Key data
| Regulation | Order TED/966/2026, of 15 September |
|---|---|
| Publication | 17 September 2026 |
| Entry into force | 17 September 2026 |
| Affected parties | Electricity producers, storage operators, energy investors and Red Eléctrica (system operator) |
| Category | Energy |
| Year | 2026 |
| Reliability standard | Maximum LOLE of 1.5 hours (set by CNMC) |
| Auction types | Multi-year main auctions + annual adjustment auctions |
| Official source | BOE-A-2026-19329 |
The adequacy analyses of the Spanish peninsular electricity system—both the national (NRAA) and European (ERAA)—have confirmed a coverage deficit: the LOLE (Loss of Load Expectation) indicator exceeds the reliability standard of 1.5 hours established by CNMC. To correct this, the Order TED/966/2026 creates a centralized capacity market that enters into force on the same day of its publication, 17 September 2026.
The underlying problem is the so-called "missing money": with the rise of renewables, energy prices in the wholesale market fall in many hours of the year, making it economically unviable to maintain or build firm and flexible generation plants that the system needs as backup. This mechanism creates additional compensation to cover that income gap.
What does this regulation establish?
Order TED/966/2026 designs a capacity compensation mechanism with the following structural elements:
| Element | Description |
|---|---|
| Mechanism type | Centralized capacity market through competitive auctions |
| Main auctions | Multi-year, with lag period to allow new investments |
| Adjustment auctions | Annual, to cover unforeseen circumstances and last-minute adjustments |
| Payment right | Adjudicatees receive fixed compensation in exchange for guaranteed availability |
| Availability obligation | Enforceable during the service provision period, differentiated by technology according to useful life |
| Target technologies | Storage, gas, hydrogen and other firm and flexible technologies |
| System operator | Red Eléctrica, responsible for planning and managing the mechanism |
| Activation basis | Deficit detected in NRAA and ERAA analyses; LOLE exceeding 1.5 h (CNMC standard) |
The lag period in main auctions is a key element: it allows investors in new plants to have visibility of future revenues before committing capital, reducing investment risk in assets with long amortization horizons.
Technology differentiation in the availability obligation recognizes that not all plants have the same useful life or the same operation and maintenance costs, adapting requirements to the technical reality of each asset.
Economic and operational impact
This mechanism transforms the financial equation of firm and flexible generation projects in Spain. Until now, the fall in wholesale market prices caused by renewable growth made investment in backup plants unviable: the "missing money" prevented recovery of fixed costs. The capacity market introduces a second revenue stream decoupled from energy prices.
The most relevant operational and financial implications are:
- New plants: The lag period in multi-year auctions allows structuring project financing with greater revenue certainty, improving asset bankability.
- Existing plants: Current firm generation operators (gas, storage) can participate in annual adjustment auctions and access additional compensation for availability.
- Storage: Technology especially benefited, as it combines flexibility with firm capacity and directly fits the mechanism's objective.
- Hydrogen: Explicitly recognized as eligible technology, reinforcing the business case for projects in development.
- Red Eléctrica: Assumes new planning and management responsibilities for the mechanism, with impact on its operational processes.
- Industrial consumers: The mechanism cost will be passed through the electricity system, with possible impact on access tariffs in the medium term.
Who does it affect?
- Electricity producers with firm or flexible technology (gas, cogeneration, manageable hydro): can participate in auctions and obtain additional compensation for availability.
- Energy storage operators (batteries, pumped storage): priority technology of the mechanism, with high eligibility in auctions.
- Investors in new plants of firm generation, storage or hydrogen: the capacity market improves the financial viability of their projects.
- Hydrogen project developers: explicitly recognized as eligible technology, opening a new regulated revenue stream.
- Red Eléctrica (REE): as system operator, assumes management and planning of the auction mechanism.
- CFOs and investment directors of utilities and infrastructure funds: the mechanism alters financial models of energy projects in Spain.
- Large industrial consumers: the mechanism cost is socialized in the system, with potential impact on tolls and tariffs.
Practical example
A developer with a large-scale battery storage plant in development on the Iberian peninsula currently faces a bankability problem: wholesale energy market revenues are volatile and do not allow guaranteeing return on investment to a financing bank.
With the new capacity market, that developer can participate in a multi-year main auction—with the lag period that allows building the plant before the service provision period begins—and obtain a payment right for their guaranteed availability. That regulated and predictable revenue acts as a financial "cushion" that complements energy market revenues, improves debt service coverage and makes the project bankable.
If the plant fails to meet its availability obligation during the service provision period, it is exposed to contractual penalties from the mechanism. Therefore, operational management and preventive maintenance become critical, not only for efficiency, but to avoid losing the payment right.
What should companies do now?
- Evaluate the eligibility of your assets: Determine if your plants or projects (storage, gas, hydrogen, manageable hydro) meet the technical requirements to participate in capacity auctions.
- Review financial models of projects in development: Incorporate potential capacity market revenue into projected cash flows to improve bankability with financing entities.
- Follow the auction calendar published by Red Eléctrica: Multi-year main auctions and annual adjustment auctions will have offer submission deadlines. Missing a call can mean waiting for the next cycle.
- Analyze the availability obligation applicable to your technology: Technology differentiation by useful life implies different conditions depending on asset type. Knowing your obligations before bidding is critical to avoid penalties.
- Coordinate with Red Eléctrica if you are a system operator or have assets with impact on network planning, given that REE assumes new mechanism management responsibilities.
- Monitor regulatory development: The Order establishes the general framework; it is foreseeable that implementing provisions will be published with technical details of auctions, participation requirements and penalties.
Frequently asked questions
What is the LOLE indicator and why has it activated this mechanism?
LOLE (Loss of Load Expectation) measures the expected hours per year when the electricity system cannot cover demand with available resources. CNMC has set a maximum standard of 1.5 hours. NRAA (national) and ERAA (European) analyses have detected that the Spanish peninsular electricity system exceeds that threshold, which has justified the creation of the capacity market through Order TED/966/2026.
What technologies can participate in capacity market auctions?
Order TED/966/2026 directs the mechanism towards firm and flexible technologies: energy storage (batteries, pumped storage), gas and hydrogen. Other manageable technologies that provide firm capacity to the system can also participate. The availability obligation is differentiated by technology according to its useful life.
What is the difference between main auctions and adjustment auctions?
Main auctions are multi-year and include a lag period that allows investors to build new plants before the service provision period begins. Adjustment auctions are annual and serve to cover unforeseen circumstances or capacity needs not covered in main auctions.
What is "missing money" and how does this mechanism solve it?
"Missing money" is the revenue deficit suffered by firm generation plants when the rise of renewables depresses wholesale energy market prices, making it unviable to recover fixed costs. The capacity market solves it by creating an additional payment right to the energy price: adjudicatees receive compensation for their guaranteed availability, regardless of how much they generate or market prices.
When does the capacity market enter into force and what role does Red Eléctrica play?
The mechanism enters into force on 17 September 2026, the date of publication of Order TED/966/2026 in the BOE. Red Eléctrica, as operator of the peninsular electricity system, assumes responsibility for planning and managing the auction mechanism, including determining capacity needs and calling auctions.
Official source
Consult complete regulation in official source
Disclaimer: This article is for informational purposes only and does not constitute legal advice. For specific decisions, consult a qualified professional. Source: https://www.boe.es/diario_boe/txt.php?id=BOE-A-2026-19329
