UK launches cap-and-floor scheme for long duration energy storage

The UK government has unveiled a cap-and-floor scheme to kick start investment in long-duration energy storage. The first round of applications is scheduled for 2025.
drax pumped hydro
Image: Drax

The UK government has announced a new “cap-and-floor” scheme to support the rollout of long-duration storage capacity, in a bid to spark investment in both mature and new storage technologies.

Energy industry regulator Ofgem will serve as the delivery body for the scheme, which is expected to open for applicants in 2025. Cap-and-floor schemes operate by providing revenue support to developers should their annual gross margin – the difference between the revenues from selling electricity back to the grid and the cost of charging – fall below a set floor level.

Full details of the scheme have yet to be announced but the UK government has claimed it will remove barriers that have prevented building new storage capacity “for nearly 40 years” and could lead to “billions in system savings.”

The current long-duration storage fleet serving Great Britain’s electricity market consists of pumped storage hydro schemes in Scotland and Wales. The four existing sites have a combined power rating of 2.8 GW.

While full details of the cap-and-floor scheme have not been announced, the investment support will be split across two application routes, one focused on established technologies such as pumped-hydro storage, while a separate fund will be dedicated to new innovation.

Industry stakeholders were consulted on the proposal in the first quarter of 2024. In consultation analysis published alongside the cap-and-floor announcement, the UK government reported “strong industry support” for it. Further details on the scheme are expected over winter 2024, including confirmation on whether the minimum duration for eligible projects will be six-hour or potentially more, a decision on the minimum capacity required for eligibility, and method for determining the length of cap-and-floor agreements.

In a statement, Mark Sommerfeld, deputy director of policy at the Association for Renewable Energy and Clean Technology (REA) welcomed the cap-and-floor scheme. Sommerfeld said long-duration energy storage is essential” to meeting low-carbon energy demands and the announcement confirms a scheme REA has “long advocated for.”

“The initiative will create high-quality jobs, enhance UK skills and highlight the country’s world-leading expertise in this field. The inclusion of a revenue cap also ensures that the scheme will deliver value for money for us all,” he said. 

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