Capacity Market Rules
Page type: primary-anchored (mirrors Capacity Market Rules 2014, consolidated 23 June 2025)
Source file: cm-rules.md
What this instrument does
The Capacity Market Rules are the operational rulebook for GB's Capacity Market -- the mechanism that pays power stations, storage, interconnectors, and demand-side response providers to be available when the grid needs them most. The Rules sit beneath the Electricity Capacity Regulations 2014 (which provide the legal framework) and above the Auction Guidelines (which provide auction-specific operational details).
The Rules govern the full lifecycle of participation: applying to take part (prequalification), the auction itself, the resulting capacity agreements, what happens during a system stress event, transfers and trading, testing, monitoring, and what goes wrong if a provider fails to deliver.
Key features
It is a statutory scheme, not a contract
Unlike the CfD regime (where LCCC enters into actual contracts with generators), the Capacity Market creates obligations by statute. Rule 6.2.3 explicitly states that a Capacity Agreement does not create contractual relations. This means disputes are resolved through the Regulations' own review process (Part 10) and ultimately the courts, not through contractual remedies.
Descending clock auction (Rule 5.5.5)
The auction runs as a series of bidding rounds. In each round, the Auctioneer announces a price spread. All prequalified CMUs are deemed to make a "Continuing Bid" unless they submit an "Exit Bid" specifying the minimum price at which they are willing to provide capacity. The price descends round by round. The auction clears when the remaining capacity willing to participate falls below the target set by the Demand Curve (Rule 5.9.2).
The Clearing Price is determined by an integral calculation comparing the area under the Demand Curve against the bids (Rule 5.9.6).
Agreement durations vary by CMU type (Rule 1.2.1, "Maximum Obligation Period")
- Existing CMUs and T-1 Agreements: 1 Delivery Year
- New Build / Refurbishing (meeting 15-Year Capex Threshold + Extended Years Criteria): up to 15 years
- Nine Year Capex Threshold CMUs (Declared Low Carbon): up to 9 years
- Three Year Zero Capex Threshold CMUs (Declared Low Carbon): up to 3 years
- Declared Long Stop CMUs: 3-15 years depending on capex threshold and Low Carbon status
No force majeure (Rule 6.9.1)
The obligations under a Capacity Agreement are absolute. There is no force majeure, frustration, or equivalent legal defence. The only relief is a Long Stop Date extension under Rule 6.7.7 where a connection delay is caused solely by the System Operator, Transmission Licensee, or DNO.
Emissions limits
Three thresholds control participation and agreement length:
| Threshold | Value | Effect |
|---|---|---|
| Fossil Fuel Emissions Limit | 550 gCO2/kWh | All new fossil fuel components from 2022 PQ Window must not exceed this for Delivery Years from 2022 |
| Fossil Fuel Yearly Emissions Limit | 350 kgCO2/kWe/year | Applies to components with Commercial Production Start Date before 4 July 2019 that exceed the 550g limit |
| Low Carbon Limit | 100 gCO2/kWh | Required to access multi-year agreements via Declared Long Stop / Nine Year Capex / Three Year Zero Capex pathways |
Governance structure
| Body | Role | Key Rules |
|---|---|---|
| Secretary of State (DESNZ) | Makes and amends Rules; sets Auction Parameters; determines Interconnector De-rating Factors; can suspend/cancel auctions | 2.3.1A, 2.4, 5.5.8, 5.11.3, 15.1 |
| Authority (Ofgem/GEMA) | Reviews Rules and recommends changes; receives termination notices; holds Price-Maker Memoranda; enforcement | 4.8, 15.2 |
| Delivery Body (NESO) | Publishes Auction Guidelines; processes applications; makes PQ decisions; calculates De-rating Factors; maintains CM Register; issues Capacity Agreement Notices; monitors milestones; issues Termination Notices | 2.2, 2.3, 4, 6.3, 6.8, 6.10.2, 7, 12 |
| Auctioneer (EPEX/appointed third party) | Operates the IT Auction System; conducts the descending clock auction | 5.2, 5.5, 5.9 |
| Auction Monitor | Monitors each auction for compliance; reports within 2 Working Days | 5.14 |
| CM Settlement Body (EMRS) | Credit cover; Capacity Market Metering Register; metering assessments/tests; settlement; volume reallocation | 4.5A-C, 7.2A, 8.3.3, 10, 13A |
Annual auction cycle (typical T-4)
| Timing | Activity | Rule |
|---|---|---|
| T - 22 weeks | Prequalification Window opens | 2.2.2 |
| T - 16 weeks | Prequalification Window closes | 2.2.2 |
| T - 10 weeks | Prequalification Results Day | 2.2.2 |
| T - 22 Working Days | Planning consents / credit cover / emissions declarations due | 4.6, 4.7, 4.7B |
| T - 15 to T - 10 Working Days | New Build/Refurb/DSR confirmation of participation | 5.5.14 |
| T - 3 weeks | Updated Auction Parameters confirmed | 2.2.2 |
| T | First Bidding Window opens | 2.2.2 |
| Clearing | Auction clears when remaining capacity <= demand curve target | 5.9.2 |
| + 24 hours | Provisional results | 5.10.1 |
| + 2 Working Days | Auction Monitor report | 5.14.3 |
| + 8 Working Days | Auction Results Day (full publication) | 5.10.6 |
| + 20 Working Days | Capacity Agreement Notices issued | 6.3.1 |
Capacity Agreement lifecycle (Prospective CMU)
| Milestone | Deadline | Threshold | Consequence of failure |
|---|---|---|---|
| Financial Commitment Milestone | 16 months after Auction Results Day (3 months for T-1) | 10% of Total Project Spend paid + FID + Financial Close | Termination Event (6.10.1(b)) |
| Minimum Completion Requirement | By Long Stop Date | 50% of Capacity Obligation (de-rated) operational + metering | Notice of Intention to Terminate; 120 Working Day cure period |
| Substantial Completion Milestone | By Long Stop Date | 90% of Capacity Obligation (de-rated) operational + metering | Agreement takes effect only on partial basis until met |
| Metering Assessment | Varies (3 years / 6 months / 4 months before DY) | Completed questionnaire to CM Settlement Body | Termination Event (6.10.1(ha)) |
| DSR Test (Unproven) | 1 month before first Delivery Year | Proven DSR Capacity > 1MW | Obligation reduced; possible Termination Event |
Termination and penalties
The Rules provide a range of sanctions (Rule 6.10, 6.11, 13.4):
- Termination Events (19 grounds including insolvency, milestone failure, breach of eligibility, false declarations, metering failures, Prohibited Activities)
- Termination Fees (TF1-TF5, calculated under Regulation 43(3), varying by ground and when agreement was awarded)
- Capacity Payment Repayment (under Regulation 43B, for periods TP1-TP4 depending on the termination ground)
- Non-completion Fee (TF4 for interconnector CMUs failing Minimum Completion)
- Payment Suspension (for failure to demonstrate satisfactory performance under Rule 13.4)
- Capacity Obligation Reduction (where DSR Test shows lower capacity than declared)
- Disqualification (Rule 5.4 -- banned from auctions for 2 subsequent Delivery Years)
Defined terms
The full defined terms register is in the source file. Key terms are listed there.
Cross-references to other instruments
The CM Rules sit within a hierarchy: - Above: Energy Act 2013, s.27; Electricity Capacity Regulations 2014 (S.I. 2014/3354) as amended - Below: Auction Guidelines (published by Delivery Body per Rule 2.2.1) - Adjacent: Grid Code (OC6, BC2 -- stress event triggers), BSC (metering, settlement data), CUSC (connection agreements, TEC)
Full cross-reference table in the source file.
Current status
- Consolidation date: 23 June 2025
- Post-consolidation amendments: CM (Amendment) (No. 2) Rules 2025; CM (Amendment) (No. 3) Rules 2025; CM (Amendment) Rules 2026 -- published on GOV.UK but not yet reflected in a new consolidation
- Ten-Year Review: Ofgem published OFG1163 (December 2024) reviewing the CM Rules' first decade of operation
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Last updated: 2026-04-05 (Pass 2 verification complete)