Electricity Capacity Rules 2026 Tighten Credit Cover

If you saw the Electricity Capacity (Amendment and Transitional Provision) Regulations 2026 and assumed it was one for specialists, that is understandable. But according to legislation.gov.uk, these rules were made on 16 July 2026, came into force on 17 July 2026, and change how Great Britain's capacity market handles financial risk, support schemes and supplier settlements. In plain English, ministers are trying to do three things at once: make sure firms promising back-up electricity are financially credible, stop overlapping public support where it should not happen, and protect the system when a provider gets into trouble. Because the capacity market is funded through electricity suppliers, the details do not stay inside Whitehall or the energy trade for long.

To make sense of the amendments, we need the basic picture first. The capacity market pays generators, storage operators and some demand-side providers for being available when the electricity system is under stress. The explanatory note says capacity agreements give providers a right to receive capacity payments, but also a duty to deliver capacity during stress events. Applications are handled by the National Energy System Operator as the Delivery Body, while payments are administered by the Electricity Settlements Company as the Settlement Body. **What this means:** consumers are not only paying for electricity when it is generated; they are also helping fund a promise that enough back-up capacity will be there when the grid is under pressure.

One of the most important changes sits in the rules on Contracts for Difference, usually shortened to CFDs. A CFD is the support contract used for many low-carbon electricity projects. Put simply, it is designed to steady revenues: when market prices are low, the contract can top them up, and when prices are high, money can flow back the other way. The capacity market and a CFD are not meant to reward the same project for the same period in the same way. That is why the new regulations redraw the prequalification rules for generating stations that already have a CFD in place.

The instrument now treats direct award CFDs differently from allocation round CFDs. According to the legislation, a project with a direct award CFD may still pass prequalification if the applicant provides a non-support confirmation before the prequalification window closes. A project with an allocation round CFD that has already been entered into and is still live remains excluded. That sounds technical, but the point is straightforward. **What this means:** officials are asking whether CFD support will overlap with the capacity agreement's delivery period. If it will, the project should not also take capacity market support for that same stretch of time. If it will not, there is more room for the project to take part.

The strongest tightening comes through credit cover. In this market, credit cover is the money or security that applicants and capacity providers must put up to show they can stand behind their promises. It exists so the scheme is not left exposed if a bidder wins an auction and then fails to deliver. Several thresholds rise. Some applicant credit cover rates move from £5,000 to £6,500 per MW and from £10,000 to £13,000 per MW. For new build capacity market units, or CMUs, the cover rises to £19,500 per MW if 12 months have passed after auction results day and the financial commitment milestone has not been met, then falls to £13,000 per MW once that milestone is later met. In some cases, the Delivery Body can now require a much sharper increase to £45,500 per MW, and that extra cover must be provided within 15 working days.

The penalty regime is being toughened too. The regulations expand the termination fee structure from TF5 to TF9. New fee points are added at £6,500, £13,000, £19,500 and £45,500 per MW, while TF5 remains £35,000 per MW. **What this means:** the government wants the financial consequences to bite earlier and harder when a project misses key obligations. That should make speculative or underprepared bidding less attractive, which matters because failed projects do not just disappoint investors; they can leave the system short of dependable capacity.

Not every project is hit by the higher cover straight away. The transitional provisions say applications made before 17 July 2026 keep the older credit cover rules. That means earlier thresholds such as £5,000 and £10,000 per MW remain in place for those cases, along with the older £15,000 per MW increase for certain new build projects after 12 months. That matters for fairness. **What this means:** ministers are tightening the rules going forward without suddenly rewriting the financial terms for projects that were already partway through the process.

Another important change deals with insolvency. If a capacity provider is given a termination notice because of an insolvency termination event, the Settlement Body must stop monthly capacity payments for the relevant CMU from the date of that notice and withhold credit using a part-month formula. If the notice is later withdrawn, the withheld amount must be paid back using a matching formula. It may read like accounting language, but the public-interest point is clear. **What this means:** when a company collapses, the scheme should not carry on paying as though nothing has happened. At the same time, the rules allow money to be restored if the termination notice does not stand.

Some of the amendments are quieter, but still useful. Ofgem can now direct an alternative timetable for monthly and annual reconciliation runs under the Supplier Payment Regulations, and the Settlement Body must reschedule and publish that timetable. Those reconciliation runs are the recalculations used to make sure suppliers are charged in a way that matches metered electricity data as closely as possible. There are also practical housekeeping changes. The Delivery Body must publish auction guidelines as soon as reasonably practicable after any extension to the prequalification window, including where the market rules allow an extension because of a severe IT portal problem. The legal text also updates the definition of auction clearing price so it works more neatly with any inflation adjustment, and removes redundant 2019 provisions that no longer need to stay on the books.

The explanatory note says no fresh impact assessment was prepared because the capacity market had a full assessment when it was first introduced, and ministers expect only minor business effects with no foreseen impact on the voluntary or public sector. Even so, the direction of travel is easy to spot. What you should take from these 2026 changes is this: Great Britain's capacity market is being asked to become stricter, cleaner and faster. Stricter about financial backing, cleaner about where CFD support can overlap, and faster when a provider becomes insolvent. You may never see terms like credit cover, reconciliation run or non-support confirmation on your bill, but these rules help decide who gets trusted to keep the lights on and who carries the cost when that trust breaks down.