UK floats capacity market rule changes for BESS and other technologies

The UK government has proposed a raft of changes to the rules governing its capacity market auctions, including measures that would affect utility-scale and behind-the-meter energy storage.

Six changes have been put forward in an industry consultation, including a new multi-price model, measures to reduce “strategic bidding”, a rule change on how much capacity BESS asset’s must nominate at auction, simplified reporting for demand-side response aggregators, and amendments to auction administration.

Changing the amount of capacity that BESS assets can nominate in their bids has been floated as a way of ensuring battery storage assets can fulfill long-term contracts despite degradation risk. Under current rules, new build storage will only be able to bid for capacity agreements at their full grid connection capacity in the next auction. This could put BESS assets at risk of failing to meet contract obligations in the future, as contracts durations can run to 15 years.

To mitigate this risk, the government has proposed allowing bidders to self-nominate the capacity they put forward at auction, provided it is above a minimum percentage of the grid connection capacity secured for the BESS. A floor of 50% has been suggested, which the government said is a “fair assessment” of maximum expected loss of capacity due to degradation.

Behind the meter, demand-side flexibility aggregators could see reporting requirements eased for assets with power output capacity below 20 kW. This could affect behind-the-meter energy storage, EV chargers and heat pumps.

Aggregators currently need to report on each flexibility asset that is included in the block they intend to trade, which can be arduous due to the high volume of small-scale assets grouped together. Streamlining component notification requirements by removing the need to report on assets below 20 kW would reduce administrative burdens, according to the government, which is banking on greater demand-side flexibility in the energy system as part of its 2030 energy system targets.

Strategic bidding has also come under the spotlight. Great Britain’s capacity market auction works by inviting asset owners to bid the lowest price at which they would be willing to provide electricity.

The government has argued that when there is sufficient excess capacity competing for contracts, information provided to participants before and during the auction can foster competition. However, when fewer assets are competing, more information can lead to artificially high prices, as bidders can potentially use information to bet on a higher clearing price. UK capacity market auctions attracted excess capacity of around 12 GW five years ago, according to the UK government, but just under 1 GW in the most recent auction.

To combat what it views as strategic bidding risk, the government has suggested increasing the rounding threshold for reporting excess capacity in the auction to 3 GW.

Two-tier auction pricing could also be introduced. This would add a second, higher price cap round to the auction in a bid to secure more new build capacity that can run indefinitely.

The government wants to see more dispatchable enduring capacity deployed in Great Britain to cover prolonged periods of tight supply. It expects power carbon capture, usage and storage (CCUS) and hydrogen to power (H2P) to provide this capacity, alongside the existing fleet of unabated gas plants.

A bidding round for new build plants capable of providing enduring capacity could therefore be introduced with the goal of attracting greater investment in these technologies. This would mean plants that can run indefinitely would compete in a first-round auction with a higher price cap and floor, likely above GBP 75 ($100) per kW/per year. Once sufficient enduring capacity was secured in round one, all other technologies – including battery energy storage systems – would be able to compete for capacity agreement contracts from the second bidding round onward as usual.

The UK government is currently seeking views form industry on its proposals via its “Proposed changes for Prequalification 2026” consultation. Stakeholders have until Nov 27, 2025. to share their views.