In a strategic move to stimulate investment in long-duration energy storage (LDES), the UK government has unveiled a new “cap and floor” scheme aimed at facilitating the development of pumped storage facilities. This initiative marks a significant milestone, potentially kickstarting the first major LDES projects in the UK in nearly four decades.
The government acknowledges that high upfront costs, despite lower operating expenses, have deterred investment in LDES. The newly announced scheme follows a public consultation held earlier this year, where stakeholders discussed the need for a model to encourage such investments.
Under the cap and floor framework, developers will receive a guaranteed minimum income (the floor) while being subject to a revenue cap that limits profits. The floor is intentionally set low to minimize its use, acting as insurance against lower-than-expected revenues. In return, consumers will underwrite this risk while ensuring that developers share a portion of any excess profits above the cap.
The Office of Gas and Electricity Markets (Ofgem) will oversee the regulation and delivery of the scheme, with the first round of applications expected to launch next year. The support scheme will feature two application routes: one for mature technologies and another focused on innovative solutions.
Currently, Great Britain has 2.8GW of LDES capacity through four existing pumped storage hydro schemes located in Scotland and Wales. According to government analysis, deploying 20GW of LDES could lead to savings of £24 billion ($31.3 billion) for the electricity system between 2025 and 2050. The National Electricity System Operator estimates that achieving net-zero emissions will require between 11.5GW and 15.3GW of LDES by 2050.
Several LDES projects are in development, with some expected to come online by 2030. The introduction of this investment support scheme is anticipated to facilitate their completion.
Renewable energy company Drax has welcomed the initiative, noting its plans to expand the existing Cruachan pumped storage facility in Scotland. The proposed construction of a new 600MW plant adjacent to the current facility would effectively more than double the site’s total generation capacity to over 1GW.
“Today’s announcement is a critical step forward in addressing the key hurdles developers face in establishing new pumped storage hydro plants,” said Ian Kinnaird, Drax’s director of Scottish assets. “We appreciate the government’s swift action within their first 100 days in office and look forward to collaborating with them and other stakeholders to deliver a clean power system by 2030 that enhances energy security and benefits consumers.”
A similar cap and floor model has been successfully implemented for electricity interconnectors linking Great Britain’s grid with other nations since its introduction in 2014, with developers sharing revenues with consumers while avoiding any floor payments to date.
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