To unlock investment and accelerate deployment of LDES, the UK government and Ofgem have launched a dedicated financial framework – the cap and floor scheme. Designed specifically for LDES, it offers developers the revenue certainty they need to bring these technologies to the energy system at pace.
The transition to a low-carbon power system demands more than just clean energy, it needs supporting infrastructure. Long Duration Electricity Storage (LDES) provides exactly that, helping to smooth out the peaks and troughs of renewable generation by storing onto excess energy and releasing it when demand rises.
What is the cap and floor mechanism?
The cap and floor mechanism provides a safety net for investors in LDES. It sets:
- A minimum amount of money (the floor) that a project is guaranteed to earn, even if market conditions are poor. This helps protect developers and investors from losing money.
- A maximum amount of money (the cap) a project can earn. Projects can still make a good return, but once it hits this cap, the extra profit goes back to consumers through reduced energy bills.
This approach gives developers enough certainty to invest while making sure energy users don’t pay more than necessary. It balances risk and reward: developers are protected from very low earnings but also limited from earning excessively high profits.
This model is based on a similar approach used for cross-border energy interconnectors and was customised for storage projects.
Why is LDES so important?
Wind and solar power don’t produce electricity all the time, since they’re weather dependent and subject to natural variation in generation.
LDES technologies can store surplus electricity (excess wind and solar power generated on sunny blustery days) and release it when needed (like on a cold, windless evening).
This balances the supply and demand of renewable energy, helps avoid power shortages and reduces the need to fall back on fossil fuels.
The National Energy System Operator (NESO) outlined in the LDES Technical Decision Document that the UK will need between 2.7 and 7.7 gigawatts (GW) of LDES capacity by 2035, and potentially more by 2050, to meet climate goals whilst keeping the Nations lights on.
How the scheme works
The cap and floor mechanism offers financial support over a period of 25 years. Here’s how it works in practice:
- The “floor” guarantees the recovery of project costs (both building and running costs) plus a return, even if the project earns less than expected on the market.
- The “cap” still lets the project make a good return if it performs well but stops it from making excessive profits. Any money made above the cap is shared with consumers.
- Project finance option: Developers can choose to have the floor set either by Ofgem or by holding a competitive tender where lenders bid to finance the project. This gives flexibility depending on the financing model used.
In simple terms, if the project does badly, developers and investors are protected; if it does well, they get rewarded within fair limits.
What projects are eligible?
To be eligible, LDES projects must meet certain technical and readiness criteria. These include:
Project size
- Stream 1 (more established technologies): Must be at least 100 MW in power capacity.
- Stream 2 (novel technologies): Must be at least 50 MW.
To put this in context, the average UK household uses 3.1MWh per year. In a single charge, a 100MW storage facility could store enough energy to power 258 UK households for an entire year.
That’s just the minimum project size, many LDES storage plants can produce considerably more power.
In our recent discussion with Ofgem, the possibility of applying some flexibility to these criteria was raised. This would consider projects that don’t yet meet all requirements but can be rapidly progressed and are likely to comply in time for deployment.
Duration
All projects must be able to discharge at full power for at least 8 hours, meaning they can release electricity continuously for 8 hours without needing to recharge.
Technology Readiness Level (TRL)
- TRL 9 for Stream 1 projects: Proven technologies that are already operating commercially at scale (like pumped hydro).
- TRL 8 for Stream 2: Near-commercial technologies that have been tested and demonstrated successfully, but not yet deployed widely.
Other requirements
- A grid connection application must be submitted.
- Planning permission must be in place by the end of summer 2025, or projects must show they are on track to get it, especially if targeting completion by 2030.
- Applicants must provide a business case which includes clear breakdowns of costs and how the project plans to be delivered.
Key dates
The cap and floor scheme is a multi-stage process. The first stage launched this month (April 2025).
Here’s the timeline:
| Stage | Date | Details |
| Application window opens | April 2025 | Developers submit applications. |
| Eligibility check | Q2-Q3 2025 | Ofgem reviews planning, grid, and technical details. |
| Project assessment & cost benefit analysis | Q4 2025-Q2 2026 | Full cost-benefit analysis, setting of cap and floor. |
| Support awarded | Q2 2026 | Ofgem confirms which projects get support. |
| Construction & delivery | From Q3 2026 | Projects are built and monitored. |
| Operations monitoring | 2029 onwards | Performance is checked and revenues settled. |
How are projects assessed?
After passing the eligibility stage, projects go through a cost benefit analysis. This evaluates the value a project adds to the energy system against its cost.
Ofgem looks at:
- Consumer benefits
- System impact
- Environmental and social value
Projects are also compared against one another to make sure the ones providing the most benefit to the energy system for the lowest cost get selected first.
Can refurbishments apply?
Yes. The scheme also allows funding for project refurbishments or upgrades, but only the new part of the project will be supported.
Developers must clearly separate the costs, benefits, and revenues of the upgraded portion from any existing infrastructure.
How are consumers protected?
Once a project is approved, Ofgem will:
- Monitor delivery: To make sure timelines and budgets are on track.
- Review final costs: After construction, Ofgem checks if the costs were spent efficiently.
- Set the final cap and floor: Based on actual performance and spending, not just estimates.
This process ensures developers deliver what they promised, and that consumers don’t pay more than necessary.
Industry response
The energy industry has welcomed the scheme.
RenewableUK responded saying the scheme “lays out the building blocks to unlock much needed deployment of electricity storage over the next decade”.
Regen also commented that “this is a positive and significant milestone in the introduction of a new market and revenue support mechanism for electricity storage in the UK. It is the culmination of a lot of analysis, industry consultation and detailed policy development”
Our thoughts
We welcome the roll out of the cap and floor mechanism. By offering long-term certainty and encouraging both mature and emerging technologies, the scheme will unlock a new level of investment and support for LDES, technology we believe is the missing link in the energy transition.
