How capacity markets pay: the price applies only to the share of a unit the market counts

A capacity market pays for a promise: that a power station, a battery or another flexible unit will be there when the system is stretched. In Great Britain, Belgium and Italy the payment is a price per unit of capacity per year, and it is made on the capacity the market counts on, not on a unit’s full power. That makes three sets of clauses more telling than the auction price about what a flexible unit earns: the derating that fixes how much of it counts, the obligations attached to the payment and the penalties or payback that can take money back, and the rules on what else it may earn alongside.^{1, 2, 3, 4, 5}

In Great Britain a unit bids its derated capacity, and its annual payment is that capacity obligation multiplied by the auction’s price, indexed to the consumer prices index for a T-4 auction.^{1, 2} In Belgium, a unit’s eligible volume is its reference power multiplied by its derating factor.⁴ Italy states the capacity it awards as derated capacity too.⁵

The derating factor is the market’s judgement of how much of a unit will be there when it is needed, and it is applied before any price: a unit bids, and is paid on, what the factor leaves of its power. Belgium’s factor for storage with a daily schedule and 4 hours of duration was 49% in its Y-4 auction for delivery period 2029-2030, and is 47% in the Y-4 auction for 2030-2031.^{6, 7} Great Britain’s T-4 auction for delivery year 2030/31 counts 44.61% of a battery with 4 hours of storage.^{8, 9, 10}

Italy revised its figures for new batteries ahead of its auction for delivery year 2028. ARERA, Italy’s energy regulator, found that the revised proposal of 18 September 2026 from Terna, the grid operator, met its criteria for that auction only, and states that, other things equal, the revision reduces what new storage can earn through the capacity market. The counted share is therefore not a property of the technology: each market sets it for each auction, and it can move before the auction is held.¹¹

For batteries, the field note One battery, three capacity markets: how much of it counts takes one battery through all three markets, from the share each counts to what the battery keeps once the obligations below apply, and the guide to how battery storage is procured sets capacity markets beside the other routes by which batteries are bought.

Each market attaches conditions to its payment, and they differ in kind. In Great Britain the payment carries a delivery obligation: a unit that falls short when required pays one twenty-fourth of its price for each MWh short, with penalties capped at 200% of the month’s share and 100% of the year’s capacity payment.² A Belgian unit must show available capacity at least equal to its obligated capacity during availability monitoring or an availability test.⁴ Italy asks for a standing offer instead: in every market time unit of the delivery period, a contract holder must offer its committed capacity in the day-ahead and intraday markets, and offer whatever is not accepted there in the integrated scheduling process (ISP), subject to exemptions, among them offer constraints set under the grid code and the share of its capacity under planned maintenance.¹²

Great Britain links no repayment to market prices.² Belgium has a payback obligation, which applies when the reference price exceeds the strike price.⁴ Its rules for the 2025 auctions exempted energy storage from it, provided an amendment to the royal decree on the methodology came into force before the bid deadline of 30 September 2025. It did, on 8 July 2025.^{13, 14} Version 6 of the rules, of 12 May 2026, exempts the delivery points of energy storage from it, as it does those of demand response.⁴ In Italy, each holder of a capacity contract pays Terna, for each settlement period, any positive difference between the reference price and the strike price on its capacity subject to payback.¹⁵ Where a payback applies, a unit gives up the part of the reference price above the strike price on the capacity subject to it; a British unit gives up nothing for high prices, and its exposure is the penalty for falling short.

Elia, Belgium’s transmission system operator, says capacity remuneration comes on top of energy market revenue, and can be combined with revenue from the energy markets and from balancing and redispatching services, but not with other variable subsidies such as green certificates.¹⁶ Italy draws a similar line at subsidies: capacity receiving incentives paid by GSE (net metering and dedicated withdrawal included, white certificates and the Conto Termico not) can take part in the auction for delivery year 2028 only if its holder commits to give those incentives up for the whole delivery period. And because of its offer obligation, offering in the energy markets and the ISP is a condition of an Italian capacity contract, not merely allowed beside it.¹² Great Britain takes another route: in each settlement period of a system stress event in which a unit provides a relevant balancing service, one listed in the guidelines of the delivery body, the National Energy System Operator (NESO), the obligation it must deliver is reduced by the capacity that service holds back.¹

Balancing services are what a system operator buys to keep supply and demand in balance, and they pay on different terms from capacity. NESO’s Balancing Reserve pays every contracted provider an availability payment, at a single clearing price in GBP per MW per hour, for its availability during the service window, and a separate utilisation payment for energy delivered when instructed.^{17, 18} Elia’s aFRR service pays for capacity awarded, pay-as-bid in euros per MW per hour, and for energy requested, pay-as-cleared in euros per MWh.¹⁹

Belgium’s Y-4 auction for delivery period 2029-2030 paid each selected bid its own price; it selected 4,689.57 MW of derated capacity in 65 capacity market units, at a weighted average of EUR 27,333.51 per MW per year.^{13, 20} Italy’s auction for delivery year 2027 worked the other way: every selected offer was paid the marginal premium, capped at the limit for new or existing capacity, rather than its own bid.¹⁵ That premium was EUR 47,000 per MW per year in every area where capacity was awarded, for 38,047 MW of existing and 594 MW of new national capacity.⁵

Great Britain’s T-1 auction for delivery year 2026/27 cleared at GBP 5 per kW per year on 4 March 2026, with capacity agreements for 7,192.317 MW. A weighted average of bids, a single marginal premium and a clearing price are different measures, from auctions for different delivery years, in different currencies and units, and none of them is what a given unit keeps once its derating, obligations and payback apply.^{21, 22, 23}

As of 22 October 2026, the government says the parameters for Great Britain’s next auctions, the T-1 for delivery year 2027/28 and the T-4 for delivery year 2030/31, may be updated following prequalification and will be confirmed before the auctions are held in early 2027. Those parameters set targets of 5.0 GW for the T-1 and 40.9 GW for the T-4, and the government’s publication page lists no update.^{8, 9, 10, 24}

Belgium runs auctions four, two and one year ahead of delivery (Y-4, Y-2 and Y-1), and a ministerial decree of 27 March 2026 has Elia organise all three in October 2026.^{4, 7} Bids were due before then: as of 22 October 2026, bids for the Y-4 auction for delivery period 2030-2031 closed on 30 September 2026, and Elia publishes the results by 31 October 2026 at the latest.^{4, 7, 25}

As of 22 October 2026, Terna has set Italy’s auction for delivery year 2028 for 21 December 2026, with requests to participate accepted from 20 October 2026 to 12:00 on 3 November 2026.²⁶

Source: the regulations, rules, contracts and service terms cited below.^{1, 2, 3, 4, 5, 12, 15, 17, 18, 19, 21, 22, 23}

Who may take part

• Great Britain: the legal owner of each generating unit, or its future owner, or, under conditions, its despatch controller, with a copy of its certificate of incorporation and a VAT number, or notice that it has none yet. The unit must be in Great Britain or its offshore area, with a connection capacity of at least 1 MW.^{1, 2}
• Belgium: a legal or a natural person; new-build capacity posts financial security of EUR 20,000 per MW, or EUR 15,000 once it reaches its permitting milestone.⁴
• Italy, for the auction for delivery year 2028: companies that own, or hold a mandate without representation for, existing or new capacity at units located in Italy and connected directly or indirectly to the national transmission grid, subject to further conditions on those units; Terna asks a company registered outside the EU for an affidavit with its request to participate.^{12, 26}

Where each mechanism is announced

• Great Britain’s Capacity Market: the government’s Capacity Market collection, with the parameter letters, and the delivery body’s Capacity Market page.
• Great Britain’s balancing services: NESO’s balancing services pages.
• Belgium: Elia’s pages on the capacity remuneration mechanism, its auction results and aFRR.
• Italy: Terna’s capacity market pages and its notices to operators.

ListingMinds, “How capacity markets pay: the price applies only to the share of a unit the market counts”, 3 October 2026, updated 22 October 2026. https://www.listingminds.com/energy/guides/capacity-and-flexibility