Capacity market

The capacity market is a government scheme that pays generators and other providers to be ready to supply electricity when it is needed.

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What it is

The capacity market is part of the government's Electricity Market Reform package. According to GOV.UK, it pays capacity providers for reliable capacity on top of what they earn selling electricity, so that power is available when the system is stretched. The aim is to attract investment in replacement plants and back-up for variable renewables, and to encourage demand management.

Where you will see it

Electricity suppliers have obligations and payments under the scheme, and they recover those costs from customers. On a business quote it usually sits among the non-commodity charges, either folded into the unit rate or listed separately as a pass-through item. Your quote or Principal Terms should say which.

Why it matters

If your contract is pass-through, the capacity market element can change during the term and you pay the change. On a non-pass-through (fixed) deal the supplier takes that risk and prices it in. When comparing quotes, make sure you know which approach each uses, otherwise a low headline rate can hide extras later.

Example

Illustrative only: a charge of 0.5p/kWh (not an official figure) on a site using 60,000 kWh would add 60,000 × £0.005 = £300 a year. Ask your supplier or broker for the actual figure for your meter and contract.

Very energy-intensive manufacturers may be exempt from some of these levies under government schemes. That does not apply to typical shops, offices or cafés.

See renewables obligation, TNUoS and pass-through vs fixed charges.

Common questions on this topic

Sources

  1. GOV.UK: Capacity Market collection

Related reading

General information only. Energy prices, rules and supplier terms change; check the latest position with your supplier, Ofgem or the Energy Ombudsman before you act.