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The Minister for Energy (Michael Shanks)
I am tabling this statement to inform members of the publication of a consultation relating to the capacity market titled “Consultation on proposals to integrate low carbon technologies and enhance delivery assurance ahead of Prequalification 2026”.
The consultation supports our objectives of delivering clean power by 2030 and accelerating progress towards net zero, while ensuring security of supply.
Since its introduction in 2014, the capacity market has acted to secure sufficient capacity to ensure consistent and reliable electricity generation in Great Britain. The funding provided through the capacity market scheme incentivises investment in new and existing generation, interconnectors, batteries, and consumer-led flexibility mechanisms to ensure sufficient capacity is available to meet future demand when required. This capacity is acquired through competitive annual auctions held at intervals four years ahead and one year ahead of their respective delivery years. The Government regularly amend the framework underpinning the capacity market before auction cycles to ensure it is cost-effective and meets broader strategic objectives such as clean power by 2030.
The consultation we are publishing today includes several proposals intended to maintain electricity security, keep the capacity market’s impact on bills as low as possible for consumers, strengthen delivery assurance of low-carbon technologies, and improve the overall functioning of the scheme.
We are seeking views on changes to the capacity market which would achieve the following aims:
Managing the transition for existing generating capacity market units from the CM to a contract for difference following a Secretary of State direction, without allowing support from both schemes to be received at the same time. This would ensure value for money for consumers and would allow existing capacity to continue participating in the scheme. The change recognises the strategic importance of these assets for the UK’s energy transition and to security of supply.
Capturing interactions between the long duration electricity storage cap and floor scheme and the CM by introducing appropriate eligibility criteria for these projects to support low-carbon technologies while avoiding market distortions. The LDES cap and floor provides revenue certainty to accelerate the deployment of storage critical for a secure, low-carbon grid in line with its expansion in the 2030s. By mirroring the successful interconnector model, the cap and floor scheme guarantees developers a minimum revenue while capping excessive returns to ensure value for consumers.
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 since 2016. Both approaches improve the regime by disincentivising capacity providers from seeking to end their agreements via termination. The second option has the additional benefit of reducing the ability of capacity providers to seek alternate termination events that carry a lower fee by artificially creating the circumstances for a termination, for example by using shell companies to trigger issues regarding ownership of assets of grid connections. We are also proposing to hold credit cover until a new build CMU has completed commissioning their CMU 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.
Amending CM rules on the secondary trading market to increase clarity in the CM rules.
Introducing additional measures for multiple price capacity market 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 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 proposals put forward in the consultation seek to ensure the capacity market continues to meet its primary objective of ensuring security of supply, remains fit for purpose and continues to play a crucial role in achieving the clean power mission.
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