GB Capacity Market find out more – how it works, what bidding involves (de-rated capacity and contract lengths), the annual cycle from report to auction, and what happens after you win. We highlight what’s new for the GB Capacity Market in 2024-25 and finish off with how Blake Clough can help at each step, plus a cheat sheet for exhibits ZA-ZD.
What is the GB Capacity Market and why does it exist?
Picture this: it’s a freezing winter evening, everyone’s heating is cranked up, and the electricity grid is stretched to its absolute limit. In a perfect world, energy-only markets would handle this supply scarcity through price spikes that reward peaker plants for being ready when they are the most needed. But it rarely works that smoothly. These peaker plants might only run for a handful of days each year during peak demand, yet they would need those few days to be extremely profitable to cover their entire annual costs. Price caps and market volatility, however, make it impossible to predict when, or if, those crucial high-price periods will actually occur. With developers needing predictable returns to secure financing, you’ve got what economists call the “missing money problem”. Investors hesitate: “Why commit millions to a peaker plant that might never earn back its costs?” The result is a dangerous gap between the generation capacity the grid needs for long-term adequacy and what energy-only markets actually deliver, leaving GB consumers vulnerable when demand peaks and supply runs thin.
The UK government solved this challenge by launching a comprehensive Capacity Market (CM) in 2014 under Electricity Market Reform (EMR). CM allows eligible capacity providers (such as generators and storage operators) to bid for contracts in competitive auctions. Under these contracts, providers commit to remain available in specified future “delivery years”. In return, successful capacity providers receive a steady income stream alongside normal energy-market revenue. For example, the 2024 CM auctions have cleared around £65/kW per year for four-year ahead (or T-4) contracts and around £36/kW per year for one-year ahead (or T-1) contracts, offering providers steady, reliable income streams simply for being available when the grid needs them most.
GB Capacity Market Structure
Who is Involved, and How It Works
The GB Capacity Market operates under the governance of the Department for Energy Security and Net Zero (DESNZ), while NESO serves as the EMR Delivery Body, managing all processes from pre-qualification to live auctions. Payments are settled by the Electricity Settlements Company (ESC) via EMR Settlement (EMRS). For example, total CM payments for the 2024/25 delivery year now total about £1.26 billion, illustrating the scale and importance of the scheme. Each delivery year runs from 1 October to 30 September (the next year). Most capacity is bought four years ahead through T-4 auctions that provide long-term investment signals for new build projects. In contrast, T-1 auctions held one year ahead provide a “top-up” allowing the market to respond to updated demand forecasts, plant closures, or construction delays.
The Players and the Rules: What You’re Really Bidding
Market participants span the full technology spectrum, including existing and new-build gas peakers, Combined Cycle Gas Turbines (CCGTs), nuclear, wind, solar, battery storage systems, demand side response (DSR) providers, and interconnectors. These technologies all compete in technology-neutral auctions where the lowest bids win. Crucially, participants bid de-rated capacity (not nameplate), using de-rating factors which are set each year to reflect the realistic winter-time availability of their respective technologies.
Capacity Market Units (CMUs) can access multi-year agreements ranging between 15, 9, 3, or 1 year, based on their capital expenditure. The longer agreements provide revenue certainty which is essential for securing project financing and attracting investment in new capacity. In contrast, most existing capacity typically competes for one-year agreements which are designed to support ongoing maintenance and operational costs without over-subsidising assets that have already recovered their capital costs.
Annual Auction Cycle and Timeline
The annual cycle starts with NESO’s Electricity Capacity Report, which analyses future electricity demand and existing capacity. The result of the analysis informs the Secretary of State’s auction parameters, including target volumes, demand curves, technology-specific de-rating factors, and multi-year capex thresholds. Then comes the prequalification round, which runs from July to September through the EMR Delivery Body portal, where projects register their CMUs, upload technical evidence, and demonstrate that they can deliver electricity when needed. If conditionally prequalified, a project must post credit cover by the specified deadline to secure its auction entry.
NESO runs mock auctions in the weeks before the live event, giving the bidders vital practice with the bidding system. The live auction then runs in rounds with prices falling from a pre-set price cap until supply meets the target demand. The results are published within eight working days, and Capacity Agreement Notices follow within twenty working days.
Post-Award Obligations and Delivery Requirements
Winning an auction is just the beginning. After being awarded a CM contract, projects must meet strict milestones to unlock payments. For example, new build and refurbishing CMUs must first face the ‘Financial Commitment Milestone’ (FCM) to demonstrate that funding arrangements are in place and at least 10% of the total project spend has been expended. This is due 3 months after the auction results for CMUs with T-1 agreements and 16 months after the auction for CMUs with T-4 agreements.
Next, the prospective CMUs must reach the ‘Substantial Completion Milestone’ (SCM) proving that 90% of the awarded capacity obligation has been physically built and connected before delivery year start. Projects that fall short but have completed between 50 to 90% of their capacity obligation, can instead submit the ‘Minimum Completion Requirement’ (MCR) milestone. Once these milestones have been reached, EMRS begins the payments.
During the Delivery Year, providers must show that they can deliver equal to or greater than their capacity obligation through Satisfactory Performance Days (SPDs) set in winter. Additionally, projects must respond to any System Stress Events, which are formally declared tight periods when the contracted CMUs must deliver their capacity obligation or face penalties. Storage projects face additional scrutiny with an Extended Performance Test (EPT) in the winter of their first delivery year, and then once every three years thereafter.
The CM also includes safety valves for managing risk. If circumstances change, providers can limit exposure with secondary trading to transfer obligations ahead of time, and if needed, they can use tools such as volume reallocation after a stress event.
Recent Reforms: Aligning the Capacity Market with Net Zero Objectives
Over the last year, the UK government has introduced several CM reforms to better fit a cleaner and more flexible grid. Several changes were implemented in February this year following extensive Phase 2 consultations.
Battery Storage Gets a Fairer Deal
NESO’s updated method for computing the storage de-rating factors (or scaled Equivalent Firm Capacity (EFC)) means that batteries are now more fairly treated. Typically, shorter duration and less predictable assets suffer from lower de-rating factors, thus earning less “credit” in the CM. The earlier incremental EFC incentivised battery assets to over-state their duration in order to win a better credit. The new scaled EFC discourages such gaming and ensures that battery assets are rewarded proportionally to their actual storage duration. Additionally, the new Permitted Battery Augmentation rule allows storage CMUs to replace or add cells mid-contract to maintain capacity for meeting EPT obligations. This protects the revenue stream from natural performance degradation that previously threatened contract termination.
Streamlined Emissions Paperwork
The methodology changes have also eased some of the paperwork around fuel-emissions checks during the pre-qualification stage. For instance, if a CMU cannot secure an Independent Emissions Verifier (IEV) slot in time to complete Exhibit ZA (Fossil Fuel Emissions Declaration), they can now complete verification after the pre-qualification deadline, keeping viable projects in the auction pool. Also, the mismatch between the CHPQA certificate timeline (running from January-December) and the CM’s “Emissions Year” (October-September) has been eliminated. Thus, where CHP-based CMUs use a CHP Quality Assurance (CHPQA) certificate to fill Exhibit ZA, they can lift emission figures straight from the CHPQA documentation without re-cutting data to match the CM delivery-year cycle.
Enhanced Support for Low Carbon Technologies
The CM reforms have introduced a tiered system that finally recognises the financing realities of different low carbon projects. Rather than forcing all technologies into a one-size-fits-all contract structure, targeted agreement lengths have now been created to match practical investment needs. In the CM, the length of contracts a CMU can access depends on the amount of capital expenditure per kW it can demonstrate. In the old system, despite substantial capital requirements, many mid-capex technologies such as grid-scale storage could not quite reach the £/kW thresholds required to access the longer and more reliable 15-year agreements. For these types of projects, a new middle tier fixes the gap: low-carbon CMUs that meet a £205/kW spend threshold can now access 9-year agreements through a “Nine-Year Capex Threshold CMU” category. This means that they are better represented, rather than being treated like smaller 1-year projects.
At the other end of the spectrum are innovative low-capex options such as unproven DSR where the upfront spend per kW is small, but real costs still exist (e.g., customer acquisition). Under the old setup, these providers could only bid for 1-year agreements which were too short to finance a rollout. Such projects can now access 3-year agreements (even if their spend is below the usual 3-year threshold of £65/kW) under the “Three-Year Zero Capex Threshold CMU” category. Together, these targeted carve-outs prevent promising low-carbon technologies from being strangled by inappropriate contract lengths that neither reflect their investment reality nor provide adequate financing. Thus, mid- and low-capex projects including storage and DSR have a clearer path to bankable bids, and hence a better shot at securing agreements this time.
How Blake Clough can Support your Capacity Market Journey
The Capacity Market offers substantial revenue opportunities, but only if you can navigate through prequalification, auction day, and post-award obligations. With evolving rules, complex documentation requirements, and multiple technology pathways, success demands both technical expertise and regulatory precision.
Blake Clough Consulting can help you to identify the optimal route for your specific technology, whether you are developing new build generation, existing assets, proven or unproven DSR, or refurbishing projects. For low-carbon technologies, we will guide you through the new tiered structure to secure 9-year, 3-year, or zero-capex threshold agreements that match your investment profile and promise the best option for your specific circumstances.
From the prequalification application through to results handling and dispute windows, we can manage and guide your end-to-end auction journey. During prequalification (PQ), we will assemble the correct exhibits (example provided in the table below), coordinate emissions paperwork with UKAS-accredited Independent Emissions Verifiers, and ensure that you are auction-ready. Post-award, we can help you to track different milestones such as FCM/SCM/MCR and ensure that you have completed the relevant paperwork so you can focus on project development and unlock payments on time.
| Exhibits | Exhibit Name | What, Who & When |
|---|---|---|
| Exhibit ZA | Fossil Fuel Emissions Declaration | Verified evidence of emissions for CMUs with fossil components. Relevant for: Existing Gen/Proven DSR (typically at PQ), and new Build/Refurbishing/Unproven DSR: post-auction Required if there is an Emissions Related Material Change. |
| Exhibit ZB | Fossil Fuel Emissions Commitment | A forward-looking commitment confirming the CMU will stay within emission limits. Relevant for: New Build/Refurbishing/Unproven DSR (even without fossils): at PQ. |
| Exhibit ZC | Fossil Fuel Removal Declaration | A backward-looking commitment confirming that a CMU which previously provided ZA no longer has any fossil components. |
| Exhibit ZD | Low Carbon Declaration | A board-level declaration stating the CMU is “Low Emissions” for a defined “Low Carbon Period”. Provided at PQ if you want the CMU to be treated as a Nine-Year Capex Threshold CMU, or a Three-Year Zero-Capex Threshold CMU. |
GB’s early adoption of Capacity Markets has proved prescient. Today, capacity mechanisms have become part of the standard policy toolkit across several EU countries. These schemes have been carefully designed to avoid distorting the competition in energy-only markets while ensuring sufficient capacity to keep the lights on at an affordable price.
Despite the extensively published rules around the CM, the rules are updated regularly, creating new requirements and opportunities that can make or break your project’s economic plan. Blake Clough can help you navigate the rules so that you can participate with confidence, avoid costly compliance failures, and capture the full value of your capacity investment. Contact us today to learn more about how we can help.