Spain launches its new capacity market to strengthen the security of electricity supply

On September 17, Order TED/966/2026, of September 15, was published in the Official State Gazette (accessible here), creating a capacity market in the Spanish peninsular electricity system.

The purpose of the order is to create a capacity market in the Spanish peninsular electricity system designed to solve coverage problems and provide a solution to the security of supply challenges identified in the Spanish electricity system.

In accordance with its second final provision, the order entered into force on the day following its publication in the Official State Gazette, i.e. on September 18, 2026.

The main characteristics of the new capacity market as established in the order are set out below, as well as the essential aspects of its operation:

A) Concept and objective of the capacity market

The capacity mechanism proposed in the order consists of a peninsular, centralized capacity market, through which it is intended to cover the firm capacity needs of the electricity supply identified by the system operator for different time horizons. 

The market will cover the firm capacity needs through competitive bidding procedures (auctions), in which the product to be auctioned will be the firm power (in MW) and the offer variable will be the price per unit of firm power (euros/MW and year), with a pay-as-bid matching system in which the successful bidder will receive the price corresponding to its offer. In addition, to increase market liquidity, the establishment of a secondary market is also envisaged.

Firm power is defined as the average active power in MW that a generation, storage or demand facility can contribute to covering the electricity demand. For each reference technology, depending on its intrinsic characteristics, the firm power will be calculated by multiplying its installed power by the firmness coefficient approved prior to the call for each capacity auction. Firm power may not exceed the access capacity of the installation. 

In any case, it should be noted that Article 5 of the order refers to a new operating procedure that must be approved by the Secretary of State for Energy in which the regulation of multiple critical technical aspects (firmness coefficient methodology, operational requirements, verification procedures, etc.) will be established.

B) Subjects and technologies that can participate in the capacity market

The order will apply to all natural or legal persons participating in the auctions or in the associated secondary market, and who constitute themselves as capacity service providers (i.e. those who acquire rights or obligations through assignment or transfer in the secondary market).

Specifically, it is expected that the following may participate in the capacity market: (i) electricity producers, (ii) storage facility owners, (iii) final consumers of electricity, (iv) entities that provide demand aggregation services, including electricity marketers and (v) entities that provide production and storage aggregation services.

All technologies (generation, storage and demand) may participate in the capacity market, regardless of whether they are existing facilities (which are those that have an operating authorization prior to the call for the auction) or new investments (those that, having access and connection permission, have not obtained the operating authorization at the time the auction is called). Likewise, self-consumption installations with surpluses may participate in the auction as producers or consumers independently or only by one of the modalities. 

In addition, in accordance with the first additional provision of the order, facilities located in supply areas bordering the Spanish supply zone may participate in the auctions once the corresponding coordination agreements between system operators of each of the supply zones are approved.

In any case, to participate in the capacity auctions that will be held, the above subjects must meet the requirements established in Article 11 of the order.

Among other issues, the following facilities are excluded from the capacity market: (i) facilities that exceed a certain limit of CO2 emissions (550 g of CO2/kWh), (ii) production facilities that have been recognised, partially or totally, a remuneration framework of those regulated in Article 14 of Law 24/2013, of December 26, on the Electricity Sector, (iii) facilities that receive remuneration as a mechanism for payment for capacity, unless they expressly waive it, (iv) production, storage and demand facilities that have a firm power of less than 1 MW in the periods of provision of the service (in the case of aggregations, it will refer to individual firm power), and (v) facilities that do not meet the flexibility threshold that is established.

C) Auction modalities

In general, Article 7 of the order distinguishes between two types of auctions:

• Main capacity auctions: this is the basic mechanism for contracting the firm capacity identified for a given period of time. 

  A timing lag between the time of its celebration and the start of the capacity provision service is foreseen, which may not exceed 5 years from the assignment of the service after the auction is held. Exceptionally, for new investments in pumped storage hydro plants or offshore wind technology, this term may be extended to 9 years. In main capacity auctions, new investments may only correspond to renewable technologies, storage or demand.

  In the main capacity auctions, the following periods of service provision will be set, in which the successful bidders must ensure the availability of the firm power committed in the auction:

  • For existing generation and storage facilities: 12 months.
  • For new generation and storage investments: it will be defined according to the technology in each auction call and will tend to cover half of its useful life, with a maximum of 15 years.
  • For demand installations: between 1 and 10 years, depending on the offer submitted by the auction participant. 
  • For production and storage aggregations: 1 year, in the case of existing installations or the shortest service provision period applicable to the technologies that integrate them, in the case of new investments.

• Adjustment capacity auctions: they will aim to resolve any coverage problems that may arise unexpectedly and that are not resolved by means of the firm power secured through the main capacity auctions.

  These auctions will have a capacity service provision period of 12 months that will begin within 12 months after the service is assigned, so that only facilities in service at the time the adjustment capacity auction is called can participate in them.

Furthermore, the single transitional provision of the order establishes the holding of transitional capacity auctions, which will aim to guarantee the coverage of electricity demand in the period between the entry into force of the order and the start of the first period of provision of the capacity service resulting from the main capacity auction. These transitional capacity auctions will be held for calendar years and will include an annual period of service provision. 

D) Auction procedure

The calls for auctions will be approved by resolution of the Secretary of State for Energy. This resolution will incorporate the final conditions of participation in the auction, the minimum content of which is regulated in Article 12 of the order (including the firmness coefficient of the technologies, the flexibility coefficient, the firm power curve or the periods of service provision for each reference technology). A power quota may also be established for the entry of new investment, which may be declared confidential.

The auction will be administered by Red Eléctrica de España, S.A. (“REE”), as system operator. The National Commission on Markets and Competition (“CNMC”), for its part, will supervise the auction to ensure that it is carried out in an objective, transparent and non-discriminatory manner, without incidents that affect competitiveness.

In accordance with Articles 13 and following of the order, the main phases after the call for auction will be the following:

• Qualification to participate in the auction: prior to participation in the auction, the subjects interested in participating must submit to REE the application for participation, in which they declare that they comply with all the requirements established in Article 11 of the order. In addition, they must declare the number of supply blocks of 1 MW of minimum firm power with which they will participate in the auction and, in the case of demand facilities and demand aggregators, they must also indicate the period of service provision that will be applicable to them.

  The system operator will enable the participants that meet the requirements and will notify the Directorate-General for Energy Policy and Mines. In the event of discrepancies, a dispute may be filed with the CNMC.

• Formal adherence to the regulatory framework: the owner of the facility or aggregation, once the authorisation has been obtained, must formally sign its adherence to the regulations applicable to the auction and the obligation to provide the capacity service in the event of being awarded.

• Development of the procedure: the award procedure will be carried out using the sealed envelope auction method, in accordance with a payment according to offer mechanism.

  The economic offer will be expressed in euros per firm MW and year, which will not be updated over time, with the supply blocks having a minimum size of 1 MW of firm power per installation. In addition, maximum or lower reserve prices may be established in the call for the auction. 

  In general, the selection of bids will be made starting with the bid with the lowest economic value until the cut-off point with the required firm power curve is reached. 

  Although the method of selecting the successful bidders of the auction is generally based exclusively on the price offered, in accordance with the second additional provision of the order, exceptionally, the resolution of the call for the main capacity auctions may include an environmental criterion, as a maximum threshold of CO2 emissions that may not be exceeded by the successful bidders of the aforementioned auction.

• Result of the auction: REE will communicate the results of the auction to the CNMC and the Secretary of State for Energy. Once the CNMC validates the result and procedure of the auction, the resolution of the Directorate General for Energy Policy and Mines resolving the auction will be published in the Official State Gazette.

  The result of the auction is the power awarded to each participant, as well as the award price for each bid block that is selected, which will correspond to the economic offer submitted. In addition, this resolution will include the cost of the auction, which will be borne by the successful bidders proportionally to the amount of firm power awarded.

• Qualification as a capacity service provider: the successful bidders must apply to the system operator for qualification as a capacity service provider. The conditions for the authorisation will be regulated in the operation procedure and will include the provision of economic guarantees both for the period between the holding of the auction and the period of provision and for the period of provision of the service itself.

E) Remuneration to capacity and secondary market service providers

The successful bidders at the auction will be entitled to receive a fixed monthly remuneration from the date of the start of the period of provision of the service. This remuneration will be one twelfth of the result of multiplying the volume of firm power awarded in the auction by its award price. The settlement will be carried out by the system operator. 

The capacity service providers may assign or transfer the rights and obligations associated with the provision of the service, and the assignees must prove that they comply with the requirements established in the order. The transfer will not be effective until the system operator has verified compliance with the requirements and given its consent to carry out said operation. 

F) Capacity service delivery

Capacity service providers owning generation, storage or demand facilities will have to guarantee their availability, during the period of provision of the capacity service, in the hours of stress of the peninsular electricity system that are defined.

The stress hours of the system will be set by the system operator and may not account for more than 10% of the hours of a calendar year. It will also be the system operator who will carry out the verification of the provision of the service by the capacity service providers.

G) Inspection regime and non-compliance

Article 25 of the order attributes to the CNMC the competence to inspect the conditions of provision of the capacity service. 

In the event of non-compliance (e.g. with the obligation to make available the firm power assigned, the obligation to activate the service or the obligation to initiate the activation in tests of the service), payment obligations will be established and incorporated into the settlements carried out by the system operator, in accordance with the formulas established in Article 27 of the Order.

Article 28 of the order regulates the causes of disqualification for the provision of the service, which will entail the loss of remuneration for the assigned power and the execution of the economic guarantees deposited for its qualification as a capacity service provider.

On the other hand, in accordance with Article 29 of the order, the withdrawal of the provision of the service will entail the same consequences described above, in addition to the possible loss of the right to participate in the successive capacity market auctions that are called.

H) Capacity service funding

Finally, Chapter VI of the order regulates the financing mechanism for the capacity service, the annual cost of which will be financed by electricity marketers and direct consumers in the market.