Capacity Market

How Modo forecasts GB Capacity Market clearing prices and applies them to battery revenue projections.

Overview

Great Britain operates a Capacity Market (CM) consisting of annual auctions that award contracts securing electricity generation supply for either the following winter (T-1) or four years ahead (T-4). This mechanism determines what generation capacity gets built and maintained over the long run, making it a foundational input to Modo’s GB revenue forecast.

T-1 auctions primarily signal the cost of keeping existing thermal assets running through another winter. T-4 auctions mostly reflect new-build generation costs, as successful bidders must have their assets operational within the four-year delivery window.

Forecast subscribers can access Capacity Market clearing price, volume, and de-rating factor assumptions through the Scenario Databook.

Forecasting Capacity Market Prices

Modo Energy takes a conservative view on GB Capacity Market T-4 clearing prices based on historic auction results and informed by the cost of bringing new generation online.

Many forecast users have their own CM assumptions - or existing contracts - so if this is the case, replace the CM revenues with your own.

Historic T-4 clearing prices

T-4 auction clearing prices have varied significantly from year to year, ranging from £6.44 to £65/kW/yr across completed auctions. The most recent T-4 auction (CM 2029/30, held in early 2026) cleared at £27.10/kW/yr — well below the £60–65/kW/yr peak seen in CM years 2027/28 and 2028/29. All years below are CM years (October–September).

ℹ️ Conservative pricing assumption: Given the wide variation in historic T-4 clearing prices (from £6.44 to £65/kW/yr), Modo takes a conservative view of future auction outcomes. T-4 price assumptions were updated downward in the April 2026 release, partly informed by the CM 2029/30 T-4 auction clearing at £27.10/kW/yr — materially below recent peak levels.

How Revenue is Applied in the Dispatch Model

Capacity Market revenues are modelled as T-4, 15-year contracts. All years referenced below are CM years (October–September).

Contract start

Assets are credited with CM revenues from October of the year the asset becomes operational. The clearing price applied is the T-4 auction price for the CM year in which that October falls.

Contract duration

Once locked in, the asset receives that same CM revenue for 15 years. No further auction prices are applied during the contract term.

After the contract term

Once the 15-year contract expires, CM revenues for each subsequent year are based on the prevailing annual clearing price for that year rather than a locked-in contract rate. This reflects how the market operates in practice: 15-year contracts are awarded to new-build assets where capital expenditure justifies a long-term obligation, while existing assets are unlikely to secure a further 15-year term.

Revenue formula

CM revenue = clearing_price × de-rating_factor × capacity

Nominal clearing prices are converted to real terms using an inflation adjustment before being applied in the model.

Worked example

An asset going live in May 2027 receives CM revenues at the T-4 clearing price from CM year 2027/28, starting from October 2027 and continuing for 15 years (through September 2042).

Exception: assets starting January 2026

Assets with a forecast start date of January 2026 — the earliest date in the forecast — are treated as already operational. These assets are assumed to receive the 2025 T-4 clearing price from the start of the forecast through September 2039.

T-1 and secondary market contracts

In practice, assets in their first year of trading may hold a T-1 contract or have secondary-traded a capacity obligation. This is not modelled in the forecast revenues.

Users are encouraged to refine CM assumptions where more specific information is available.

De-rating Factors

De-rating factors (also referred to as capacity credits) reflect each technology’s ability to provide firm capacity during system stress events. They scale nameplate capacity down to the effective contracted volume for Capacity Market purposes.

Factors are duration-specific for BESS and are adjusted each auction year by NESO to reflect the latest stress event modelling.

⚠️ BESS de-rating factors fell sharply for CM years 2026/27 and 2027/28 following changes to NESO’s stress-event methodology, before partially recovering in CM years 2028/29 and 2029/30. The long-run direction is expected to be downward as grid stress events extend in duration and shorter-duration assets contribute a smaller share of firm capacity.

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