Capacity Market
The UK's mechanism for procuring guaranteed electricity capacity in advance, paid for through a levy on suppliers and ultimately on bills.
The Capacity Market is the UK's mechanism for ensuring sufficient firm electricity generation and demand-side capacity is available at times of system stress, particularly winter peak. It was introduced in 2014 under the Energy Act 2013 and is operated by the National Energy System Operator (NESO).
How it works:
- NESO holds an annual auction for capacity to be delivered four years ahead (T-4), with a top-up auction one year ahead (T-1).
- Generators, demand-side response providers and storage operators bid to provide capacity; the cheapest bids that meet the volume requirement clear at the marginal price.
- Successful bidders receive a regular capacity payment in return for a contractual obligation to be available when the system requires it during stress events.
The cost of capacity payments is recovered from electricity suppliers through a levy and passed through to customers as part of the unit rate or as a separate line item on B2B bills. For procurement, the implications are: capacity-market costs are now a small but persistent component of every UK electricity bill, and suppliers should pass them through transparently rather than bundling them into a forecast adder. For larger demand-side flexible customers — in particular sites with on-site generation, batteries or genuinely interruptible processes — bidding directly into the Capacity Market is itself a revenue opportunity.
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Demand-Side Response
DSRThe deliberate reduction or shifting of electricity demand by customers in response to system or price signals; a revenue and cost-saving opportunity for flexible loads.
Read definitionTargeted Charging Review
TCROfgem's reform of how residual transmission and distribution network costs are recovered; replaced volumetric Triad and DUoS residual charges with fixed bands.
Read definitionTransmission Network Use of System
TNUoS / TUoSThe charge for using the high-voltage national transmission grid, recovered from suppliers and ultimately from customers.
Read definitionBalancing Services Use of System
BSUoSThe charge that recovers the cost of balancing the national transmission system in real time; restructured in 2023 to be paid by generators only on the demand side.
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