The UK Government has unveiled a new scheme that promises to revolutionize the landscape of renewable energy storage, attracting key investments for technologies that have been stagnating for nearly four decades.

This effort, designed by the Department for Energy Security and Net Zero (DESNZ), aims to strengthen energy independence, create jobs, and solidify Britain’s position as a clean energy superpower.

The recent initiative seeks to increase investment in long-duration electricity storage (LDES), which could result in significant savings for the UK energy system and, in turn, reduce consumer bills. Technologies such as pumped hydroelectricity, which stores energy by pumping water to a reservoir for later use, are part of this strategy.

The proposed approach for the LDES scheme is based on a “cap and floor” regime, similar to the one used in electricity interconnectors but with notable differences from the Capacity Market (CM).

However, the CM has a different focus, as it concentrates on short-term electricity supply security, while LDES aims to provide long-term flexibility for integrating renewable sources. This scheme encourages investment in new installations and supports cleaner but intermittent generation technologies, such as wind and solar, which require backup. Additionally, it promotes more active demand management.

Through scheduled auctions with varying delivery timelines, the required capacity volume is defined. The CM has evolved since its introduction in 2014, and periodic adjustments are made to ensure its effectiveness, including short- and long-term auctions.

In terms of support duration, the CM typically offers contracts ranging from 1 to 4 years, whereas the LDES scheme proposes support of up to 25 years, aligning more closely with the lifespan of projects.

One of the key points discussed in the LDES consultation, held between January and March 2024, was the need to address investment barriers, including high capital investments and income uncertainty.

The UK government published this on GOV.uk and received 113 responses from a variety of stakeholders, including storage technology developers, generators and energy providers, academics, and investors.

Most participants supported the introduction of a cap and floor scheme, and Ofgem was designated as the body responsible for the implementation and management of the scheme. The aim is for the company to open applications in 2025, through a development that will be divided into three stages.

The first stage, already completed, included the publication of the Long Duration Electricity Storage Consultation: Government Response document, which establishes that a cap and floor scheme is the best option to encourage investments in LDES.

The second stage will focus on a Technical Decision Document, which will be published in the winter of 2024. This document will address key aspects such as the minimum duration for project eligibility, required capacities, and methods for setting the limits. Measures to mitigate system manipulation will also be considered.

Finally, before the first application window, Ofgem will clarify the evaluation methodology and the necessary requirements, including details on the efficiency of bids and the benefits to be assessed.

Government Goals

The government will continue collaborating with the industry and other stakeholders to ensure a transparent and reliable development of the scheme, aiming to maintain investor confidence and facilitate an efficient process.

Regarding eligibility criteria, minimum capacity and duration requirements were established, along with prequalification criteria to ensure the viability of the projects. It has been emphasized that beneficiaries of the scheme will be able to participate in other electricity markets, including the Capacity Market, which is not possible for interconnectors.

It is important to mention that, currently, Great Britain has 2.8 GW of LDES capacity, primarily through hydroelectric projects in Scotland and Wales. The national system operator estimates that between 11.5 and 15.3 GW of LDES will be needed to achieve net-zero targets by 2050.

Additionally, the UK government highlights that the implementation of 20 GW of LDES could save the electricity system £24 billion between 2025 and 2050, reducing household energy bills as more affordable renewable energy would be available to meet demand during peak hours, thus reducing reliance on expensive natural gas.

Mark Sommerfeld, Deputy Director of Policy at the REA (Renewable Energy Association), commented: “The initiative will create high-quality jobs, enhance the UK’s capabilities, and highlight the country’s world-leading expertise in this field. The inclusion of an income cap also ensures that the plan will provide good value for money for all of us. The REA looks forward to continuing to collaborate with the government to advance this important sector.”

Key Opportunity

The announcement comes at a crucial moment, just days before the Government’s International Investment Summit, which aims to reposition the UK on the global stage, generating market confidence and investment opportunities. Additionally, the investment support plan is based on a “cap and floor” model, which guarantees a minimum income for developers in exchange for limiting their earnings.

Michael Shanks, Ministro de Energía de Reino Unido.

Energy Minister Michael Shanks emphasized that “we are leaving no stone unturned in harnessing the vast renewable potential of Great Britain through the expansion of wind and solar energy. However, it is crucial that we also increase our storage capacity to ensure we have energy when the sun doesn’t shine or the wind doesn’t blow.”

Shanks highlighted that the plan aims to reverse a 40-year legacy of no new developments in long-duration storage and will facilitate private investment in both established and innovative technologies.

For her part, Beatrice Filkin, Director of Major Projects at Ofgem, expressed her satisfaction with the launch of this plan, stating that “unlocking investment in this important technology is another significant step toward the decarbonization of the electricity system.”