UK confirms cap mechanism for LDES from 2025

Ofgem, the UK's energy regulator, will design and deliver the first cap and floor mechanism for LDES technology.

Following a consultation period held at the start of the year, Ofgem will implement the proposed cap mechanism. This mechanism aims to overcome the barriers to LDES deployment that exist today, the biggest one being the lack of revenue streams available for LDES applications that can afford the high investments required.

This mechanism provides return certainty to investors by guaranteeing returns above an agreed floor and protects consumers by limiting returns to agreed limits.

The investment support scheme will be divided into two application pathways: one focused on mature technologies and one focused on new innovations. DESNZ has confirmed that the first round of the cap-and-floor model is expected to be open to applicants in 2025.

Commenting on the cap mechanism, Beatrice Filkin, Director of Major Projects at Ofgem, believes that stimulating investment in LDES would be another important step towards decarbonising the power system.

Increasing the UK's LDES capacity would also protect the UK from volatility in wholesale markets, as seen in the recent energy crisis caused by rising oil and gas prices following Russia's invasion of Ukraine.

Indeed, strengthening the country's energy security was a key manifesto of the new Labor government as it prepared for the election campaign earlier this year, which the party won. Since then, several landmark policies and decisions have been introduced to strengthen the UK’s renewable energy capabilities. You can find out more about the UK energy sector through our sister site Current.

UK Energy Secretary Michael Shanks said the country's energy storage capacity must be increased alongside solar PV and wind power, and stressed the new plan would help the Labor government's aim to make the UK a clean energy superpower.

“We are taking steps to reverse a 40-year legacy of no new LDES being built and to stimulate private investment in both existing and new technologies,” Shanks said.

Through these projects, which store surplus clean domestic energy produced from renewable sources, we will strengthen energy security by reducing our dependence on fossil fuels, protect household costs and deliver on our key mission to make the UK a clean energy superpower. We can help you do it.

Pumped storage energy storage support

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 market support mechanisms has been a significant contributing factor to the fact that no new pumped storage power plants have been built in the UK since 1984. The 440 MW Cruachan pumped storage hydropower plant, built on the coast of Loch Awe in the 1960s, was the world's first reversible pumped storage hydropower system.

The lack of support for PHES technology in the UK has attracted the attention of the international community. Former Australian Prime Minister and current Chairman of the International Hydropower Association (IHA), Malcolm Turnbull, sent a letter to the government at the start of the year explaining that the UK has around 7GW of ready-to-start PHES projects with over 135GWh of energy storage capacity. wrote in

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

The UK needs LDES technology.

PHES is not the only LDES technology recommended for use on the UK market. In fact, the government selected liquid air energy storage, compressed air energy storage, and flow batteries as technologies that can receive investor support.

According to DESNZ analysis, if 20 GW of LDES were deployed, it could save US$24 billion (US$31 billion) from the power system between 2025 and 2050. This will lead to lower household energy costs as they will have access to cheaper renewable energy to meet peak demand. Reduce dependence on expensive natural gas.

The National Electricity System Operator estimates that 11.5 to 15.3 GW of LDES will be needed by 2050 to achieve net zero in the UK.

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

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

Roderick MacLeod, energy director at Glen Earrach Energy, which developed the 30GWh PHES project on the Balmacaan Estate in Scotland, said the company fully supported the government's move on a cap mechanism.

We believe that prioritizing projects that have proven to be most efficient, cost-effective and sustainable over those ahead of them, such as the Plan, will facilitate self-financing and minimize reliance on government support, maximizing opportunities to: . MacLeod added that the company has a successful partnership with the UK government to deliver a net zero grid.

MacLeod has previously spoken out about the need for a cap mechanism, saying the government should prioritize projects proven to be most efficient, cost-effective and sustainable over those with plans for May 2024.

British energy storage developer Field, which has so far focused on short-term battery energy storage system (BESS) projects, also welcomed news of the cap-and-floor mechanism, with CEO Amit Gudka saying it would provide developers with greater returns. It said it would provide certainty. LDES, but its success depends on the finer details of its design.

Gudka said the cap mechanism should avoid undermining existing market prices or creating a double subsidy environment. For example, if qualified long-term storage can capture both floor and capacity market returns.

Crucially, eligibility criteria must be technology-neutral to allow bill payers to leverage the full potential of storage. Therefore, eligible technologies must include lithium-ion battery chemistries that are either competitive or proven and established suppliers that can be stored for long periods of time at low cost, Gudka added.

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