Long Duration Energy Storage (LDES) has been recognised as a necessity for the transition to Net Zero by Ofgem and the UK Government. To support and promote the use of LDES technologies, a first-of-its-kind Cap and Floor revenue support scheme has been designed, bringing much-needed financial certainty to Long Duration Energy Storage projects.
This announcement of the scheme is relevant for project developers, technology providers, and investors alike. The first application window opened on the 8th April, and this provides projects with potential opportunities. At Blake Clough, we are already working closely with clients to prepare for opportunities that will appear as a result of this new scheme. This blog post breaks down what the scheme involves, what is required to apply, and why early engagement is the key to success.
What Is the LDES Cap and Floor Scheme?
The Cap and Floor scheme is a 25-year regulated revenue model designed to support the deployment of LDES technologies across the UK. Building upon similar financial support schemes in the interconnector sector, it guarantees project developers a minimum return (the floor) while capping excessive profits. This structure is designed to offer investors the predictability they need to back capital-intensive, long-duration storage assets.
The premise of the scheme is simple: to reward efficient projects while protecting consumers from an excessive price rise. Navigating the scheme, however, can be complex, and Blake Clough can provide support during the upcoming application window.
There are two timescales in the LDES Cap and Floor Scheme for projects with varying connection dates: projects with connection dates in 2030, and projects with connection dates in 2033. For both of these options, developers will only have a two-year grace period in which penalties will not apply to the project if delays are due to force majeure. If delays are incurred which a developer cannot prove are beyond their reasonable control, or delays are longer than two years, then the project will incur penalties. In these cases, Ofgem may reassess the needs case of the project, or even withdraw regulatory support. Therefore, it is essential to understand how best to manage your project in order to benefit from this Scheme.
Lithium-ion batteries are not considered LDES, unless novel designs have been developed which can discharge at full power for a duration of 8 or more hours. For the Clean Power 2030 Queue reordering process, Lithium-ion batteries which qualify for LDES will be assessed as “BESS”, but will qualify for “Protection” under Strategic Alignment Criteria Protection Clause 2b if they receive an LDES Cap and Floor contract. Therefore, BESS projects with LDES Cap and Floor Schemes in place will be “Protected” and will receive a Gate 2 offer. Even though the recently published Clean Power Methodology documents from NESO state that Protection Clauses 2a and 2b are valid for LDES, it is important to note that the LDES Cap and Floor Schemes will not be awarded until after the CMP435 process is complete, and Protection can therefore only be achieved through Protection Clause 2b in CMP434 (subsequent Gate 2 application windows).
Lithium-ion technologies seeking to reduce their Transmission Entry Capacity (TEC) (and consequently increase their charge and discharge duration) will not require a Modification Application in order to apply to the LDES Cap and Floor Scheme. This is because this change is considered an operational change, rather than a technology change. In the upcoming connections reforms, Lithium-ion BESS projects should submit the request to reduce their TEC (if needed, to meet the 8-hour discharge requirements) in the upcoming Gate 2 Evidence window . Projects with large areas of land could use this as an opportunity to keep the same TEC and increase their charge and discharge duration by increasing their capacity of BESS units. It is important to know that Cancellation charges will apply accordingly (due to the change in TEC).
Is my Project Eligible for the LDES Cap and Floor Scheme?
To qualify in the LDES Cap and Floor Scheme, technologies must be capable of delivering 8 hours of continuous full-power discharge and be able to maintain this level of performance over a full 25-year term. Within the scheme, there are two streams which are based on technology maturity and project scale.
Stream 1 is relevant for commercially established technologies at Technology Readiness Level (TRL) 9 and projects within this stream must provide a minimum of 100 MW capacity. Eligible technologies include:
- Pumped Hydro Storage (PHS)
- Li-ion batteries which have been optimised for long-duration use
Stream 2 is relevant for novel or emerging technologies which are at TRL 8, and projects in this stream have a lower capacity threshold at 50 MW. Eligible technologies include:
- Flow batteries (including redox types)
- Compressed gas systems
- Hydrogen or ammonia-based energy vectors
- Gravitational storage (such as weight-lifting mechanisms)
Stream 1 technologies will not be required to provide detailed evidence for their TRL, because they are generally defined as technologies with a marketable product proven in repeated use . For Stream 2 projects, however, projects must supply evidence to show that their project meets TRL level 8 . Evidence in the form of self-assessment is required, including but not limited to details on the current largest installations of the technology, a valuation report or stable metrics from an operational asset, and an examination of potential project risks, and methods to manage them. Blake Clough is able to support with the gathering of evidence for Stream 2 projects.
As well as the technology adhering to the above specifications for either stream, the project must also align with the eligibility criteria listed below.
Deliverability: You must provide evidence of engineering design or optioneering (FEED), economic viability studies, and project and business plans relevant to the project’s development stage. As a minimum, you must also provide cost estimates equivalent to the Infrastructure Projects Authority (IPA) Classification “Outline Business Case”. The Business Case should form the basis for the decision to develop the LDES project.
Grid Connection Status: Evidence of a submitted grid connection application is required.
Planning Consent: Ofgem will require evidence that planning consents will be in place by the start of the project assessment phase. For projects deliverable by 2030, the project must be able to demonstrate that it will be able to secure planning consents in the required delivery timescales (proof such as an initial planning application will be sufficient).
Duration Compliance (as above): At least 8 hours of full-power discharge must be exhibited and this discharge time must be maintained throughout the 25-year lifespan. Ofgem may consider requests for a shorter (or longer) lifespan , so long at it is longer than 20 years, and any variations are explained in detail within the application. For any variation, the Applicant must demonstrate that the proposed variation is in the best interests of consumers (through lower floor levels).
The Clock Is Ticking: Key Dates and Milestones for Window 1
If your project qualifies for any of the eligibility criteria mentioned above, then it may benefit from the LDES Cap and Floor Scheme. It is important to move quickly to ensure that you can provide the necessary evidence and qualifying information for your project to become included in the scheme. The following key dates provide the important milestones relevant to the application of a project in the LDES scheme. If deadlines are missed, the outcome of your project could be jeopardised.
The graphic below shows the timeline explained within Ofgem’s Technical Decision document. Notable dates include the Eligibility Evidence submission window which is set to open imminently, and close two months from the date it opens (April – June 2025). Evidence required for submission during this window is explained in further detail in the previous section. Projects which pass the Eligibility Assessment will be notified in Q3 2025, and will then need to submit a Project Cost Analysis (PCA) and CBA for Stage 2. The PCA will require developers to provide cost estimates for direct and indirect costs, overheads, capital and operating costs, and contingency allowances for the LDES project. The PCA will be linked to the CBA in that they will draw from the same cost estimate basis and will shape how the project will be financially managed from the start to end of life. Both of these cost-based analyses should include risk mitigation strategies and budget control mechanisms, as well as justification for funding.
Stage 1 is the Eligibility Assessment, in which projects must submit evidence which shows that they align with the LDES Cap and Floor Scheme (see Is my Project Eligible for the LDES Cap and Floor Scheme? Above). The deadline for Eligibility submission is 9th June 2025.
Within Stage 2, projects must submit their detailed costs using a costing template provided by Ofgem. Within this submission, a risk register with mitigation strategies should be included, as well as cost estimates for three scenarios (reasonably optimistic, most likely, and pessimistic). PCAs and CBAs for projects will be assessed by Ofgem and successful projects will be awarded a Cap and Floor Regime in principle . For successful projects, preliminary Cap and Floor levels will also be established. An additional Cost Reassessment process will also be undertaken in Q2 2026 for developers which believe they have more mature Cap and Floor estimates that will inform the Cap and Floor setting.
For Stage 3, projects must ensure that they keep to the milestones and budgets as set out in their CBAs. Risk management is essential during this stage to ensure that the project stays within the agreed schedule and budget.
In Stage 4, final Cap and Floor levels will be determined after reviewing all costs associated with the project, including costs incurred during construction (final CAPEX costs), and the efficiency of any OPEX costs associated with the project. Ofgem will also consider any significant cost changes which have occurred since the initial submission of the CBA. Once Ofgem sets the final Cap and Floor levels, these will remain fixed for the duration of the Cap and Floor Regime, subject to a limited number of reopeners (similar to the interconnector Cap and Floor regime OPEX reopener).
Stage 5 refers to the lifetime monitoring of the project’s operation. During this time, it is expected that the Cap and Floor Scheme will be periodically monitored and revenue assessments completed. Ofgem expects that the LDES Cap and Floor scheme will operate similarly to the interconnector Cap and Floor, with the option of reopeners used where necessary.
For Stages 6 and 7, Ofgem have not yet published further information regarding the final assessment of the project’s financial standing and decommissioning arrangements. We expect further information to be published later this year.
The Role of Cost Benefit Analysis (CBA ) in the LDES Cap and Floor Scheme
Aligning with the eligibility criteria list above is only part of the application process. If the project is determined eligible in the Q3 2025 decision date, Stage 2 will then begin. Accepted projects will submit their CBA to Ofgem to show that they have considered and justified their wider value to the energy system. This submission will be in the form of completing a detailed cost assessment template provided by Ofgem, and developers will be required to include predicted costs originating across the lifetime of the project. Developers should ensure that potential additional costs are properly risk assessed and mitigated during the lifetime of the project. The CBA will need to include the project’s cost model, assumptions and use a risk register, mitigation techniques , and market tools to manage risks of overruns. Managed well, this should support the project with remaining within the budget. Where poor financial management causes issues to the project, Ofgem will consider the need to develop penalties. Therefore, projects should ensure that they rigorously plan for the lifetime costs of the project accordingly.
Costs originating from capital, operation, and decommission of a project should all be included in the CBA submission. Ofgem will assess the costs as part of Stage 2 and make an initial Cap and Floor decision based on a project’s predicted forecast. Ofgem is expecting to develop a CBA framework to be put to public consultation in May/June 2025, with a finalised decision framework released in Q3 2025. Ofgem will work alongside NESO to develop this framework.
In the CBA stage, strong economic justification is critical. The CBA will be undertaken using a multi-criteria assessment covering the following quantitative and qualitative factors:
- Socio-economic welfare
- Consumer welfare
- Producer welfare
- Long Duration Energy Storage welfare
- Other system impacts
- Hard-to-monetise impacts
Aligning with the LDES Cap and Floor scheme is therefore not just about choosing a novel technology; it is about your project’s role in enabling a net zero grid. At Blake Clough, we have supported multiple projects through successful CBAs . We aim to help clients quantify and present their system value, understand locational benefits, and position their proposals competitively.
Location, Location, Location
The scheme will prioritise supporting projects in optimal locations where LDES can absorb excess renewable generation, relieve Transmission bottlenecks, and support regional system balancing. Therefore, in areas where there are known boundary constraints (such as the B4 and B6 boundaries) or areas with high concentrations of Offshore Wind or Solar generation, we expect to see a higher acceptance of LDES projects.
Identifying the location is not always straightforward, as there are other considerations which must be taken into account. While there will not be any opportunities in Window 1 for new sites to find an optimal location (as the Eligibility criteria states that projects should already have a signed Connection agreement) Blake Clough can identify which projects in a portfolio have the best prospects for receiving an LDES Cap and Floor award based on their location.
In preparation for future windows, Blake Clough would able to undertake site feasibility assessments and support with grid connection applications to determine optimum locations for LDES projects.
What Do I need to Include in my Application?
This scheme provides many opportunities for developers and investors to progress their LDES projects (including BESS projects which can benefit from Protection under protection Clause 2b in future CMP343 windows). It is important to note the tight timelines and high technical demands within the LDES application scheme.
As Ofgem does not expect all projects which apply to qualify for the scheme, it is important to understand what projects must submit in order to qualify and reduce chances of rejection. With our extensive knowledge on Grid Regulation and the upcoming reforms, we are well-poised to help you secure Cap and Floor support and progress your project throughout the application process.
Blake Clough are able to support with many of the above steps of the process, including:
- Coordinating and undertaking detailed FEED studies required for the Eligibility submission
- Eligibility and Project Assessment submission support
- Aligning Cap and Floor applications with the LDES Cap and Floor Scheme milestones
- Developing compelling CBAs that quantify system and consumer benefits
- Demonstrating financing capability for projects via business case and revenue forecasting
To support with future LDES windows, Blake Clough can undertake site scouting to identify viable connection points based on network capacity, reinforcement requirements, and planning feasibility.
How much LDES Cap and Floor Capacity is Available?
The indicative capacity range for the first Cap and Floor window is between 2.7 and 7.7 GW, which has been predicted by NESO using the Future Energy Scenarios (FES) forecast. It is expected that Ofgem would open the second application window as soon as practicable after completing window one. Due to the uncertainty around when this second window may open and whether there will even be more capacity available after the first window, it is advised to apply during window one (if possible) to avoid missing out on the scheme. The capacity targets above have not yet been set, and Ofgem expect to finalise these targets during the CBA process.
Blake Clough expect that the LDES capacity bucket will increase with the release of the Strategic Spatial Energy Plan (SSEP) due at the end of 2026 . The recent increase in AI demand has not yet been considered in the modelling of the Electricity Network, and the SSEP may publish a higher demand requirement than expected due to the increased demand. Look out for future blog posts on this topic.
Don’t Wait for Round Two
There may be a second application round planned, but Ofgem have hinted that this will depend on the results of the first application window, which are set to open imminently. We expect that many BESS projects which do not receive a Gate 2 offer in the upcoming connections Reform will try to re-align themselves with the future LDES Cap and Floor Scheme application windows. With growing urgency around decarbonisation and grid flexibility, the best-positioned projects will have a head start in this process.
If your project qualifies as an LDES technology and can be developed and operational for the 2030 or 2033 pathways, it is eligible, but you must not underestimate the work involved to get there. Developing a Business Case, Engineering design, and CBA analysis all need to start now.
The LDES Cap and Floor Scheme is a pathway towards a more flexible, low-carbon grid, and the success of your projects in becoming part of this scheme will depend on your ability to navigate the multiple assessment processes and eligibility criteria. Contact us today to learn about how we can help you improve your project’s chances in the LDES Cap and Floor Scheme .