The energy regulator for Great Britain has offered a first glimpse of what its new “cap and floor” scheme for long-duration energy storage (LDES) may look like when introduced in 2025.

LDES projects that can deliver by 2030 could be at an advantage under proposals made by Ofgem, while questions remain over minimum discharge duration and the financial parameters of the scheme.

New proposals are included in a “call for input” letter addressed to industry stakeholders, as Ofgem prepares to launch the first cap and floor application window in Q2 2025. Once live, the scheme will provide revenue support to LDES 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.

Ofgem revealed that due to the UK government’s desire to have a clean power system by 2030, projects able to meet that deadline may be prioritized in the first application window. The regulator has also proposed that there could be a “degree of flexibility” included in the scheme – allowing developers to indicate whether they expect to deliver by the end of 2030, or by the end of 2033, in their application. If the first application window attracts a high volume of applicants, however, Ofgem said it expects to prioritize those on track for 2030 delivery.

Minimum capacity

The minimum capacity for eligible projects is still to be determined, with Great Britain’s electricity system operator expected to provide a recommendation soon. Ofgem has proposed increasing the minimum discharge duration limit to eight or 10 hours for projects in the first window, while maintaining a 100 MW power output requirement. In October 2024, the government proposed including only projects capable of discharging at full power for six hours in the cap and floor scheme.

The increase would apply to “stream 1” projects, meaning mature technologies with a power rating of at least 100 MW. The cap and floor scheme will also operate a second stream for advanced but “less mature” technologies with a power rating of at least 50 MW.

Firm connection offer

To ensure supported LDES projects can be delivered on time, Ofgem has also proposed applicants have a firm grid connection agreement in place when submitting their project. Other suggestions put forward by the regulator include having front-end engineering studies, economic viability studies, and evidence of necessary financing in place when applying for cap and floor support.

Money matters

And while the LDES cap and floor scheme will be modelled on existing support in place for interconnectors, the financial parameters have not been settled.

Ofgem is considering two models: an administrative model that would see the regulator make price determinations based on market evidence; or a competition-led approach that would allow developers to bid based on their expected returns.

Proposals have also been put forward to prevent developers “gaming” the system. Potential risks include developers manipulating trade bookings to report lower LDES margins, in a bid to increase floor payments or avoid cap payments. There is also a market manipulation risk through withholding LDES capacity or offering at an inflated price to benefit other assets in a company’s portfolio. This could result in losses for the asset, which are compensated through higher floor payments or reduced cap payments.

Regulations floated to combat these risks include detailed reporting and inspection requirements, as well as making LDES cap and floor projects participate in the Capacity Market as “price takers” – generators who can’t exit the capacity market auction until the price drops below a set threshold. Ofgem has also proposed each LDES asset should have its own metering point, meaning co-located LDES would need to have a dedicated metering point.

Industry stakeholders have until Jan. 8, 2025 to respond to Ofgem’s open letter. A more detailed Technical Decision Document for the scheme is expected in the first quarter of 2025.