The GB Capacity Market pays businesses that can ‘flex’ their energy use – either by generating power on-site or reducing/shifting their consumption – to ensure that the country has sufficient electricity to meet demand, especially at times of grid stress.
Each year, the National Energy System Operator (NESO), holds competitive auctions to secure sufficient capacity to meet the country’s needs by looking four years ahead. This so-called T-4 auction should allow time to plan and build any new capacity required. As we get closer to each delivery year NESO refines its capacity estimates and fills any gaps with top-up (T-1) auctions, which look just one year ahead.
NESO uses the auctions to set a price per kilowatt that will secure sufficient capacity given the anticipated supply, demand and competitive bids from market participants. For over 10 years the Capacity Market has proven to be a sustainable and cost-effective solution to managing peak demand, without having to invest in building expensive new power plants.
Most types of capacity can participate in the market, including generation units, combined heat and power (CHP) plants and battery storage facilities. Businesses – like many manufacturers – who operate equipment that can be turned down or off and are able to reduce their electricity demand on request can also participate in the Capacity Market.
Businesses that have sufficient flexible capacity to participate in the Capacity Market typically do so through a specialist aggregator, like Enel X. Aggregators pool together capacity from multiple customers to form virtual power plants. The aggregator can then commit to providing significant units of virtual capacity to NESO in the rare event of a grid emergency.
Businesses that choose to participate in the Capacity Market get paid for providing capacity – even if it’s never called upon. Large energy users, like manufacturers – typically with over a megawatt of flexible capacity, can monetise their existing infrastructure by either reducing energy use or activating generation when needed.
The recent Capacity Market auctions and what they mean for manufacturers’ revenue
This year, the auction results told a story of lows and highs. The T-1 auction for electricity delivery in 2025-26 cleared at a five-year low of £20,000 per megawatt per year, which is 40% lower than last year. The T-4 auction for delivery between October 2028 and September 2029 ended at £60,000 per megawatt per year, which is the third consecutive year in a row that the auction has cleared above that price.
On the face of it, reduced T-1 clearing prices may deter some manufacturers from participating in the Capacity Market. What they may not realise is that aggregators like Enel X can pay more than the current T-1 prices if they have secured capacity at higher rates in previous auctions.
In fact, by working with Enel X, manufacturers will receive some of the highest market rates currently available. For example, though the T-1 market closed at £20,000 per megawatt per year, new clients working with Enel X will get the higher T-4 clearing price of £30,590 per megawatt for the same period. This is a 53% per megawatt premium on this year’s T-1 auction price, which is only possible thanks to Enel X’s long-term participation in the market. Enel X also has a higher rate locked-in for the following two capacity market delivery years, meaning manufacturers can earn £158,590 per megawatt over the next three years.
For a manufacturing facility with a site load of 8MW and 4MW of flexible capacity, the site would receive £122,360 gross based on Enel X’s T-4 pricing compared to £80,000 gross from other aggregators that could only offer T-1 pricing.
Capacity Market dynamics
The Capacity Market shows a consistent trend toward higher costs for securing longer-term electricity capacity. This is driven by aging power plants retiring, increasing electricity demand, and a gradual shift in the supply mix. The market is evolving to include more flexible assets like battery storage and demand response, but traditional generation still dominates while commanding higher prices, reflecting the increasing challenge of maintaining grid reliability during the energy transition.
The abundance of existing generation assets, including lifetime extended nuclear sites which require no major capital expenditure, contributed to the dramatic fall in the T-1 auction price.
The T-4 auction clearing price reflects the underlying trend that securing capacity is becoming more expensive and the market is shifting towards newer, more flexible assets.
Which market is best for manufacturers?
Taking part in the Capacity Market is a complex process. The market dynamics created by the one-year to four-year forecasted auctions require strategic positions that need to be built up over the long term to maximise revenue potential.
Enel X has been helping businesses access the Capacity Market and simplify the process since the market’s launch in 2014. As one of the most experienced market participants, Enel X provides manufacturers with more competitive megawatt rates secured over successive years.
Falling T-1 prices combined with T-4 prices remaining high means the cost of securing longer-term energy capacity is becoming more expensive. This reflects the increasing cost of building new generation plants to secure GB’s energy future. The T-1 auction is returning to its natural position of being a top-up market. For manufacturers, the message is clear: to get the most from the Capacity Market and enjoy high rewards for low efforts, work with an experienced market incumbent that has secured the best market rates over many years.
The Capacity Market is one of several energy flexibility markets that Enel X can help manufacturers access, each with different attributes, and each offering stackable revenue opportunities. Explore further how you can benefit from the Capacity Market and several other flexibility schemes at Enel X UK.
