As used for electricity, a mechanism introduced as part of Electricity Market Reform (EMR) under which a generator (or users of the system, known as the demand side) can bid for a capacity agreement under which it will receive a regular payment (a capacity payment) in return for a commitment to make capacity available to the electricity system operator when called on at times of system shortage.

For more information on the Capacity Market generally, see Practice note, Capacity Market: overview.