With subsidies like the Renewables Obligation (RO) and Feed-in Tariff (FiT) winding down by 2028, over 400MW of UK hydro capacity faces economic uncertainty. Rising costs, inflation, and a lack of suitable wholesale pricing mechanisms are compounding financial strain on operators.
In a recent edition of Spotlight, the British Hydro Association’s quarterly magazine, Jamie Storry - UK Commercial Lead at Enel X – highlights how the end of these subsidies opens up a major new opportunity for hydroelectric power generators: participation in the Capacity Market.
The Capacity Market ensures grid stability by paying generators to be available during periods of high demand. Until now, hydro assets receiving RO or FiT support were excluded. Once these contracts expire, operators can access this valuable, fixed revenue stream.
To qualify, hydropower plants must meet basic criteria:
- Generating capacity of at least 1MW (or aggregate with others to meet the threshold)
- Eligible technologies include both pumped storage and run-of-river
- Assets must not be receiving government subsidies like RO or FiT
When called upon during a grid stress event, Capacity Market participants receive four hours’ notice to deliver contracted output. If a plant is already generating at its committed level, no additional action is required. Payments are based on a fixed annual £/kW rate, providing reliable income regardless of dispatch frequency—attractive to both investors and lenders.
For larger pumped storage plants, participation requires minimal operational change. For smaller sites, aggregation and consistent waterflow are key to unlocking value. Given limited yearly Capacity Market allocations and the six-month application process, hydro operators are advised to act early.
Read the full article here or contact us to find out more.
