Order TED/966/2026 approving the creation of a capacity market in the Spanish peninsular electricity system: key aspects of the new firm capacity auction mechanism

In recent years, coverage analyses carried out at both national (NRAA) and european (ERAA) level have revealed expected hours of loss of load (LOLE) values significantly above the reliability standard of 1.5 hours set by the Resolution of 7 July 2025 of the Directorate General for Energy Policy and Mines. This situation arises in a context of increasing penetration of renewable energies —which reached a historic high of 56.8% of total production in 2024— and the persistence of a "missing money" problem that prevents the viability of new investments in firm and flexible technologies necessary to guarantee security of supply.

Based on the requirements and demands arising from european regulations, Order TED/966/2026 of 15 September, creating a capacity market in the Spanish peninsular electricity system (the "Order"), regulates a mechanism established as a capacity market, peninsular in scope, centralised and based on the firm capacity needs identified by the system operator for the different time horizons established.

As we will see below, the aim is to cover the identified firmness needs by auctioning all the necessary firm capacity through competitive bidding procedures. We now proceed to analyse some of the most relevant aspects of the Order.

1. Entities eligible to participate in the capacity market

The Order shall apply to all natural or legal persons who, meeting all the requirements and obligations set out therein, participate in the auction convened or in the associated secondary market and are constituted as capacity service providers. Likewise, the Order applies to the system operator (Red Eléctrica de España, S.A.) and to the National Markets and Competition Commission ("CNMC").

The following entities may participate in the capacity market:

• Electricity producers.
• Holders of storage facilities.
• End consumers of electricity.
• Entities providing demand aggregation services, including suppliers that are able to participate in all electricity production markets at the time of the relevant capacity auctions provided for in the Order.
• Entities providing production and storage aggregation services, on the same terms as indicated in relation to demand aggregators.

2. Capacity service and long-term coverage

The capacity market is created to address potential coverage problems that could jeopardise security of supply, ensuring the availability of sufficient firm capacity by capacity service providers.

The capacity service consists of the provision by providers of an availability service for a given firm capacity. At the request of the Directorate General for Energy Policy and Mines, or on its own initiative, the system operator shall submit to said directorate and to the CNMC a national coverage analysis (NRAA) to assess the risk of coverage deficit in the peninsular electricity system for different study horizons.

For these purposes, the Secretary of State for Energy shall approve an operating procedure applicable to this service, which shall contain at least the following aspects: (i) technical, documentary and operational requirements for participation in the market; (ii) qualification procedure for the constitution of capacity service providers; (iii) obligations applicable to providers; (iv) verification of compliance with obligations and service testing scheme; (v) settlement; (vi) financing; and (vii) methodology for calculating firmness coefficients by reference technology.

3. Competitive bidding procedure

The Order creates two general auction modalities and a third that shall apply on a transitional basis.

• Main capacity auctions: through this procedure, the firmness needs of the peninsular electricity system shall be contracted. These auctions shall have a capacity service delivery period commencing within a maximum of five years from the allocation of the service following the auction. From the start of the service delivery period, the successful provider must ensure the availability of the firm capacity committed in the auction. The service delivery periods vary according to the type of installation: (i) for existing generation and storage installations, the period shall be twelve months; (ii) for new generation and storage investments, the periods shall be defined by reference technology oriented towards the midpoint of their useful life, without in any case exceeding fifteen years; and (iii) for demand-side installations, the period may range from one to ten years, at the participant's choice. Additionally, on an exceptional basis, for pumped-storage and offshore wind installations, the call may establish a capacity quota for new investment with a period of up to nine years until the start of the delivery period. New investments in main auctions may only correspond to renewable technologies, storage or demand.
• Adjustment capacity auctions: these are auctions associated with a capacity service delivery period of twelve months, commencing within a maximum of twelve months from the allocation of the service following the auction. Their purpose is to resolve any coverage problems that will not be covered by the firm capacity secured through the main auctions. Only installations that are in service prior to the date of the auction call may participate in this modality.
• Transitional capacity auctions: these transitional auctions shall be held to guarantee coverage of electricity demand from the entry into force of the Order until the start of the first capacity service delivery period resulting from the main capacity auction. A transitional auction shall be held for each of the calendar years comprised within that period, with an annual service delivery period, and they may be held simultaneously.

4. Product to be auctioned, bid variable and entities in charge of the system

The product to be auctioned shall be firm capacity (expressed in MW) and the bid variable shall be the price per unit of firm capacity (expressed in euros/MW per year).

The auction administrator shall be the system operator and the supervisory entity shall be the CNMC, which shall verify that the process has been objective, transparent, non-discriminatory and competitive. The award process shall be carried out by sealed-bid auction pursuant to a pay-as-bid mechanism. Additionally, for main capacity auctions, in addition to a maximum price on the curve applicable to all installations, a lower reserve price specific to existing installations (excluding demand-side installations) may be established on a confidential basis.

5. Remuneration and settlement of the capacity service

Service providers shall be entitled to receive, from the date of commencement of service delivery, a fixed monthly remuneration corresponding to one twelfth of the amount resulting from multiplying the volume of firm capacity expressed in firm MW awarded in the auction by the award price in euros per firm MW per year. The award price and the firm capacity awarded shall not be subject to adjustment. For its part, the annual cost arising from the capacity service shall be financed by electricity suppliers (including reference suppliers) and by direct market consumers, through differentiated unit prices by tariff segments and time periods, which shall be updated annually by ministerial order following agreement of the Government's Delegated Committee for Economic Affairs.

6. Assignment, verification and inspection

The possibility of assignment and transfer of the rights and obligations associated with the service is established, subject to compliance with certain requirements set out in the Order and as provided in the operating procedure. In particular, the assignment must be made for the entirety of the firm capacity awarded, for at least one full calendar year and always in periods covering full calendar years. Under no circumstances may the assignment or transfer result in a reduction of the firm capacity allocated.

The system operator shall verify the provision of the service by providers. The Order sets out an inspection and non-compliance regime that may result in disqualification from the provision of the service.

Should you wish to learn more about the capacity market Order or any other matters relating to Energy and Energy Transition, please do not hesitate to contact one of our experts mentioned below or your usual contact at Osborne Clarke.