The UK government has set a 40.9 GW target for the T-4 Capacity Market auction covering the 2030/31 delivery year, as storage, demand-side response and interconnectors assume a growing role in maintaining security of electricity supply.

The auction, scheduled for March 2027, will procure capacity four years ahead of delivery and will operate with a price cap of £75/kW/year. A separate T-1 auction will seek 5 GW for 2027/28 under the same price cap.

The Department for Energy Security and Net Zero (DESNZ) adopted the targets following recommendations from the National Energy System Operator’s 2026 Electricity Capacity Report and an independent assessment by the Panel of Technical Experts.

NESO calculated a total requirement of 41.4 GW for 2030/31. Of this amount, the government will reserve 0.5 GW for the associated T-1 auction, leaving 40.9 GW to be procured through the T-4 process.

Storage becomes increasingly important

The Panel of Technical Experts said that both the volume of storage and the system’s storage requirements are increasing. Batteries can contribute to managing daily demand peaks, while their interaction with interconnectors, balancing services and reserve markets is becoming more important to system operation.

The experts concluded that Great Britain now has enough operational battery energy storage systems in the Balancing Mechanism and ancillary services markets to begin using empirical performance data when determining their Capacity Market de-rating factors.

These factors establish how much of an asset’s nominal capacity can be counted on during periods of system stress. The Panel said current storage factors showed only limited changes under the existing Scaled Equivalent Firm Capacity methodology but argued that operational evidence should be considered alongside the technical calculations.

The report also highlighted the increasing co-location of BESS and solar facilities, which could affect their effective contribution to system security. The Panel called on NESO to improve the way these hybrid sites are represented as they become more common.

It also warned that batteries may have an incentive to charge ahead of a Capacity Market Notice to ensure that they can meet their contractual obligations. This additional demand could accelerate the system’s descent into a stress event and may need to be incorporated more explicitly into peak-demand modelling.

Batteries could deliver ahead of schedule

While much of NESO’s analysis focuses on projects failing to become available on time, the Panel said storage could also produce the opposite effect.

Batteries can be built significantly faster than conventional power plants and may enter the market one or two years before the delivery dates attached to their T-4 agreements. Some projects could also participate in an intermediate T-1 auction.

The experts consequently called for a more detailed assessment of potential “over-delivery”. They also noted that BESS projects have different storage durations and may be able to supply more energy during stress events than indicated by their contracted connection capacity.

The Panel said a deeper analysis was needed to determine whether this additional contribution is currently being obscured in Capacity Market data.

Demand-side response methodology under review

Demand-side response will remain another source of flexibility, but the experts questioned whether the existing methodology accurately measures its contribution during system stress events.

The previous approach was based partly on the availability of providers participating in the Short-Term Operating Reserve service, which has now ended. The Panel said domestic demand-side response could behave more like short-duration storage because its ability to reduce consumption may be limited in duration.

It welcomed DESNZ’s proposal to develop a permanent methodology for calculating demand-side response de-rating factors and called for more robust assumptions reflecting the growing diversity of the sector.

The report cited changes including the Demand Flexibility Service, new ancillary-service markets and the participation of Virtual Lead Parties and Virtual Trading Parties. According to the experts, demand-side response may need to be divided into different categories instead of being treated as a single technology group.

Government adds buffer for delivery risks

The 41.4 GW total recommendation includes, for the first time, a data-based allowance for capacity that could fail to materialise between the T-4 auction and the corresponding T-1 process.

NESO’s analysis identified an average reduction of 1.8 GW between T-4 auctions and subsequent T-1 recommendations over the past five years, rising to 2.1 GW over the past three years. On this basis, NESO added 2 GW to the T-4 requirement to manage potential non-delivery.

The Panel supported this adjustment, arguing that procuring the capacity earlier could provide access to a broader range of technologies and greater competition than relying on a larger T-1 auction closer to the delivery year.

However, it recommended reassessing the base-case assumptions, connection queue, project delivery risks and interconnector availability before the auctions. DESNZ confirmed that the targets may be updated following prequalification and appeals.

Interconnectors included in capacity assessment

The government also established the de-rating factors for 11 interconnectors linking Great Britain with France, the Netherlands, Northern Ireland, the Republic of Ireland, Belgium, Norway, Denmark and Germany.

The final factors range from 49% for the Moyle interconnector to 71% for NemoLink with Belgium. French interconnectors received factors ranging from 55% to 60%, while NeuConnect, the link with Germany, was assigned 66%.

The Panel described interconnection and storage as closely linked resources. Electricity imports can help meet daily demand peaks directly or charge storage for use later, although the resulting contribution depends on demand conditions and available generation in neighbouring markets.

The auction parameters also include a Net Cost of New Entry of £49/kW/year and a price-taker threshold of £25/kW/year. The reliability standard remains set at a Loss of Load Expectation of three hours per year.