UK T-1 capacity market auction clears at five-year low

The UK T-1 capacity market auction for the 2025-26 delivery year procured 7.94GW of derated capacity at a clearing price of £20/kW, the lowest since the 2020-21 delivery year.

The secured capacity was above the central target of 7.5GW. A total of 9.12GW of derated capacity entered the auction, meaning almost 87pc was awarded capacity market agreements. Liquidity has risen in T-1 auctions in recent years as most nuclear units have moved from T-4 to T-1 as they are coming to the end of their operational lives, pushing down clearing prices.

Almost 6.3GW of derated capacity — or 79pc of awarded capacity — went to existing generating units. The majority of this, about 3.64GW, was nuclear capacity, followed by about 1.9GW of derated combined-cycle gas turbine (CCGT) capacity and 150MW of open-cycle gas turbines. The 850MW Sutton Bridge CCGT was successful for all of its 773MW derated capacity, which it entered as one unit, while the 850MW Severn plant only saw one unit — with a derated capacity of 387MW — win an agreement, while the other unit failed to secure one. Both units had failed to secure agreements in the previous T-1 auction for the 2024-25 delivery year and had been mothballed until recently.

Storage dominates new-build capacity

A total of 727.1MW of derated new-build generating capacity was awarded agreements, of which the majority — 560MW — came from new-build storage.

A further 160MW of existing storage capacity was awarded agreements. Some of the new-build storage capacity might be batteries seeking "top-up" T-1 agreements before their T-4 agreements begin, as batteries have a shorter build-out time than four years, with the scheme originally designed around the length of time to build a gas-fired plant.

Of the new-build storage awarded agreements, the majority — 375MW — went to two-hour duration storage units, reflecting the movement of batteries from over-saturated ancillary market services towards more arbitrage trading in wholesale markets. More than 100MW of derated four-hour duration batteries were also successful, which might reflect the abilities of batteries to "self-nominate" their connection capacity and duration in the capacity market. Many battery providers tend to nominate lower connection capacities and input longer durations to capture higher derating factors and make passing tests easier, although the latter point is a bigger issue for batteries that secure 15-year T-4 agreements, as their units degrade over time.

And a total of 188.4MW of derated solar and onshore and offshore wind capacity was awarded agreements, including 55MW from the Moray West offshore wind farm, which has a capacity of 573MW eligible for the capacity market. This is up from 118MW in the previous T-1 auction for the 2024-25 delivery year. Renewable units generally favour contracts for difference (CfDs) over capacity market agreements as they are heavily derated in capacity market auctions. But upcoming auctions could see higher levels of renewable engagement as older units begin to see renewable obligation scheme payments end and newer units start to enter the market on a merchant basis without CfD subsidies.

And a total of 247MW of derated capacity of the 500MW Greenlink interconnector with Ireland — which began commercial operations in late January — was awarded an agreement, as well as 185MW of derated proven and almost 500MW of unproven demand-side response (DSR).

Most capacity which exited the auction was DSR, and 54.3MW of derated capacity of the 200MW Blackhillock battery energy storage system — which was commissioned earlier this week — also failed to secure an agreement.

A total of 42.36GW was secured in the T-4 auction for 2025-26 delivery, bringing the total for the delivery year to more than 50GW. The T-4 auction for 2028-29 delivery will take place on 11 March. The auction is seeking 43.7GW, with almost 44.7GW of derated capacity having confirmed entry.

By Helen Senior