Capacity Market Disputes: final determinations 2025 to 2026

What changed

Ofgem published final Tier 2 determinations on ten Capacity Market prequalification disputes for the 2025–26 Delivery Year. These are the last-resort appeals: each appellant had already been through the Delivery Body's initial decision and a Tier 1 review before reaching Ofgem. The ten cases cover Capbal (Kilwinning), OakTree Power, Northwold Solar Farm, Nextpower Rutherglen, Harmony KB, Flexion Energy (two separate appeals), ENGIE Power, Diodes Zetex Semiconductors, and Battery Box. Ofgem's review is narrow — it assesses whether the Delivery Body correctly applied the Capacity Market Regulations and Rules to the evidence available at the time, not whether the outcome was commercially fair.

What this means in practice

The appellant list is the story. Batteries (Battery Box, Capbal Kilwinning), solar (Northwold, Nextpower Rutherglen), DSR aggregators (Flexion, Harmony KB), and an industrial site (Diodes Zetex Semiconductors). ENGIE is the only name with a compliance department that could absorb this process without strain. The rest are exactly the kind of smaller, newer entrants that the Capacity Market was supposed to welcome after the 2014 reforms opened it beyond incumbent thermal plant.

Ten Tier 2 disputes is a significant volume. Each represents an applicant that failed prequalification, challenged it, lost the Tier 1 review, and still thought the decision was wrong enough to escalate. The two-tier process is not trivial: it requires detailed submissions, understanding of the CM Rules and Regulations, and — for smaller operators — legal or consultancy costs that are disproportionate to the capacity they are trying to qualify.

This pattern illustrates Stigler's insight applied to energy market design. The prequalification rules are complex enough that firms with established compliance infrastructure navigate them routinely, while newer entrants hit rejection and must spend money and time contesting decisions through a formal dispute process. Complexity functions as a barrier to entry even when it is not intended as one. The cost of disputing a prequalification decision — measured in time, fees, and opportunity cost of missing an auction — falls hardest on those least able to absorb it.

The Delivery Body (NESO, in its EMR role) runs prequalification against detailed technical and commercial criteria. For batteries and solar, the rules around de-rating factors, metering arrangements, and connection evidence create friction points that thermal plant with decades of CM participation rarely encounter. For DSR aggregators like Flexion (which filed two separate appeals), the rules around component validation and baseline methodology add layers that did not exist when the CM was designed primarily around gas and coal.

Consumers have a stake here too. If prequalification incorrectly excludes capacity, the auction clears at a higher price than it should. Every megawatt wrongly excluded is a megawatt that cannot compete the clearing price down. The CM's value to consumers depends on the widest possible pool of qualified capacity competing in auctions. A prequalification process that systematically disadvantages newer, cheaper technologies — even unintentionally — transfers cost to bill-payers.

What happens next

The individual determination PDFs (each 200–280KB) set out Ofgem's reasoning on each case. The outcomes will be mixed: some appeals upheld, some dismissed. The specific results matter to the appellants but the systemic question is whether the prequalification rules need reform.

Three things to watch:

Prequalification rule review. NESO and Ofgem periodically review CM Rules through the formal change process. If the 2025–26 dispute volume is materially higher than previous years, it strengthens the case for simplifying prequalification requirements — particularly for storage and DSR, which were bolted onto rules originally designed for thermal generation.

T-4 and T-1 auction timing. Appellants whose disputes are upheld may be able to enter upcoming auctions. Those whose disputes are dismissed have lost the delivery year. The binary nature of prequalification — you are in or you are out — means that even a correct final determination arrives too late if the auction has already cleared.

Broader CM reform. DESNZ's Review of Electricity Market Arrangements (REMA) continues to consider the future of the Capacity Market alongside other wholesale market reforms. The pattern of newer technologies struggling with prequalification is one data point in the larger question of whether the CM's institutional design remains fit for a system where the marginal capacity is increasingly non-thermal.

The determination documents are published on Ofgem's website. Each is a standalone decision with no further appeal route — Tier 2 is final unless the appellant seeks judicial review, which is rare and expensive.