A capacity market pays power plants and batteries simply for being ready, not for the electricity they actually produce. Think of it like paying a firefighter to stand by on shift, even on days when there are no fires. Great Britain, Ireland, Italy and most of North America already do this. Spain does not - yet. In 2026, it will, for the first time, and under a framework built jointly with the EU’s Electricity Market Reform. For storage developers this is a structural change, not a pricing tweak: the auction is the first serious attempt to pay batteries for being present on the grid, rather than only for what they happen to dispatch. Designed well, it is the instrument that lifts merchant IRRs from the low single digits into the range institutional capital actually requires.
Why Spain needs a capacity market now
The updated PNIEC 2023–2030 places 22.5 GW of storage and 76 GW of solar PV on the system by 2030. The gap between the two numbers is where the flexibility problem lives. On a bright May afternoon, Spain in 2025 is already recording multiple hours of negative day-ahead prices; on a still January evening it still leans heavily on combined-cycle gas and grid imports. A capacity market is the mechanism used in Great Britain, Ireland and most of North America to pay resources for being available at the stress hour. Spain is now following the template with Iberian-specific design, under the EU's Electricity Market Reform Regulation 2024/1747.
What the decree sets up
Royal Decree-law 7/2025, continued by the broader RD 997/2025 package published after the 28 April 2025 blackout, gives MITECO the legal basis to run competitive capacity auctions. The framework permits contracts of up to 15 years for new-build assets, including standalone and hybrid BESS. Existing assets participate on shorter terms, typically 1–3 years. The auction is technology-neutral in principle, with de-rating factors applied by technology to reflect each resource’s contribution to system adequacy at scarcity hours. The first auction is targeted for 2026; volumes and de-rating factors are being defined through CNMC consultation during 2025–2026.
The revenue math
Published revenue-stacking studies on Iberian BESS (including 2024–2025 work from the IIT at Comillas and independent consultancies) model a standalone ~50 MW / 200 MWh Spanish asset across day-ahead arbitrage, aFRR capacity and aFRR energy, with and without a five-year capacity contract. Without capacity payments the modelled IRR lands in the low single digits; a capacity annuity in the low €10k–€13k/MW/year range, layered on top, typically lifts returns by about 4 percentage points on a 20-year horizon.
That threshold is a useful anchor. If the cleared capacity price lands meaningfully above €12–13k/MW/year on 15-year terms, the 4-hour BESS pipeline that has been accumulating permits in Spain since 2023 starts to clear financial hurdles at a very different pace than it does today.
What the de-rating factors decide
Capacity markets are won or lost in the de-rating methodology. A 100 MW / 400 MWh battery is not 100 MW of firm capacity at the 18:00 stress hour unless the state-of-charge trajectory across the preceding day permits it. GB uses duration-dependent de-rating, where a 2-hour system is credited materially lower than a 4-hour one. Ireland uses a stricter availability test. Spain’s draft CNMC methodology follows the GB template with an Iberian probabilistic run on REE’s scarcity hours. 2-hour BESS will likely de-rate into the 40–60% range; 4-hour into 70–85%; 6-hour close to 95%. Those numbers drive duration sizing decisions on every project still in pre-design.
Cannibalisation - the real risk
As BESS capacity scales, arbitrage spreads narrow. Capacity payments are supposed to compensate for the component of revenue that thins as competitors arrive. The open question is whether the cleared capacity price will track the true missing-money curve or lag it. In GB the capacity market has consistently cleared below the missing-money curve implied by fundamentals, which is why GB BESS projects still lean heavily on ancillary services and merchant arbitrage. Spain is likely to follow a similar pattern in 2026–2028, with capacity clearing lower than the modelled missing-money threshold in the early auctions while the market builds out de-rating credibility. Projects modelled in 2025 against a 15-year low-€10k/MW/year assumption should stress-test at 30–40% below that number.
What developers should watch in 2026
Three documents: the CNMC final methodology on de-rating factors; the MITECO auction design, including volume cap and clearing rule; and the first list of qualified bidders. Every number on a pro-forma model is sensitive to those three. A well-designed auction will materially accelerate the Spanish BESS pipeline. A poorly-designed one will leave the sector worse off than it is today, because investors will price in regulatory risk on top of merchant risk. Regulation 2024/1747 binds Spain to have a mechanism; it does not bind anyone to clear it at an efficient price.