Agency Report
The UK government is proposing major reforms to its electricity capacity market (CM) to attract investment in new dispatchable power plants as renewable generation grows, including introducing a multiple price capacity market (MPCM).
In a consultation launched today, the department for energy security and net zero (Desnz) outlined plans to introduce an MPCM from the 2026 T-4 pre-qualification round. The change would allow a higher clearing price for newbuild “dispatchable enduring capacity” — such as combined and open-cycle gas turbines — while existing or short-duration dispatchable capacity would compete under the current £75/kW/yr cap.
The move aims to address concerns that the current price cap, unchanged in nominal terms since 2014, has deterred investment in new capacity capable of sustaining output over long periods and less vulnerable to storage constraints, Desnz said.
Under the government’s preferred auction design, the market clearing price would continue to be set by the marginal unit required to meet the target capacity, but units bidding into the higher-price category could receive a higher clearing price if they are needed to meet system adequacy targets. Desnz is also considering whether to set a sub-target volume for the higher-priced capacity ahead of each T-4 auction, which could provide more certainty for investors while limiting costs to consumers.
In the longer term, the government is expecting low-carbon dispatchable enduring technologies such as hydrogen to power and carbon capture, usage and storage projects to also access the higher price cap as they become eligible to participate in the CM. Currently these technologies are supported by bespoke mechanisms.
Alongside the pricing reform, Desnz is proposing changes to auction design aimed at improving bidding behaviour. One measure would reduce the amount of information published about pre-qualified capacity before auctions, with the aim of preventing bidders from inferring competitors’ positions and adjusting their offers accordingly. The publication of supply and demand data would also be delayed, narrowing the window for strategic bidding.
Other proposed changes focus on ensuring that capacity procured through the CM is reliable and available when required. For demand-side response providers, the consultation proposes stricter performance evidence requirements, revised testing arrangements and more granular data reporting. Administrative processes for smaller aggregated assets would be simplified to reduce barriers to participation.
For battery storage units, the government plans to allow operators to “self-nominate” a lower connection capacity than their physical grid connection, reflecting expected asset degradation over time and reducing the risk of non-compliance during performance tests. This reflects industry concerns that degradation over time can reduce a battery’s ability to sustain output at its nominal rated capacity, potentially leading to underperformance and the risk of termination fees. Self-nomination would allow operators to bid and commit at a level they can reliably test against over the lifetime of a CM contract.
The consultation will remain open until 27 November. Desnz will consider feedback from industry and other stakeholders before finalising the rules, with changes expected to be implemented ahead of the 2026 pre-qualification window.