Regulators in a growing number of emerging power markets are introducing capacity payments, availability contracts and firm-power auctions, as rising renewables shares erode the running hours, and revenues, of the thermal and hydro plants that keep systems stable.
The logic is straightforward: energy-only prices reward plants that run, but systems now need plants that are available for the hours when solar and wind are not. Without a mechanism to pay for that availability, ageing plants close and new flexible capacity is not built.
What is being introduced
Designs range from administratively set capacity payments for existing plants to competitive auctions for new firm capacity in which gas, hydro, storage and demand response compete on a common metric. Several regulators are combining this with ancillary-service markets for frequency and reserve. See our power generation section.
Implications for the supply chain
Firm-capacity procurement supports investment in flexible gas and dual-fuel plants, hydro upgrades, long-duration storage and grid-scale batteries; it also creates demand for the metering, control and market-interface systems that let plants prove availability. Suppliers to utilities and independent producers should expect specifications to reference availability and response times explicitly.
Background: why energy-only markets are not enough
Most emerging-market power systems pay generators for energy delivered, either through long-term power purchase agreements with a single buyer or, in a handful of countries, through a wholesale market. As variable renewables push down midday prices and displace thermal plants, the revenue that used to justify building or keeping firm capacity disappears, but the system still needs plants that can run on a windless evening. Capacity mechanisms solve this by paying for availability rather than energy, an approach long used in the United States, Great Britain and parts of Latin America and now being adapted for growth systems.
The IEA’s analysis of electricity security and the World Bank’s power-sector reform work both note that fast-growing systems face a double challenge: they must add capacity to meet demand growth while also keeping enough firm and flexible plant to integrate renewables. Capacity payments, strategic reserves and firm-capacity auctions are the tools being introduced.
What is being introduced, in practice
- Firm-capacity auctions that procure a mix of gas, hydro, storage and demand response against a reliability target.
- Capacity payments inside single-buyer PPAs, which is how gas peakers are returning to procurement lists.
- Strategic reserves kept out of the market and dispatched only in emergencies.
- Storage-eligible mechanisms that let batteries earn a capacity payment alongside ancillary-service revenue.
What it means for suppliers to utilities and OEMs
Capacity mechanisms change the economics of the equipment utilities buy. Peaking gas turbines and reciprocating engines that would not be built on energy revenue alone become viable; long-duration storage gets a route to market; and existing plants are refurbished to qualify. Suppliers of gas engines, fast-start turbines, battery systems, controls and grid-connection equipment should track the auction calendars on our power generation and storage pages, and note that qualification usually requires proof of availability performance and grid-code compliance, the same documentation covered in How to sell to utilities in emerging markets.
Quick answers
What is a capacity market?
A mechanism that pays generators, storage or demand response for being available to deliver power when needed, separately from payment for the energy they produce.
Why are emerging markets introducing capacity mechanisms now?
Because rising shares of solar and wind are eroding the energy revenues of firm plants at the same time as demand growth requires more of them.
Sources and further reading
- IEA, Electricity security, adequacy and flexibility analysis
- World Bank, Energy, power-sector reform and market design support
- IRENA, Power system flexibility, system-integration reports
- Ember, Global Electricity Review, country-level generation mix data
- EnergiTech Media, Gas peakers get a second look, related coverage
This article was researched and written by the EnergiTech Media editorial team and last reviewed in August 2026. We update country and sector guides as tenders, plans and regulations change. Spotted something out of date? Email support@energitechmedia.com.
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