UK confirms cap-and-floor mechanism for long-duration energy storage from 2025

LinkedIn
Twitter
Reddit
Facebook
Email

The UK’s Department for Net Zero and Energy Security (DESNZ) has confirmed a new scheme today (10 October) aiming to stimulate investment in the country’s long-duration energy storage (LDES) sector.

According to the government department, the new support scheme, in the form of a cap-and-floor mechanism, will “remove barriers which have prevented the building of new storage capacity for nearly 40 years”.

This article requires Premium SubscriptionBasic (FREE) Subscription

Enjoy 12 months of exclusive analysis

  • Regular insight and analysis of the industry’s biggest developments
  • In-depth interviews with the industry’s leading figures
  • Annual digital subscription to the PV Tech Power journal
  • Discounts on Solar Media’s portfolio of events, in-person and virtual

Or continue reading this article for free

The UK’s energy regulator, Ofgem, is set to design and deliver the first round of a cap-and-floor mechanism for LDES technology.

Following a consultation period held at the start of the year, Ofgem will implement the proposed cap-and-floor mechanism. This mechanism aims to overcome the barriers to LDES deployment that exist today, the main one being a lack of available revenue streams for LDES applications that can cover the high investment needed.

This mechanism would provide revenue certainty for investors by guaranteeing revenues above an agreed floor and offer protection to consumers by limiting revenues to an agreed cap. 

The investment support scheme will be split into two application routes, one focusing on mature technologies and the other on new innovation. DESNZ confirmed the first round of the cap-and-floor model is expected to be open to applicants in 2025.

Commenting on the cap-and-floor mechanism, Beatrice Filkin, director of major projects at Ofgem, believes unlocking investment in LDES will be “another significant step towards the decarbonisation of the power system”.

Increasing the UK’s LDES capacity will also protect the country from volatility within the wholesale market, as seen with the recent energy crisis caused by inflated oil and gas prices following the invasion of Ukraine from Russia.

Indeed, bolstering the country’s energy security was a key manifesto for the new Labour government in the build-up to its election campaign earlier this year, which the political party won. Since then, several landmark policies and decisions have been introduced to bolster the UK’s renewable energy capabilities. You can learn more about the UK energy sector via our sister site Current±.

Michael Shanks, the UK’s energy minister, said that alongside solar PV and wind generation, the country must increase its energy storage capabilities, highlighting that the new scheme will help the Labour government’s goal of making the UK a “clean energy superpower”.

“We’re reversing a legacy that has seen no new LDES built for 40 years – and taking steps to unleash private investment in both established and new technologies,” Shanks said.

“With these projects storing the surplus clean, homegrown energy produced from renewable energy sources, we can boost our energy security by relying less on fossil fuels, protect household bills, and help deliver our key mission to make Britain a clean energy superpower.”

Support for pumped hydro energy storage

The introduction of a support mechanism for LDES will be a major win for the UK’s pumped hydro energy storage (PHES) industry.

The lack of a market support mechanism has been a significant contributing factor to the fact that no new pumped hydro plants have been built in the UK since 1984. The 440MW Cruachan pumped storage hydro plant, built on the shores of Loch Awe in the 1960s, was the first reversible pumped storage hydro system of its scale in the world.

This lack of support for PHES technologies in the UK caught the eye of the international community. Former Australian prime minister and current president of the International Hydropower Association (IHA) Malcolm Turnbull penned a letter to the government at the start of the year outlining that the UK has almost 7GW of shovel-ready PHES projects with over 135GWh energy storage capacity.

It is worth noting that the UK currently has four PHES sites located in Scotland and Wales, contributing 2.8GW to the country’s electricity mix.

The UK’s need for LDES technologies

PHES is not the only LDES technology touted for use in the UK market. Indeed, the government has named liquid air energy storage, compressed air energy storage, and flow batteries as technologies that would “benefit from investor support.”

According to DESNZ analysis, if 20GW of LDES is deployed, the electricity system could save £24 billion (US$31 billion) between 2025 and 2050. This would lead to reduced household energy bills as more affordable renewable energy would be accessible to meet peak demand, decreasing the dependence on expensive natural gas.

The National Electricity System Operator has estimated that 11.5-15.3 GW of LDES will be required by 2050 to achieve net zero in the UK.

Developer of the UK’s largest PHES project: Cap-and-floor a ‘step in the right direction’

The introduction of the cap-and-floor mechanism has been warmly welcomed by the UK’s LDES industry, with many agreeing that it will provide the much-needed support that PHES has lacked for many years.

Roderick MacLeod, energy director at Glen Earrach Energy, the developer of a 30GWh PHES project at the Balmacaan Estate in Scotland, said the company fully endorses the government’s move for a cap-and-floor mechanism.

“We believe that prioritising projects proven to be the most efficient, cost-effective and sustainable, rather than those that are ahead in a queue, such as planning, will foster self-financing, minimise reliance on government support and therefore maximise opportunities for on-going and successful partnerships with the UK government toward the delivery of a net zero grid,” MacLeod added.

MacLeod had previously been vocal about the need for a cap-and-floor mechanism, having stated in May 2024 that the government should “prioritise projects proven to be the most efficient, cost-effective and sustainable, rather than those with planning”.

UK energy storage developer Field, to date focused on shorter-duration battery energy storage system (BESS) projects, has also welcomed news of the cap-and-floor mechanism, with CEO Amit Gudka stating that it will provide greater revenue certainty for developers of LDES, but the success will hinge on the finer details of the design.

Gudka said a cap-and-floor mechanism must “avoid dampening existing market prices or creating a dual subsidy environment – for example, where qualifying long-duration storage is able to obtain both a floor and Capacity Market revenue”.

“Crucially, eligibility criteria must be ‘tech neutral’ for bill payers to benefit from the full potential of storage. Qualifying technologies should, therefore, include lithium-ion battery chemistries as a proven, established provider of longer-duration storage at a competitive or lower cost,” Gudka added.

Read Next

February 7, 2025
Developer Amp Energy has closed project financing for the construction of the first stage of its 500MWh Bungama BESS in South Australia. 
February 6, 2025
Potentia Energy, a joint venture co-owned by Enel Green Power and INPEX, is set to secure several battery energy storage system (BESS) assets across Australia as part of a 1.2GW portfolio acquisition.
February 6, 2025
Largo has announced the successful closing of the previously announced transaction between its subsidiary, Largo Clean Energy Corp. and Stryten Critical E-Storage to establish joint venture Storion Energy.
Premium
February 6, 2025
ESN Premium hears from independent power producer (IPP) Econergy about its expansion from solar into BESS across Europe.
February 4, 2025
The government of Estonia will financially back a 500MW pumped hydro energy storage project to meet the country’s need for long-duration energy storage, as the Baltics prepare to disconnect from Russia’s grid this weekend.

Most Popular

Email Newsletter