Capacity Market auction prices continue declining as T-4 auction secures 40GW

T-1 auction results

The auction clearing prices both cleared lower than the previous five years, with the T-1 at its lowest levels since 2020. Over the past four years, T-1 auction clearing prices have shown a downwards trend, shown in the graph below.

Source: EMR Delivery Body published results

NESO set a capacity target for the 2026-27 T-1 auction that was 14% lower than the auction for T-1 2025-26. In this year’s auction, 8.4GW of capacity entered against a target demand of 6.3GW. Existing nuclear capacity announcing extensions supported supply and occupied half of the target capacity alone.

T-4 Auction results

In the T-4 auction, 91% of capacity received an agreement against a target of 39.4GW. This target was 4GW lower than the T-4 auctions for delivery year 2028-2029.

Gas-fired power generation made up 59% of the capacity awarded agreements and interconnectors made up 19.5%. Demand side response (DSR) and battery storage made up 3.8GW (9.5%) of capacity, a 7% increase compared to last year’s auction. The low clearing price combined with the lower procured capacity indicates that CM costs on the electricity bill are likely to fall in the delivery year 2029-30. However, the outcome of the corresponding T-1 auction for the year and previous multi-year contracts will influence the overall CM costs.

Source: EMR Delivery Body published results

Policy influences

In the past year, the Government made several policy announcements supporting the life-extension of some large-scale power plants via other mechanisms. These had the effect of reducing the capacity target for the auctions, likely influencing out-turn prices. T-4 auctions procure capacity four years ahead and T-1 procure one-year ahead of delivery, meaning that NESO sets targets based on future demand forecasts. Despite expected future demand growth, to support sectors such as AI and data centres, CM capacity targets have reduced over time due to other support mechanisms.

The Department for Energy Security and Net Zero (DESNZ) published Heads of Terms for a low carbon dispatchable CfD for Lynemouth biomass power station in February 2026. The agreement will run from 1 April 2027 to 31 March 2031and the proposed deal removes the need to procure alternative capacity through the CM. In November 2025, Drax also announced it had signed a contract with the Government to provide support to the grid through to 2031 via a similar low carbon dispatchable CfD.

In 2025, DESNZ also consulted on support mechanisms for nuclear power plant lifetime extensions. On 5 March 2026, DESNZ announced that it’ll go ahead with an amendment to allow existing nuclear power stations to become eligible for CfD support for lifetime-extensions.

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