The Electricity Capacity (Amendment and Transitional Provision) Regulations 2026

Published: Fri 17th Jul 26

These Regulations amend the framework governing the UK Electricity Capacity Market to increase financial security requirements and update administrative procedures.

The instrument raises the rates for termination fees and applicant credit cover, introduces new protocols for withholding payments following insolvency events, and permits the Gas and Electricity Markets Authority to alter the timetable for supplier charge reconciliation.

The measures apply to the Delivery Body (National Energy System Operator), the Settlement Body (Electricity Settlements Company), and all capacity providers and electricity suppliers participating in the Capacity Market in England, Wales, and Scotland.

Arguments For

The explanatory note states that the instrument is intended to improve the operation of existing arrangements for the delivery of the Capacity Market scheme.
The document describes changes to the reconciliation process as a means to allow the Settlement Body to account for alternative timetables where required by the Authority (Ofgem).
The legislation includes transitional provisions to ensure that increased credit cover requirements do not apply retroactively to capacity agreements already awarded before the regulations come into force.
Proponents within the Department for Energy Security and Net Zero indicate that the changes will have only minor impacts on business while maintaining the scheme's purpose of meeting consumer electricity demand.

Arguments Against

Legal scholars or affected energy providers might question the impact of significantly higher termination fees (rising to rates such as £45,500/MW) on the financial risk profiles of new energy projects.
Participants in the Capacity Market may have concerns regarding the Settlement Body’s new mandate to withhold credit payments immediately upon the issuance of an insolvency termination notice.
Energy suppliers might seek clarity on how the Authority's power to direct alternative reconciliation timetables will affect their financial planning and cash flow predictability.
Critics may note that the absence of a new impact assessment makes it difficult to quantify the cumulative burden of increased credit cover and fees on smaller market entrants.

Citation, commencement and extent

-(1) These Regulations may be cited as the Electricity Capacity (Amendment and Transitional Provision) Regulations 2026.

(2) These Regulations come into force on the day after the day on which they are made.
(3) These Regulations extend to England and Wales and Scotland.

This section establishes the official name of the regulations and sets the commencement date as 17 July 2026.

It limits the legal jurisdiction of the instrument to Great Britain.

Amendments to the Electricity Capacity Regulations 2014

-(1) The Electricity Capacity Regulations 2014 are amended as set out in Schedule 1.

(2) Any reference in that Schedule to a numbered regulation is to the regulation so numbered in those regulations.

This section gives legal effect to the modifications listed in Schedule 1, which alter the primary 2014 regulations governing the Capacity Market.

It clarifies that any regulation numbers mentioned in the schedule refer back to the 2014 instrument.

Amendments to the Electricity Capacity (Supplier Payment etc.) Regulations 2014

-(1) The Electricity Capacity (Supplier Payment etc.) Regulations 2014 are amended as set out in Schedule 2.

(2) Any reference in that Schedule to a numbered regulation is to the regulation so numbered in those regulations.

This provision activates the changes detailed in Schedule 2 regarding how electricity suppliers fund the Capacity Market.

It ensures that references to specific regulations are interpreted as belonging to the Supplier Payment Regulations.

Amendments to the Electricity Capacity (No. 1) Regulations 2019

-(1) The Electricity Capacity (No. 1) Regulations 2019 are amended as set out in Schedule 3.

(2) Any reference in that Schedule to a numbered regulation is to the regulation so numbered in those regulations.

This section gives effect to Schedule 3, which revokes certain parts of the 2019 Regulations.

These amendments primarily remove provisions that the document identifies as redundant.

Schedule 1

Amendments to the Electricity Capacity Regulations 2014

Amendments to regulation 2

In regulation 2 (interpretation) in paragraph (1)- (a) for the definition of 'auction clearing price', substitute-

''auction clearing price' means, in relation to a capacity auction, the price per MW which, subject to any provision for adjustment of capacity payments for inflation, is determined by the capacity auction to be the price at which capacity payments are payable in respect of capacity committed CMUs awarded a capacity obligation in that capacity auction;'; and

(b) in the definition of 'TFx' for '5' substitute '9'.

Amendments to regulation 16

In regulation 16 (excluded capacity: low carbon support scheme CMUs)- (a) for paragraph (2), substitute-

'(2) The Delivery Body must not prequalify a CMU if, in respect of the generating station that comprises or includes the CMU-

(a) the CFD counterparty has made an offer of a direct award CFD and-
(i) the CFD counterparty and an eligible generator have entered into that CFD;
(ii) that CFD has not expired or been terminated; and
(iii) the applicant does not provide a non-support confirmation by the close of the prequalification window; or
(b) the CFD counterparty has made an offer of an allocation round CFD and-
(i) an eligible generator has entered into the CFD;
(ii) that CFD has not expired or been terminated.';
(b) in paragraph (2A), for '(2)(a)(ii)' substitute '(2)(b)(i)';
(c) in paragraph (4)-

(i) before the definition of 'co-firing CMU', insert-

''allocation round' means an allocation round established by the Secretary of State under regulation 4 of the Contracts for Difference (Allocation) Regulations 2014;

'allocation round CFD' means a CFD offered under section 14(1) of the Act (CFD notification: offer to contract on standard terms) and regulation 10(1) of the Contracts for Difference (Standard Terms) Regulations 2014 (offer to contract) following an allocation round;';

(ii) after the definition of 'co-firing CMU', insert-

''direct award CFD' means a CFD offered by the CFD counterparty following a direction given by the Secretary of State under section 10(1) of the Act (direction to offer to contract);';

(iii) after the definition of 'FIT Order', insert-

''generation counterparty payment' has the meaning given in regulation 4(2) of the Contracts for Difference (Electricity Supplier Obligations) Regulations 2014;

'generation party payment' has the meaning given in regulation 4(2) of the Contracts for Difference (Electricity Supplier_Obligations) Regulations 2014;';

(iv) in the definition of 'non-support confirmation'-
(aa) at the end of sub-paragraph (a), omit 'or';
(bb) at the end of sub-paragraph (b), insert 'or';
(cc) after sub-paragraph (b), insert-
'(c) that, in respect of a direct award CFD, the applicant will not receive a generation counterparty payment or be obliged to make a generation party payment in respect of the relevant CMU for any of the delivery period;'.

Amendment to regulation 21

In regulation 21 (auction guidelines), in paragraph (1) after 'start of the prequalification window,' insert 'and as soon as reasonably practicable following any extension to the prequalification window made by the Delivery Body or Secretary of State under the capacity market rules,'.

Amendments to regulation 32

In regulation 32 (termination fee rates)- (a) in paragraph (1), in the definition of 'TFxrate' for '5' substitute '9'; and (b) in paragraph (2), after 'TF5rate is £35,000/MW' insert-

'TF6rate is £6,500/MW; TF7rate is £13,000/MW; TF8rate is £19,500/MW; TF9rate is £45,500/MW.'.

Amendment to regulation 34

In regulation 34 (termination of capacity agreements: CFDs and ROO conversions), in paragraph (3) in the definition of 'CFD transfer notice' for 'for a CFD' substitute 'for an allocation round CFD'.

Amendments to regulation 43

In regulation 43 (termination fees)- (a) in paragraph (3), for '5' substitute '9'; and (b) in paragraph (5), in the definition of 'TFxrate' for '5' substitute '9'.

Amendments to regulation 51

In regulation 51 (withholding credit payments to capacity providers)- (a) in paragraph (1)- (i) at the end of sub-paragraph (a), omit 'or'; (ii) after sub-paragraph (a), insert-

'(aa) C is issued a termination notice in relation to a CMU ('CMU i') for an insolvency termination event (a 'relevant termination notice'); or';

(iii) in sub-paragraph (b), at the start, insert, 'other than when sub-paragraph (aa) applies,';
(b) in paragraph (2)-
(i) at the end of sub-paragraph (a), omit 'and';
(ii) after sub-paragraph (a), insert-

'(aa) where a relevant termination notice has been issued, no monthly capacity payment is paid in respect of the relevant CMU from the date the relevant termination notice is issued, and credit is withheld in accordance with paragraph (2A); and';

'(2A) Where C is issued a relevant termination notice, the Settlement Body must withhold credit in accordance with the formula-

$$A = X \times (Y/Z)$$

where-

A is the adjusted capacity payment;

X is the full monthly capacity payment;

Y is the number of days in that month before the date the relevant termination notice was issued; and

Z is the total number of days in the month during which the termination notice was issued.

(2B) The Settlement Body is not required to withhold credit from C under paragraph (1) (aa) if the relevant termination notice is withdrawn.

(2C) Paragraph (1)(aa) applies to the termination of a transferred part as it applies to the termination of a capacity agreement.'.

(d) for paragraph (3), substitute-

'(3) In this regulation-

'data default notice' has the meaning given in regulation 37(1);

'insolvency termination event' and'termination notice' have the meanings given in the Rules.'.

Amendments to regulation 52

In regulation 52 (payment of withheld credit)- (a) in paragraph (2), for '51(1)(b)' substitute '51(1)(aa) or 51(1)(b)'; and (b) after paragraph (3), insert- '(4) Where credit is withheld from C under under regulation 51(1)(aa) and a relevant termination notice is subsequently withdrawn, the Settlement Body must pay the withheld credit in accordance with the formula-

$$A = X \times (Y/Z)$$

where-

A is the adjusted capacity payment;

X is the full monthly capacity payment;

Y is the number of days in that month after (and including) the date the relevant termination notice was issued; and

Z is the total number of days in the month during which the termination notice was issued.

(5) Paragraph (4) applies to the termination of a transferred part as it applies to the termination of a capacity agreement.
(6) In this regulation, 'relevant termination notice' has the meaning given in regulation 51(1)(aa).'.

Amendment to regulation 53

In regulation 53(3), in the definition of 'the required amount', for '59(1) or (4)' substitute '59(1), (4) or (5A)'.

Amendment to regulation 59

In regulation 59 (requirement to provide applicant credit cover)- (a) in paragraph (2)- (i) in sub-paragraph (a)(i), for '£5,000' substitute '£6,500'; (ii) in sub-paragraph (a)(ia), for '£10,000', substitute '£13,000'; (iii) in sub-paragraph (a)(ii), for '£10,000', substitute '£13,000'; (b) in paragraph (2C), for '£5,000', substitute '£6,500'; (c) for paragraph (4), substitute-

'(4) The applicant credit cover provided under paragraph (1) in respect of a new build CMU must-

(a) where 12 months have elapsed after auction results day and where an applicant has not met the financial commitment milestone in accordance with the Rules, be increased by the capacity provider to an amount equal to £19,500 per MW of de-rated capacity; and
(b) where subsequently the applicant meets the financial commitment milestone in accordance with the Rules, be reduced to an amount equal to £13,000 per MW of de-rated capacity.';
(d) after paragraph (5), insert-

'(5A) Where CMU i is not an unproven demand side response CMU, the applicant credit cover provided under paragraph (1) in respect of CMU i must, where notice requiring an increase in applicant credit cover is given to a capacity provider by the Delivery Body under the Rules, be increased by the capacity provider to an amount equal to £45,500 per MW of de-rated capacity.

(5B) The increased credit cover required to be provided under paragraph (5A) must be provided within 15 working days of notice being given by the Delivery Body.'.

New regulation 59A

After regulation 59 (requirement to provide applicant credit cover), insert-

' Requirement to provide applicant credit cover: Transitional provision

59A. -(1) This regulation applies to applications made before the coming into force of the Electricity Capacity (Amendment and Transitional Provision) Regulations 2026.

(2) Where this regulation applies, regulation 59 applies as if-

(a) in paragraph (2)-
(i) in sub-paragraph (a)(i), for '£6,500' there were substituted '£5,000';
(ii) in sub-paragraph (a)(ia), for '£13,000', there were substituted '£10,000';
(iii) in sub-paragraph (a)(ii), for '£13,000', there were substituted '£10,000';
(b) in paragraph (2C), for '£6,500', there were substituted '£5,000'; and
(c) for paragraph (4), there were substituted-

'(4) In circumstances specified in capacity market rules, the applicant credit cover provided under paragraph (1) in respect of a new build CMU must, where twelve months have elapsed after auction results day, be increased by the capacity provider to an amount equal to £15,000 per MW of de-rated capacity.'.'.

Amendment to regulation 60

In regulation 60 (credit obligation period)-

(a) in paragraph (1), for sub-paragraph (g) substitute-
'(g) where CMU i is not an unproven demand side response CMU, A has fully discharged all the requirements in capacity market rules against which its applicant credit cover was secured, and which a failure to meet would either-
(i) result in its capacity agreement being terminated under capacity market rules; or
(ii) prevent A from being entitled under capacity market rules to capacity payments in respect of CMU i;';
(b) in paragraph (2)-
(i) at the end of sub-paragraph (a), insert '; or'; and
(ii) immediately after sub-paragraph (b) but before the words at the end, insert-
'(c) where CMU i is awarded a capacity obligation following an application made after the coming into force of the Electricity Capacity (Amendment and Transitional Provision) Regulations 2026, in an amount equal to £6,500 per MW of the amount of the de-rated capacity of CMU i,'.

This Schedule implements technical changes to the Capacity Market rules.

It prohibits units from prequalifying if they already have an active 'Contract for Difference' (CfD) unless they provide proof that payments will not overlap.

It also expands the range of termination fees to nine specific rates, with the highest set at £45,500 per megawatt.

Paragraph 7 through 10 mandate that the Settlement Body withhold payments immediately when a provider faces an insolvency notice, using a pro-rata formula for the month of termination.

Credit cover requirements—funds set aside by providers to guarantee performance—are increased from £5,000 to £6,500 per MW for standard applications and from £10,000 to £13,000 per MW for others.

A transitional provision ensures higher rates only apply to new applications made after these regulations take effect.

Schedule 2

Amendments to the Electricity Capacity (Supplier Payment etc.) Regulations 2014

Amendments to regulation 18

In regulation 18 (reconciliation runs)- (a) in paragraph (1), after 'subject to paragraphs', insert '(1A),'; (b) after paragraph (1), insert-

'(1A) The Authority may, where it considers that the periods specified in paragraph (1) should not be applied, direct the Settlement Body to carry out-

(a) scheduled monthly reconciliation runs to commence during each period which begins with the day after the last day of month M and ends with the day which is 7 working days, 30 working days and 84 working days after the last day of month M; and
(b) scheduled annual reconciliation runs to commence during each period which begins with the day after the last day of year X and ends with the day which is 7 working days, 30 working days and 84 working days after the last day of year X.';
(c) after paragraph (3), insert-

'(3A) If the Authority makes a direction under paragraph (1A) after the Settlement Body publishes a timetable under paragraph (3), the Settlement Body must, in accordance with that direction, reschedule the monthly reconciliation runs or annual reconciliation runs, and as soon as possible-

(a) set a timetable for-
(i) the rescheduled monthly reconciliation runs for each remaining month of the delivery year containing month M; and
(ii) the rescheduled annual reconciliation runs for year X; and
(b) publish that timetable.';
(d) in paragraph (5), after '(3)', insert ', (3A)'.

Amendment to regulation 26

In regulation 26(1)(a)(ii) for 'regulation 59(1)', substitute 'regulations 59(1), (4) or (5A)'.

This Schedule modifies how supplier payments are recalculated and adjusted (reconciliation).

It authorizes the Authority (Ofgem) to bypass standard timelines and order the Settlement Body to perform monthly or annual reconciliation runs on a specific accelerated or altered schedule.

The Settlement Body is required to publish a new timetable whenever such a direction is issued.

Schedule 3

Amendments to the Electricity Capacity (No. 1) Regulations 2019

Revocation of Chapter 1 of Part 3

In the Electricity Capacity (No. 1) Regulations 2019, omit Chapter 1 (supplier charge payments during standstill period) of Part 3 (payments administered by the settlement body).

This Schedule revokes a segment of the 2019 Regulations.

The omitted chapter concerned supplier charge payments during a past 'standstill period,' a provision the document indicates is no longer necessary.

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