The capacity market is a mechanism introduced by the UK Government to manage security of electricity supply in the UK and to safeguard against the possibility of blackouts. Capacity market participants are paid to ensure they are available to respond when there is a high risk that a system stress event could occur.
Electricity suppliers pay for the scheme in line with their market share through the winter months when electricity demand is at its highest. This tends to be between the months of November and February, on weekdays, between 4pm and 7pm.
Two capacity auctions take place each year:
The T-4 auction is used to buy most of the capacity that is anticipated to be needed for delivery in four years’ time. Contracts can run for 15 years.
The T-1 auction is used to top-up capacity for the forthcoming year. The price achieved reflects the degree of shortfall of capacity from earlier T-4 auctions.