The UK Capacity Market auctions remain a critical mechanism for ensuring electricity security and expanding flexible capacity to support decarbonisation by procuring reliable capacity through annual auctions. For the 2025 auction cycle, recent updates reflect a nuanced shift in how different technologies are credited, producing a mixed but evolving capacity mix.

For the 2025–2026 delivery year, DESNZ has set a target of 6.5 GW for the T-1 (one year ahead) Capacity Market auction, while the T-4 (four years ahead) auction for delivery in 2028–2029 aims for 44 GW of capacity.

Interconnectors have seen their de-rating factors increase across all major import countries, including Germany, France, Belgium, the Netherlands, Denmark, and Norway. This means interconnectors are now credited with more firm capacity than in previous years, reflecting improved assessments of their availability during peak stress periods and enhancing their role in the UK’s security of supply.

In contrast, fossil fuel generation continues to face cautious or slightly reduced Equivalent Firm Capacity (EFC) ratings. The most recent analyses by the Panel of Technical Experts (PTE) and NESO reflect updated operational data and outage statistics, leading to somewhat lower credited capacity for fossil fuel plants. This conservative approach accounts for evolving reliability challenges in the thermal fleet, though the de-rating shifts tend to be modest.

The most notable transformation is in battery energy storage systems (BESS). Methodological advances by NESO, including the introduction of the scaled EFC method, have greatly improved the way storage is credited. This approach explicitly accounts for BESS duration constraints and multiple stress events, providing a more accurate and often higher credit than previous methods.

Combined with growing operational experience, these improvements have substantially enhanced BESS’s role in the Capacity Market. The T-1 auction for 2025–2026 delivery awarded around 727 MW of new-build generating capacity, with the majority, 560 MW, coming from new-build battery storage projects, underscoring storage’s growing role in the capacity mix and signalling strong investor confidence.

The de-rating factor for BESS has historically been closely linked to discharge duration. Short-duration systems, such as 0.5-hour batteries, were credited with as little as 4–5 percent of their capacity, reflecting limited availability during peak stress periods.

Conversely, longer-duration systems of eight hours or more have seen much higher de-rating factors, approaching 90 percent, acknowledging their greater contribution to system reliability. This clear dependency on duration has been a fundamental consideration in Capacity Market crediting and has driven evolving methodologies to better capture the value of different storage configurations.

Interconnectors’ improved de-rating factors mean they contribute more effectively to the UK’s capacity adequacy, potentially reducing domestic procurement needs and supporting security in a cost-effective manner.

Fossil generation’s cautious de-rating reflects ongoing reliability challenges and may signal a gradual phase-out or shift towards other capacity sources over time.

Battery storage’s evolving de-rating factors demonstrate a clear and positive trend in crediting, which supports increased investment and deployment of battery energy storage systems as a flexible and reliable resource.

Storage’s enhanced crediting overall improves revenue certainty and encourages further deployment of battery and longer-duration energy storage solutions, which are key to integrating renewables and managing system flexibility.

The 2025 Capacity Market clearing prices and allocation trends reflect a shifting landscape in which storage continues to secure a growing share of awarded capacity, interconnectors benefit from improved crediting mechanisms, and fossil generation faces increasing scrutiny.

This dynamic illustrates the Capacity Market’s adaptability as the UK’s resource mix transitions towards low-carbon, flexible technologies while maintaining robust reliability.

In summary, the UK Capacity Market remains a cornerstone for securing supply adequacy. However, evolving de-rating methodologies and policy shifts are reshaping the roles of interconnectors, fossil generation, and storage. This transformation is creating a complex yet promising environment for investors, operators, and policymakers navigating the transition to a net-zero electricity system.