Electricity Capacity Regulations 2014
Page type: primary-anchored (mirrors The Electricity Capacity Regulations 2014, SI 2014/2043)
Last updated: 2026-04-05
Source file: ~/knowledge/sources/legislation/uk/si-2014-2043-electricity-capacity.md
What this instrument does
The Electricity Capacity Regulations 2014 (SI 2014/2043) create the statutory framework for the GB Capacity Market: the mechanism by which the government procures electricity capacity to keep the lights on. The Regulations establish the reliability standard, the auction framework, the payment and penalty system, and the rule-making powers. The detailed operational rules sit in the Capacity Market Rules, made by Ofgem under these Regulations.
Made under the Energy Act 2013 (ss.27-33, 34, 36, 38, 40, 63). In force from 1 August 2014. Applies to England, Wales, and Scotland (Great Britain).
This is a large instrument: 88 regulations across 14 Parts, with 2 Schedules.
The reliability standard (Reg 6)
The anchor of the entire Capacity Market is a single number: 3 hours of expected loss of load per capacity year. Every decision about whether to hold auctions and how much capacity to buy flows from this standard.
"Loss of load" means the national system operator instructs disconnections, reduces voltage, takes emergency action to avoid such measures, or automatic low-frequency demand disconnection occurs. Network faults do not count.
The four bodies
| Body | Role |
|---|---|
| Secretary of State (DESNZ) | Decides whether to hold auctions; sets parameters; intervenes on terminations |
| Delivery body (NESO) | Produces capacity reports; runs prequalification and auctions; maintains register |
| Settlement body (EMRS/Elexon) | Calculates and processes all payments, penalties, and fees |
| Authority (Ofgem) | Makes Capacity Market Rules; hears appeals; enforces |
Capacity auctions (Part 4)
The Secretary of State determines whether to hold a T-4 auction (4-5 years ahead) and/or T-1 auction (1-2 years ahead) for each delivery year (Reg 10).
Auction parameters include the demand curve, target capacity, price cap, price-taker threshold, and minimum capital expenditure thresholds for 3-year, 9-year, and 15-year agreements (Reg 11). Target capacity must be set using a 95% confidence interval (Reg 12).
After prequalification, the Secretary of State may adjust parameters within 10 working days. For T-1 auctions, the target capacity must remain at least 50% of the original T-1 set-aside (Reg 13).
Three types of Capacity Market Unit (CMU) can participate: generating CMUs (Reg 4), demand side response CMUs (Reg 5), and interconnector CMUs (Reg 5A, added 2017).
CMUs receiving CfDs or Renewables Obligation support are excluded (Reg 16). A conversion route exists: a provider may terminate their capacity agreement to pursue a CfD, with 16 months' notice before the delivery period starts (Reg 34).
Capacity agreements (Part 5)
Successful auction bidders receive capacity agreements specifying the CMU, delivery years, capacity obligation, and cleared price (Reg 30). These are recorded on the capacity market register maintained by the delivery body (Reg 31).
Agreements may be transferred under CM Rules for whole or partial delivery years and capacity obligations (Reg 30A).
Five termination fee tiers apply (Reg 32):
| Tier | Rate per MW |
|---|---|
| TF1 | £5,000 |
| TF2 | £25,000 |
| TF3 | £10,000 |
| TF4 | £15,000 |
| TF5 | £35,000 |
The Secretary of State has discretion to intervene within 3 months of a termination notice, either directing withdrawal or extending the compliance deadline by up to 6 months (Reg 33). Providers must request this within 20 working days, with a cure plan.
Agreements issued for CMUs that did not meet eligibility criteria at issuance are null and void (Reg 35).
Payments and penalties (Part 6)
Capacity payments are calculated monthly per Schedule 1 and paid by the 28th working day after month-end (Reg 40). If total supplier charges fall short of total payments owed, all capacity payments are reduced proportionally. Providers bear the revenue risk of supplier non-payment; there is no government backstop.
Penalty charges for under-delivery are capped at 100% of annual capacity payments and 200% of monthly capacity payments (Reg 41). The monthly cap is notably aggressive: a provider failing to deliver in a single month could lose twice their monthly payment.
Over-delivery payments reward CMUs that exceeded their obligation during stress events, calculated annually (Reg 42).
Termination fees use the formula: TFx = capacity obligation (MW) x applicable rate per MW (Reg 43).
Dispute resolution (Part 10)
Two tracks: delivery body decisions go through reconsideration, then appeal to Ofgem, then court on points of law (Regs 68-73). Settlement body disputes have a separate notice and determination process (Regs 74-76).
Capacity Market Rules (Part 11)
Ofgem makes the Capacity Market Rules and may amend, add, revoke, or substitute any provision (Reg 77). Three objectives guide rule-making: promoting investment in capacity for security of supply, operational efficiency, and regulatory compatibility (Reg 78). Rules cannot conflict with these Regulations.
Cross-references
| Instrument | Relationship |
|---|---|
| Energy Act 2013, Part 2 Ch.3 | Enabling statute |
| Capacity Market Rules | Operational rules (made by Ofgem under Reg 77) |
| CfD (Allocation) Regulations 2014 | CfD/CM exclusion boundary |
| Renewables Obligation Order 2009 | RO/CM exclusion |
| Electricity Capacity (Supplier Payment etc.) Regs 2014 | Settlement calculations companion |
| Electricity Act 1989, s.25 | Enforcement |
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