The Electricity Capacity (Amendment and Transitional Provision) Regulations 2026, SI 2026/850, were made on 16 July 2026 and came into force on 17 July 2026. Signed by Energy Minister Michael Shanks for the Department for Energy Security and Net Zero, the instrument amends the Electricity Capacity Regulations 2014, the Electricity Capacity (Supplier Payment etc.) Regulations 2014 and the Electricity Capacity (No. 1) Regulations 2019. It extends to England and Wales and Scotland. The draft had been approved by both Houses of Parliament under the Energy Act 2013. In practical terms, the Regulations tighten several parts of the Capacity Market rulebook at once. According to the explanatory note published on legislation.gov.uk, the main changes concern prequalification, credit cover, termination fees, supplier payment reconciliation and transitional arrangements for applications already underway.
The Capacity Market is the mechanism used to secure electricity supply in Great Britain by paying approved providers to make capacity available during system stress. Capacity agreements are awarded through auctions after a prequalification process run by the delivery body, the National Energy System Operator, to individual capacity market units, or CMUs, while payments are administered by the Electricity Settlements Company and funded through charges on electricity suppliers. That structure matters because the 2026 instrument adjusts rules at each stage of the process. Some amendments affect whether a project can enter an auction, some raise the financial security required after entry, and others alter how payments are handled if a provider becomes insolvent or if Ofgem wants a different reconciliation timetable.
One of the more consequential changes concerns the boundary between Capacity Market support and Contracts for Difference. The amended prequalification rules in regulation 16 distinguish more clearly between direct award CFDs and allocation round CFDs, and they allow a project with a direct award CFD to avoid exclusion where the applicant provides a valid non-support confirmation for the relevant delivery period. The explanatory note states the policy point directly: applicants may prequalify where they have entered a CFD but support under that CFD will begin only after the Capacity Market agreement ends. The same package also updates the auction guidance rule so that, if the prequalification window is extended under the Capacity Market Rules, revised auction guidelines must be published as soon as reasonably practicable.
The instrument also expands the termination fee framework. References to TFx are extended from five bands to nine, with new rates set at £6,500, £13,000, £19,500 and £45,500 per MW for TF6 to TF9, while the existing TF5 rate of £35,000 per MW remains in place. The result is a broader and, at the top end, more severe fee structure for certain failures under capacity agreements. A separate set of amendments deals with insolvency. Where a capacity provider receives a termination notice for an insolvency termination event, the Settlement Body must stop monthly capacity payments for the relevant CMU from the date of the notice and withhold credit on a pro-rated basis. If the notice is later withdrawn, the withheld amount must be returned under the formula now written into regulation 52.
Credit cover requirements are also materially higher for new cases. For applications made after 17 July 2026, the base amounts in regulation 59 rise from £5,000 per MW to £6,500 per MW and from £10,000 per MW to £13,000 per MW, depending on the CMU category. For a new build CMU that has not met the financial commitment milestone 12 months after auction results day, the security requirement increases to £19,500 per MW and then falls back to £13,000 per MW once the milestone is met. The most stringent new provision is a notice-based increase to £45,500 per MW for a CMU that is not an unproven demand side response CMU, where the Delivery Body requires additional applicant credit cover under the Rules. That sum must be provided within 15 working days. The practical result is that developers and other capacity providers may need to post more security earlier where milestones are missed or delivery risk increases.
The transitional provision in new regulation 59A is therefore significant for projects already underway. Applications made before the instrument came into force continue to be assessed against the earlier credit cover figures, including the older £5,000 and £10,000 per MW amounts and the previous £15,000 per MW uplift for certain new build cases after 12 months. That drafting limits retrospective disruption. Sponsors, funders and advisers dealing with pre-17 July applications can continue to work from the earlier security assumptions, while later applicants face the revised thresholds from the outset. The distinction is relevant to bid preparation, working capital planning and the treatment of contingent liabilities.
On the supplier side, Schedule 2 gives Ofgem express power to direct alternative timetables for scheduled monthly and annual reconciliation runs. Where the Authority considers the default periods should not apply, the Settlement Body may be directed to run reconciliations on a 7, 30 and 84 working day cycle after the end of the relevant month or year, and it must publish a revised timetable if the direction comes after the original timetable has already been issued. The instrument also removes a redundant chapter from the 2019 Regulations and makes a small number of technical corrections, including changes to defined terms and cross-references. DESNZ states in the explanatory note that no fresh impact assessment was prepared because the amendments are intended to improve existing arrangements and are expected to have only minor effects on business. Even so, the package is substantive: it changes entry conditions, raises financial security, formalises insolvency payment treatment and gives Ofgem more room to vary supplier reconciliation timings. DESNZ also says related amendments to the Capacity Market Rules 2014 were required to come into force at the same time.