- The UK regulator launched a landmark cap‑and‑floor scheme to support long‑duration electricity storage (LDES) in early 2025, offering 25‑year revenue certainty for projects capable of discharging at full power for at least eight hours.
- The scheme guarantees a minimum revenue ‘floor’ while capping excessive profits, mirroring the model used for electricity interconnectors. Projects receive payments if revenues fall below the floor and return profits above the cap to consumers.
- Eligibility is technology‑neutral but sets strict criteria: projects must provide eight hours of discharge over 25 years and meet capacity thresholds (100 MW for established technologies and 50 MW for emerging technologies).
The UK’s net zero strategy recognises that large volumes of long‑duration energy storage (LDES) will be needed to balance a grid dominated by wind and solar.
While lithium‑ion batteries provide fast‑acting flexibility, they typically deliver up to four hours of discharge. To attract investment in technologies that can provide energy for eight hours or longer, Ofgem and the Department for Energy Security and Net Zero (DESNZ) have designed a cap‑and‑floor revenue support scheme.
Announced in spring 2025, the scheme offers 25‑year contracts that guarantee project developers a minimum return. If market revenues fall below the floor, consumers top up the difference; if revenues exceed the cap, developers pay the excess back.
The first application window for projects opened on 8 April 2025 and closes in June 2025. Ofgem will assess proposals in two streams: stream 1 covers mature technologies such as pumped hydro and long‑duration lithium ion projects with at least 100 MW capacity. Stream 2 targets emerging technologies – including flow batteries, compressed gas, and hydrogen/ammonia storage – with a minimum capacity of 50 MW.
All projects must demonstrate the ability to discharge at full power for eight hours and maintain that performance over 25 years.
The scheme’s design emphasises value for money. Projects will be selected through competitive allocation, with developers required to share profits above the cap and face penalties for delays beyond a two‑year grace period.
Long‑duration storage is considered essential not only for balancing variable renewables but also for providing inertia and system stability.
By supporting technologies such as pumped storage and flow batteries, the scheme aims to create a portfolio of assets that can supply electricity during extended wind lulls and overnight periods. In the long run, this could reduce reliance on gas peaker plants and help the UK meet its 2035 carbon‑free power target.
For industry participants, the consultation is a chance to shape critical details such as the revenue model, eligibility criteria and integration with the capacity market.
Given that Ofgem expects to make final decisions on shortlisted projects in summer 2026, developers should prepare robust business cases and engage with grid operators. Long‑duration storage has different risk profiles from traditional batteries but may offer attractive, regulated returns.
