Written statement: Capacity Market consultation responses - May 14

MiInister for Energy (Michael Shanks): I am tabling this statement to inform members of the publication of four documents relating to the Capacity Market. This includes the:

1. Capacity Market Autumn Consultation Response
2. Capacity Market Winter Consultation Response
3. Summary of Responses to the Capacity Market Call for Evidence on Hydrogen-to-Power and interconnectors
4. Updated technical adjustment methodology for de-rating interconnectors in the Capacity Market

The above documents are in support of our objectives of delivering clean power by 2030 and accelerating progress towards net zero, whilst 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 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 amends 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.

Following two consultations - the Autumn Consultation (published October 2025) and the Winter Consultation (published December 2025) - and a Call for Evidence on Hydrogen-to-Power (H2P) and Interconnectors, the government intends to publish Government Responses to the consultations, a Summary of Responses to the Call for Evidence and an updated technical adjustment methodology for de-rating interconnectors.

The consultation responses we are publishing today include reforms to the Capacity Market Rules that aim to secure capacity adequacy to meet the reliability standard through at least the 2030s while keeping the impact on consumer bills as low as possible. These are consistent with achieving capacity adequacy objectives, strengthening delivery assurance, stimulating investor confidence in low carbon technologies, and strengthening CM legislation to ensure effective scheme delivery.

Capacity Market Autumn Consultation Response

Multiple Price Capacity Market (MPCM)

• Having carefully considered the evidence and feedback received, the government has decided not to proceed with introducing the MPCM and any related policy changes at this time. We will take more time to consider the concerns highlighted by stakeholders and will continue working with industry to address barriers facing dispatchable enduring technologies, while ensuring the Capacity Market remains fit for a changing energy system.

Ensuring efficient bidding in Capacity Market auctions

The government will raise the excess capacity rounding threshold from 1GW to 3 GW and limit pre‑auction information to a single rounded excess capacity figure to reduce opportunities for strategic bidding.

Consumer led flexibility

The government will streamline reporting for small Demand Side Response (DSR) components (below 30 kW) and introduce new DSR technology and customer type categorisation to support improved oversight and future methodology‑development.

Self-nomination‑ of connection capacity for battery storage technologies

• The government will allow Battery Energy Storage System (BESS) Capacity Market Units (CMUs) to self-nominate their connection capacity from Prequalification 2026, with full capacity and energy data reporting required and a 50% minimum‑floor applied. This change reduces the risk of battery storage assets failing performance tests due to degradation.

Determining appropriate means for non‑fossil fuel generation to access low carbon CM mechanisms

• The government will allow biomass generators that meet emissions limits and strengthened sustainability criteria to access low carbon CM mechanisms. The government will align CM Rules to meet the Common Biomass Sustainability Framework when introduced. Energy from Waste is not to be treated as low carbon under the CM.

Further improvements to Capacity Market administration and delivery assurance

• The government will introduce termination fees for where a capacity agreement is terminated for making false declarations in an application, confirm the suspension of payments immediately for Insolvency Termination Events, clarify definitions, update the indicative auction timetable, update settlement rules so that they can align with Market-wide Half-Hourly (MHHS) reforms when introduced, and allow Prequalification extensions in the event of severe failure of the Prequalification IT system.

Capacity Market Winter Consultation Response

Managing the transition of existing generating CMUs into alternative schemes

• The government will amend Regulations and CM Rules to allow Contracts for Difference (CfDs) awarded because of a direction from SoS to prequalify for the CM so long as there are no overlaps in the periods where the generating unit would be supported by both schemes and where this has been evidenced in the Prequalification application.

Long Duration Electricity Storage Cap and Floor (LDES C&F)

• The government will introduce CM Rules to provide clarity on how LDES projects participate in CM auctions. LDES C&F projects will assume Price Taker status as a default. An option to provide a Price Maker Memorandum will remain. A Director's Declaration will be required to confirm a project's LDES C&F status to enable CM eligibility and enforcement.

Standardisation of Termination Fees and Credit Cover

• The government will implement a 30% increase in all Termination Fee rates and require Credit Cover to be held until a generating unit becomes eligible for payments with escalations at milestones, applying only to agreements awarded from 2027 onwards.

Clarifying Rules around Secondary Trading

• The government will implement amendments to the CM Rules to clarify eligibility for Secondary Trading Entrant Applications.

Summary of responses to the recent Capacity Market Call for Evidence on Hydrogen-to-Power and Interconnectors

• Most respondents supported enabling H2P participation using existing gas technology classes, though some noted potential unintended consequences (e.g., hydrogen infrastructure reliability, supply chain constraints, impacts on carbon emissions).
• Many stakeholders highlighted risks and operational uncertainties -including hydrogen availability, infrastructure readiness, and blending impacts- emphasising the need for clear classifications, guidance, and policy certainty.
• For interconnectors, there was strong support for updating the technical adjustment methodology to the one proposed in the Call for Evidence, noting the current method risked becoming outdated.
• On the consideration of high-impact low-probability events in this methodology, most respondents favoured including all outage events to better reflect system risks and maintain consistency with other CM technologies.

As a result of the CfE, government will:

• Adopt the updated technical adjustment methodology from Summer 2026, include all outage events in this methodology, and publish a briefing note to detail the final methodology before CM Prequalification 2026 to provide further transparency over the process.

As the Capacity Market remains Great Britain's main mechanism for ensuring capacity adequacy, these publications consider actions to ensure the scheme continues to meet its primary objective of ensuring security of supply. The proposals put forward seek to ensure the scheme remains fit for purpose and continues to play a crucial role in achieving the Clean Power mission.