
- the T-4 auction, held four years before the delivery year, buys most of the capacity needed and gives new plants time to be built;
- the T-1 auction, held a year ahead, tops up the target once demand and supply forecasts are clearer.
The auctions are technology neutral. Gas plants, nuclear, batteries, demand side response and interconnectors can all take part, but projects already supported by a Contract for Difference cannot. Each provider’s capacity is “de-rated” to reflect how reliably it can deliver. The price cap in the auction is £75/kW per year.
Latest results
| Auction | Clearing price | De-rated capacity |
|---|---|---|
| T-4 for 2029/30 (March 2026) | £27.10/kW/year | 40.1 GW |
| T-1 for 2026/27 (March 2026) | £5.00/kW/year | 7.2 GW |
The 2029/30 T-4 price was well below the £60–£65 range of the previous three T-4 auctions. Gas plants won 58.5% of its capacity and interconnectors 19.5%, with batteries taking 3.0%. In the T-1 auction, nuclear won about half.
Cost
Capacity payments are funded through a charge on electricity suppliers, which is passed through to bills. Ofgem estimates the total cost of the 2029/30 delivery year at about £1.9 billion, against about £3.2 billion for 2027/28.
Read more: Pumped storage hydropower: the UK’s biggest battery.