Introduction
On 9 January 2024, the Department for Energy Security and Net Zero (“DESNZ”) launched a consultation seeking views on their proposal to introduce a cap and floor scheme for long duration electricity storage (LDES) and how to deliver it. The consultation follows on from commitments made by the UK Government in the Powering Up Britain: Energy Security Plan to put in place an appropriate policy framework by 2024 to enable investment in LDES projects, with the goal of deploying sufficient storage capacity to balance the overall system.
Why is the consultation happening?
DESNZ believes that LDES technologies will play an increasing role in the future UK power system and will be pivotal to delivering a smart and flexible energy system integrating low-carbon power, heat and transport. They acknowledge that the UK has limited active LDES capacity and suffers from a lack of investment in new LDES projects. DESNZ wants to design a policy framework that encourages investment in LDES technologies to help deploy LDES at scale. Unlocking potential savings of £24 billion pounds in the process between 2030 and 2050.
Key Proposals
Cap and Floor Mechanism Proposed:
DESNZ supports the introduction of an interconnector-style cap and floor mechanism to kickstart investment in LDES projects. The scheme is intended to overcome identified barriers, such as high upfront capital costs and the associated need for investment, high overall system costs, revenue uncertainty for investors and excessive costs being passed to the consumer when the existing cap is breached.
Approach to Established and Novel Technologies:
DESNZ is proposing two streams through which projects can apply for the scheme, designated by technology readiness level (“TRL”). Stream 1 will support established technologies with a TRL of 9, a supply duration of at least 6 hours at a minimum power capacity of 100MW. Stream 2 will support novel technologies with a TRL of 8, a supply duration of at least 6 hours at a minimum capacity of 50MW.
DESNZ is seeking views on whether it is appropriate to include both new build and refurbished pumped hydro projects in Stream 1.
Lithium-ion Battery Energy Storage Systems
It is worth noting that the scheme excludes electricity storage technologies which can already be funded under existing market arrangements, including Lithium-ion Battery Energy Storage Systems (BESS).
The Consultation’s deadline for responses is 5 March 2024. The consultation document can be found here and you can submit your responses online here.
Article co-authored by Laura Sefton, Kirsty Nurse and Angus Coull.
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