The TDD sets out how the cap and floor scheme will operate, application window timelines, eligibility criteria and the potential LDES capacity needed, among other technical details.

The ‘floor’ will ensure investors receive a minimum amount of revenue to enable investment in LDES assets. Alongside this, the cap on revenue provides returns to consumers for their support, where LDES assets operate above the cap. The detail regarding revenue terms will be set out in the LDES cap and floor special licence conditions, notes the TDD.

While the scheme is based on Ofgem’s previous experience gained from the electricity interconnector cap and floor regime, it features ‘significant modifications to ensure it works effectively for LDES deployment’, says the TTD.

The TDD’s initial position is that LDES assets will be subject to the cap and floor regime for 25 years and that all capital costs would be recovered over this period. Ofgem says it may consider requests for different regime lengths, but any request for a shorter duration must be at least 20 years. ‘This is because shorter durations are likely to result in higher floor levels, increasing potential consumer support in any year, as the costs would be spread over a shorter period,’ it explains.  

The TDD also requires projects to be able to discharge continuously at full power for at least eight hours to be eligible for the cap and floor scheme.

Projects will be split into two streams, depending on their technology readiness level (TRL). Stream 1 will be for technologies with a TRL of 9 and will have a minimum size of 100 MW. Stream 2 will be for those with a TRL of 8 and will have a minimum size of 50 MW.

An additional application guidance and eligibility assessment framework document will be published by Ofgem when the scheme opens this spring.

Great Britain currently has 2.8 GW of LDES across four existing pumped storage hydro schemes in Scotland and Wales. However, no new sites have been built for nearly 40 years because they are expensive to develop, even though operating costs are comparatively low.

Pumped storage plants act like giant water batteries. They use reversible turbines powered by excess electricity from sources such as wind farms to pump water from a lower reservoir to an upper reservoir. These same turbines are then reversed, allowing gravity to pass the stored water back through the plant’s turbines to generate power when needed.

Other LDES technologies include liquid air energy storage, compressed air energy storage and flow batteries.  

Some lithium-ion battery systems could also be eligible for the LDES cap and floor scheme under the newly published TDD. The government had previously suggested such systems would be excluded when the scheme was first proposed in January 2024.  

According to government analysis, deploying 20 GW of LDES could save the UK electricity system £24bn between 2025 and 2050. It would reduce household energy bills as additional cheaper renewable energy would be available to meet demand at peak times, which would cut reliance on natural gas peaking plants. The National Electricity System Operator estimates that some 2.7–7.7 GW of LDES will be required by 2035 to achieve net zero.

‘Confirmation of the design of the cap and floor scheme brings welcome clarity to industry and investors alike,’ comments RenewableUK’s Senior Policy Analyst Yonna Vitanova. She adds: ‘The LDES cap and floor approach acknowledges the unique risks LDES projects are exposed to when compared to interconnectors, and lays out the building blocks to unlock much needed deployment of electricity storage over the next decade.’