Draft Electricity Capacity (Amendment and Transitional Provision) Regulations 2026

Michael Shanks Excerpts

Monday 6th July 2026 General Committees

[The Minister for Energy (Michael Shanks)]

I beg to move,

That the Committee has considered the draft Electricity Capacity (Amendment and Transitional Provision) Regulations 2026.

It is a pleasure to serve under your chairship, Mrs Harris. Laid before the House on 14 May, this statutory instrument seeks to make technical improvements and changes to the capacity market, which is the Government’s main tool for ensuring security of electricity supply in Great Britain. Before outlining the specific provisions in the instrument, I will briefly provide some context.

The capacity market was introduced in 2014 and is designed to maintain the security of electricity supply by ensuring that sufficient capacity is available to meet future demand predictions. Through auctions held one year and four years ahead of delivery, the capacity needed to meet future peak demand under a range of scenarios is secured, based on advice from the National Energy System Operator. Through those auctions, participants secure agreements requiring them to make capacity available at times of system stress. It is a technology-neutral scheme that pays providers for making capacity available when needed, covering generation, storage, consumer-led flexibility and interconnection.

Since its introduction, the capacity market has contributed to investment in about 20 GW of new capacity needed to replace older and less efficient plants as we transition towards the clean power 2030 target. To ensure that the capacity market continues to function effectively, we regularly amend the implementing legislation, based on what is required to best ensure continued security of supply.

Let me now turn to the detail of this instrument. It amends 11 regulations in, and introduces one new regulation into, the Electricity Capacity Regulations 2014, it amends two regulations in the Electricity Capacity (Supplier Payment etc.) Regulations 2014, and it revokes one chapter of the Electricity Capacity (No. 1) Regulations 2019.

First, this instrument will ensure that assets awarded a contract for difference following a direction from the Secretary of State will be allowed to participate in the capacity market until the start of the asset’s CfD support. That will better align the capacity market with the clean power ambition and ensure a smooth transition from payments under the capacity market to a CfD.

Secondly, the instrument will strengthen delivery assurance by increasing termination fees and credit cover to restore their value broadly in line with 2016 levels in real terms. Thirdly, it makes several amendments and a revocation to ensure that the legislation delivers on the policy intent. It gives the Secretary of State and NESO the powers to extend the prequalification deadline for an auction following a major IT outage. It will align the capacity market timetable with the ongoing market-wide half-hourly settlement reforms, and it will remove obsolete provisions.

Two public consultations in relation to the measures in this instrument were conducted towards the end of 2025. Respondents were broadly supportive of the measures that clarified regulations or enabled participants with a direct-award CfD to manage their transition off the capacity market. Responses to the delivery assurance reforms were more mixed. Having carefully considered those responses, the Government have proceeded on the basis that these increases are necessary to realign delivery incentives and strengthen delivery assurance. The changes are proportionate, aligning fees with their real-terms-equivalent values in 2016, and will apply only to participants entering the scheme after the instrument comes into force.

We have also made several technical amendments to the capacity market rules, which support the regulations. The Capacity Market (Amendment) (No. 2) Rules 2026, which were laid before the House on 14 May, alongside these regulations, and the Capacity Market (Amendment) (No. 4) Rules 2026, which will be laid in due course, will come into force alongside this instrument.

In conclusion, the instrument enables the continued efficient operation of the capacity market so that it can deliver on its objectives. It will improve delivery assurance and ensure that the legislation is as clear as possible for all participants. I commend the regulations to the Committee.

--- Later in debate ---

[Michael Shanks]

For the third time, let me welcome the hon. Member for Aberdeen South—although I think he was in a Delegated Legislation Committee in his first week in this place. I am not sure whether his SNP predecessor was ever in a Delegated Legislation Committee in all his years in this place, so the hon. Gentleman is already making progress on Stephen Flynn in that respect.

First, I welcome the support for the capacity market, which was introduced by the previous Conservative Government. It has served the country well, and it continues to play an important role in bringing forward the investment needed to ensure the security of supply in the future. I want to make a couple of points clear. The T-4 auction for delivery in 2029-30 secured 40 GW of capacity at £21 per KW per year, which is above the target capacity that we set out. We work towards a range of future scenarios, which is why we have both the four-year-ahead auction and the one-year-ahead auction. As we get closer to those dates, we have a much more accurate sense of what demand will be, and we therefore procure additional capacity in the one-year-ahead auction.

I would gently challenge a number of the points made by the shadow Minister. First, we are moving towards a low-carbon power system because that is what will get us off the volatility of fossil fuels. Gas will play a strategic reserve role in the system, as was highlighted in the clean action plan, which set out that 95% of our generation will come from clean sources, with the remainder coming from gas and other sources. I would also say that this is not just about gas and renewables; new technology is coming in all the time. We just saw investment into long-duration energy storage in this country for the first time in 40 years, which involves some really world-leading battery projects that will give us that additional capacity.

Consumer-led flex is not about forcing consumers to do anything; it is about giving them the power to make choices that can bring down their bills, if they use technology in different ways, and it also helps the system. Consumer-led flex is a win for both consumers and the system. It is bizarre that the Opposition see it as some sort of enemy of the people, even for their race to the bottom on future technology.

On the point about blackouts, I have genuinely seen an increase in the number of people from both the Conservative party and Reform peddling nonsense about blackouts in this country. We should be very careful about nonsense scaremongering that is not based in fact whatsoever.

The draft regulations are about improving the already strong capacity market so that it can continue to deliver our energy security, now and into the future. It has made Britian’s energy system one of the most resilient in the world, which will continue to be the case in future with a mix of technologies. The draft regulations help to achieve that, and I commend them to the Committee.

Question put and agreed to.