The Electricity Capacity (Amendment) Regulations 2025 amend the 2014 Electricity Capacity Regulations to improve the UK's Capacity Market.
Key changes include introducing 9-year capacity agreements for certain low-carbon generating units, clarifying eligibility criteria, and simplifying some administrative procedures.
These amendments seek to enhance the market's efficiency, promote low-carbon investment, and improve regulatory clarity.
Several subsections clarify existing ambiguities and align the regulations with ongoing updates to the Capacity Market Rules.
Arguments For
Improved Efficiency and Flexibility of the Capacity Market: The amendments aim to streamline the existing capacity market, enhancing its ability to adapt to evolving energy needs and technological advancements. This includes offering more diverse contract lengths.
Enhanced Low-Carbon Support and Investment: The introduction of 9-year agreements for eligible low-carbon CMUs incentivizes investment in low-emission generation and decarbonization efforts. The allowance of 3-year agreements without capital expenditure for some declared low-carbon CMUs provides market flexibility.
Clarification and Consistency: Several changes clarify existing regulations, resolving ambiguities and promoting a more consistent and predictable framework for participation in the capacity market. This improves regulatory clarity for all participants, reducing risk and improving compliance.
Evidence-Based Adjustments: The amendments are based on consultations and evaluations of the existing scheme which identified areas for improvement based upon market experience. This suggests a planned and iterative development of the regulations.
Alignment with evolving policy goals: The amendments align the capacity market with broader policy objectives to support the move towards low-carbon electricity generation. This contributes to the UK's net-zero commitments.
Arguments Against
Potential for unintended consequences: While the changes are expected to create system improvements, there is the potential for unanticipated negative effects, particularly regarding market dynamics and participant behavior. Detailed monitoring and ongoing review will be required to gauge the effect.
Increased complexity: The introduction of new thresholds and distinctions within the capacity market may increase complexity and administrative burden for participants. This could become a barrier to entry for some actors.
Limited impact assessment: The absence of a full impact assessment raises concerns about the potential scope and depth of the actual implications. More robust impact assessment methods may be needed to understand the implications fully.
Reliance on Capacity Market Rules: The Regulations depend heavily on the external and often updated Capacity Market Rules. This presents a reliance on external factors affecting market processes and the operational effectiveness of the rules themselves.
Potential for unequal treatment: The differing treatment of various CMUs based on their characteristics may create concerns around fairness within the market; the specific regulations may have disproportionately positive effects on some eligible generators.
The Secretary of State makes these Regulations in exercise of the powers conferred by sections 27(1) and (5), 28(1), (4)(e) and (f), 29(1), (2)(a) and (e), 36(1), (3) and (4)(d), and 40(1) of the Energy Act 2013 (“the Act”)1.
The Secretary of State has before making these Regulations—
(a) consulted the persons listed in section 40(2)(a) and (b) of the Act and such other persons as the Secretary of State considered it appropriate to consult;
(b) in accordance with section 5(1)(d) had regard to the matters in section 5(2) of the Act.
In accordance with section 40(5) of the Act, a draft of this instrument was laid before Parliament and approved by a resolution of each House of Parliament.
The Secretary of State, empowered by the Energy Act 2013, created these regulations.
Before implementation, consultations took place with relevant individuals and entities.
The draft regulations were presented to and approved by Parliament.
These Regulations may be cited as the Electricity Capacity (Amendment) Regulations 2025.
These Regulations come into force on the day after the day on which they are made.
These Regulations extend to England and Wales and Scotland.
These regulations are officially titled the Electricity Capacity (Amendment) Regulations 2025.
They became effective the day following their enactment.
Their jurisdiction covers England, Wales, and Scotland.
The Electricity Capacity Regulations 20142 are amended in accordance with regulations 3 to 10.
The regulations modify the Electricity Capacity Regulations of 2014, as detailed in sections 3 through 10.
In regulation 2(1)—
(a) in the definition of “a CFD”, after “the Act”, insert “or an investment contract under Schedule 2 to the Act”;
(b) after the definition of “interconnector CMU”, insert—““low emissions determination” has the meaning given in the Rules;”.
Section 2(1) of the 2014 regulations is amended: (a) The definition of 'CFD' is broadened to include investment contracts; (b) A definition of 'low emissions determination' is added, with its meaning referencing external rules.
In regulation 11—
(a) in paragraph (1)(e), after “15 year minimum £/kW threshold” insert “9 year minimum £/kW threshold”;
(b) in paragraph (3)—
(i) for “In paragraph (1)”, substitute “In this regulation”;
(ii) for the definitions of “15 year minimum £/kW threshold” and “3 year minimum £/kW threshold” substitute—““3 year minimum £/kW threshold” means the minimum amount of capital expenditure per kilowatt of de-rated capacity which a bidder must commit to spending on a generating CMU or an unproven demand side response CMU that is not a three year zero capex threshold CMU to be eligible to bid for a capacity obligation for a period of 2 or 3 delivery years;
“9 year minimum £/kW threshold” means the minimum amount of capital expenditure per kilowatt of de-rated capacity which a bidder must commit to spending on a declared low carbon CMU that is a new build CMU, a refurbishing CMU or an unproven demand side response CMU to be eligible to bid for a capacity obligation for a period of more than 3 and up to 9 delivery years;
“15 year minimum £/kW threshold” means the minimum amount of capital expenditure per kilowatt of de-rated capacity which a bidder must commit to spending—
(a) on a declared low carbon CMU that is a generating CMU or an unproven demand side response CMU to be eligible to bid for a capacity obligation for a period of more than 9 and up to 15 delivery years; or
(b) on any other generating CMU or unproven demand side response CMU to be eligible to bid for a capacity obligation for a period of more than 3 and up to 15 delivery years;”;
(iii) after the definition of “auction target capacity”, insert—““; and“declared low carbon CMU”, “new build CMU”, “refurbishing CMU”, and “three year zero capex threshold CMU” have the meaning given in the Rules.”.
Regulation 11 is amended: (a) Adds a '9-year minimum £/kW threshold' to paragraph (1)(e). (b) Replaces and expands definitions related to capital expenditure thresholds for capacity obligations by introducing updated values for 3, 9 and 15 year contracts.
Furthermore, it modifies existing wording and adds definitions for several low-carbon CMU types, referencing the external rules once again.
For regulation 16(2), substitute—“(2) The Delivery Body must not prequalify CMU i if—(a) the CFD counterparty has made an offer of a CFD in respect of the generating station that comprises or includes CMU i—(i) under section 10(1) of the Energy Act 2013 (direction to offer to contract), and the CFD counterparty and an eligible generator have entered into that CFD; or (ii) under regulation 10(1) of the Contracts for Difference (Standard Terms) Regulations 2014 (offer to contract) and an eligible generator has entered into that CFD; and (b) that CFD has not expired or been terminated.
(2A) For the purposes of paragraph (2), a reference to an eligible generator entering into a CFD has the meaning given in regulation 10(3) of the Contracts for Difference (Standard Terms) Regulations 2014 (offer to contract)3.”.
Regulation 16(2) is replaced with a new version.
The new text clarifies the conditions under which the delivery body cannot prequalify a capacity market unit (CMU), focusing on the status of existing contracts for difference (CFD).
In regulation 30(6), for “a capacity agreement”, substitute “once a capacity agreement takes effect in accordance with the Rules, it”.
Regulation 30(6) is updated to specify that the actions in the regulation only occur once a capacity agreement is legally active, as defined by the external rules.
In regulation 39(4), for “20”, substitute “34”.
A numerical value in regulation 39(4) is changed from '20' to '34'.
In regulation 50(6)—
(a) before the definition of relevant month, insert—““extended performance” has the meaning given in the Rules;”;
(b) in the definition of “satisfactory performance requirement”, after “demonstrate satisfactory performance days”, insert “or extend performance during a satisfactory performance day”.
Amendments to regulation 50(6): (a) Adds a definition for 'extended performance', referencing external rules. (b) Modifies the definition of 'satisfactory performance requirement' to consider performance extensions.
In the table in regulation 68(2), insert a row at the end, as follows—“A low emissions determination The capacity provider to whom the notice of the determination was given”.
A new row is added to the table in regulation 68(2), specifying the relevant party for appeal decisions related to low emission determinations.
In regulation 70(4)(c), at the end, omit “and” and insert—“(ca) in the case of an appeal relating to a low emissions determination, a copy of—(i) the notice setting out the determination; and (ii) any notice that the Rules required to be given before the low emissions determination was made; and”.
Regulation 70(4)(c) is amended to include additional documentation requirements for appeals involving low emissions determinations.
This instrument amends the Electricity Capacity Regulations 2014 (S.I. 2014/2043) (“the 2014 Regulations”).
The 2014 Regulations make provision for the purpose of meeting consumers’ demand for electricity in Great Britain by establishing a Capacity Market (“the scheme”) under which those who make capacity available (“capacity providers”) can obtain capacity agreements which give them rights to receive capacity payments, and which also impose obligations on capacity providers to use their “capacity market units” (“CMUs”) to provide capacity when required to do so. Following a prequalification process during which applications must be made to the scheme’s delivery body (National Energy System Operator), capacity agreements are awarded in auctions. The scheme operates on an annual cycle: prequalification typically takes place in the third quarter of each calendar year; the auctions in the first quarter of the next calendar year; and agreements run for one or more “delivery years”, each of which runs from 1st October to the following 30th September. Further detailed provision is made by the Capacity Market Rules 2014 (“the Rules”). An informal consolidated version of the Rules can be found at https://www.gov.uk/government/publications/capacity-market-rules. Copies are available from the Department for Energy Security and Net Zero, 3-8 Whitehall Place, London, SW1A 2EG.
Capacity agreements generally have a duration of one, three or 15 delivery years. Eligibility for agreements of more than one year depends on a CMU’s characteristics and whether the amount of money to be spent on it by the capacity provider meets a specified threshold. For the prequalification process that is expected to take place in 2025, ahead of the auctions to take place in the first quarter of 2026, it is proposed to introduce the possibility of nine year agreements for certain CMUs that meet the requirements to be a “declared low carbon CMU” and a new capital expenditure threshold, that would be set at a level between the thresholds for three and 15 year agreements. At the same time, certain declared low carbon CMUs will be permitted to acquire 3 year agreements without incurring capital expenditure up to the usual capital expenditure threshold for an agreement of that duration. Regulation 4 amends regulation 11 of the 2014 Regulations to provide for these changes.
Regulations 3(a) and 5 clarify the existing intention of the provision prohibiting generating stations that have entered into contracts for difference offered under or by virtue of the Energy Act 2013 from being prequalified to bid for capacity agreements. Regulation 7 corrects a detail of timing in the provisions of the 2014 Regulations relating to penalties. Regulation 8 clarifies the operation of the extended performance testing regime, in relation to which changes to the Rules are to come into force at the same time as this instrument. Regulations 3(b), 6, 9 and 10 are similarly consequential on other changes to the Rules that are to come into force at the same time.
The amendments made by this instrument were the subject of consultations in 20234. In order to implement the policies consulted on, amendments to the Rules are also required. Amending Rules will be made so as to come into force either simultaneously with this instrument or on specified dates in 2025.
An impact assessment has not been prepared for this instrument. The scheme was subject to a full impact assessment when it was first introduced. This instrument is intended to improve the operation of existing arrangements for the delivery of the scheme. It introduces changes that will only have minor impacts on business, and no impact is foreseen on the voluntary or public sector.
This explanatory note provides background on the amendments to the 2014 Electricity Capacity Regulations.
It describes the Capacity Market scheme, highlighting its purpose and operational cycle.
The note explains the rationale for the amendments, emphasizing the introduction of 9-year agreements for low-carbon CMUs and other changes promoting efficiency and clarity.
It also addresses the consultation process and notes the absence of a new impact assessment, arguing that the changes have only minor business impacts.