Parliamentary Under-Secretary of State at the Department for
Energy Security and Net Zero (): This government is
committed to making Britain a clean energy superpower. I am
announcing a further important step enabling this mission: a
decision to introduce a cap and floor regime to support
investment in the next generation of Long Duration Electricity
Storage (LDES) assets.
Our national mission to achieve clean power by 2030 and
accelerate to net zero will require the capability to store
energy when it is abundant and used when supply is scarce. LDES
technologies, which include Pumped Storage Hydropower (PSH) as
well as new, innovative solutions like Liquid Air Energy Storage
(LAES), are designed to store large quantities of excess
electricity, such as that generated by solar and wind during
periods of high output, and then supply it back to the grid over
periods of several hours or days when it is most needed.
Low carbon long-duration flexibility technologies such as LDES
will be pivotal in meeting and maintaining our clean power needs
and electricity demand grows. LDES will also diversify our
technology mix, giving us greater resilience. And by using
renewable energy that can be stored, LDES can help the UK move
towards energy independence. Analysis commissioned by government
found that in central scenario 20GW of LDES resulted in
electricity system savings of £24bn by 2050. This represents a
saving to consumers of 3.5% of the total system costs.
However, despite the clear benefits of LDES and the potential for
significant expansion, it has been almost forty years since any
meaningful new sites were commissioned. This is partly due to
uncertainty faced by investors in committing to these complex,
long-term projects that have high upfront costs despite having
low operating costs. In January 2024, under the previous
government, a consultation was published exploring the
introduction of an LDES cap and floor investment mechanism. Today
I am announcing the publication of the government response to
this consultation, in which we set out our decision to introduce
a cap and floor investment mechanism.
A cap and floor mechanism is an established way to provide
investor confidence and enable investment decisions to be made by
project developers. It does this by providing revenue protection
(via the revenue floor which is set at a low level) whilst
offering benefits to consumers in return by regulating revenue
(via the revenue cap). A similar approach has been used
successfully to deliver several critical electricity
interconnector projects – cables that allow us to trade
electricity with overseas markets – without a revenue floor ever
being triggered. We are also announcing that Ofgem has also
agreed to expand its role in regulating LDES assets, by becoming
the investment framework delivery body for LDES, building on
their existing role and expertise in already delivering the cap
and floor mechanism for electricity interconnection projects.
I would like to thank stakeholders who have taken the time to
respond to the previous consultation. My officials will continue
working at pace alongside Ofgem to facilitate Ofgem implementing
the investment framework as soon as possible. Following this
response, we expect the publication of a technical decision
document this winter, along with documents by Ofgem as the LDES
regulator and investment framework delivery body. We intend for
Ofgem to be able to open the investment support scheme to
applications from LDES developers in 2025.
