Guidance

Capacity Market: guidance concerning the definition of Capital Expenditure

Published 4 August 2025

Applies to England, Scotland and Wales

Disclaimer

This guidance is supplementary to and does not supersede or replace the requirements set out in The Capacity Market Rules 2014 (‘the Rules’) (as amended) and The Electricity Capacity Regulations 2014 (‘the Regulations’) (as amended).

This guidance does not constitute legal or investment advice. Applicants and Capacity Providers are strongly encouraged to seek independent professional advice if unsure on any matter.

Purpose

The purpose of this guidance is to provide an update on the definition of “Capital Expenditure” following previous guidance issued on (date) after the introduction of The Capacity Market (Amendment) (No. 2) Rules 2020.

Acronyms

Acronym	Meaning
CAPEX	Capital Expenditure
CM	Capacity Market
CMU	Capacity Market Unit
DSR	Demand Side Response / Consumer-Led Flexibility

Key Documents

Document(s)	Hyperlink
Capacity Market Rules and Informal Consolidation	Capacity Market Rules
Electricity Capacity Regulations 2014	The Electricity Capacity Regulations 2014
Electricity Capacity (Supplier Payment etc.) Regulations 2014	The Electricity Capacity (Supplier Payment etc.) Regulations 2014

Application of Rules and Regulations

The Capacity Market (Amendment) (No. 2) Rules 2020 have been applicable as is relevant to any CM Agreement awarded following their implementation.

Updated guidance

The Capacity Market (Amendment) (No. 2) Rules 2020 amended the definition of “Capital Expenditure” for agreements awarded after those Rules came into force in July 2020. The definition of Capital Expenditure in Rule 1.2 was amended to require Capital that relates to property, plant and equipment Expenditure to be for the primary purpose of delivering capacity^{[footnote 1]}.

The amendment was introduced to ensure that when calculating Capital Expenditure, CM participants could not include the cost of their equipment if it does not have a primary purpose of delivering capacity. The amendment has been applied to all CMUs to ensure consistency across eligible CM participants.

In practice, the intention is that the scope of expenditure that can be included in Capital Expenditure for Generating CMUs should remain the same as under the previous definition. Nonetheless, we understand that some stakeholders may be concerned about whether a particular item of expenditure meets the amended definition. Therefore, we have included in this guidance, a non-exhaustive list of items of expenditure that continues to fall within the scope of the Capital Expenditure definition. It also provides a non-exhaustive list of items of expenditure that would not be considered to fall within the definition of Capital Expenditure.

This guidance has been updated to reflect recent developments within the CM and the increase in CM participation from DSR CMUs. These updates aim to provide greater clarity for DSR providers on what constitutes eligible CAPEX for multi-year agreements. This guidance may be updated in the future to capture additional items, including in response to stakeholder queries.

Expenditure that meets the definition:

• Behind-the-meter generation equipment.
• Behind-the-meter storage infrastructure and equipment.
• Communication and metering equipment installed on a DSR customer’s site to facilitate turn-down and/or generation-derived DSR.
• Pre-development costs for generation.
• Costs of permitting and testing for generation.
• Costs of connection design and agreement for generation.
• Costs of commissioning generation.

Expenditure that does not meet the definition:

• Equipment which is turned down by DSR providers in order to deliver capacity, e.g. air conditioning units, freezers, or electric vehicle (EV) charge points. Such equipment is not considered to have the primary purpose of delivering capacity per the definition of Capital Expenditure in CM Rules.

1. See CM Rule 1.2 for the full definition of Capital Expenditure ↩