Ofgem selects 16 Long Duration Electricity Storage projects for cap and floor support

Overview

Recently, the Office of Gas and Electricity Markets (Ofgem) announced its minded-to decision to award cap and floor support to 16 Long Duration Electricity Storage (LDES) projects across England, Scotland and Wales. These projects are expected to deliver approximately 7,645 MW of storage capacity, which would represent a significant milestone in the development of large-scale energy storage infrastructure in the UK.

The announcement marks the first major project selection round under the UK’s new LDES support regime and offers a strong indication of policy support for large-scale electricity storage to creating a more flexible electricity system capable of supporting increasing levels of renewable energy.

What is LDES and why does it matter?

LDES refers to technologies capable of storing electricity for extended periods of time and releasing it when required. Under the government and Ofgem’s scheme, eligible projects must be capable of delivering at least eight hours of continuous electricity output and must meet minimum capacity requirements.

There are varying kinds of LDES systems such as pumped storage hydro (PSH), compressed air energy storage (CAES), Lithium-ion batteries (LIB) and vanadium redox flow batteries (VRFB) but the majority of the projects being LIB. Each operates in a different way to achieve the same result, storing energy when it is available in excess, to be used at a later time when demand exceeds availability.

Assuming the UK will continue to seek to reduce its reliance on fossil fuels, this technology will become increasingly important as it enables an increased proportion of electricity generated from renewable sources to be stored until it is needed. Although renewable power generation is an essential part of the decarbonisation of the UK economy it also presents challenges as electricity produced from this source is less easy to manipulate to match consumer demand. For instance, wind generation depends on weather conditions and solar generation varies throughout the year and time of day.

LDES has the potential to address this challenge by storing surplus renewable energy that may otherwise go unused and making it available at times of higher demand. According to Ofgem, greater deployment of LDES could improve system flexibility, enable more renewable generation to be integrated into the electricity network and reduce instances where renewable generators are paid to curtail output due to network constraints or oversupply.

The UK’s route to an LDES support regime

The UK’s move towards an LDES support regime has been developing over a period of years.

In 2022, the Department for Business, Energy & Industrial Strategy identified a number of barriers that were limiting investment in LDES projects. These included high upfront capital costs, long development periods, uncertain future revenues and the relatively limited operational track record of some storage technologies. Stakeholder engagement undertaken by Ofgem broadly supported the view that these barriers were restricting investment.

In response, the government consulted on potential support mechanisms and, in October 2024, confirmed its decision to introduce a cap and floor regime for eligible LDES projects.

The regime is intended to balance investor confidence with consumer protection. Under the model, qualifying projects would receive a guaranteed minimum revenue level (the floor), providing protection against downside risks. In return, revenues above a specified level (the cap) are limited, reducing the costs ultimately borne by consumers.

Ofgem was subsequently tasked with implementing the regime, assessing applications and identifying projects suitable for support. Following the opening of the first application window in April 2025, Ofgem reported that 77 projects had progressed through the eligibility assessment stage from an initial pool of 171 applicants.

In March 2026, Ofgem published a call for input on an initial draft of the special licence conditions that would give effect to the regime.

On 21 July 2026, following its consideration of responses to the March call for input, Ofgem published a further call for input setting out its minded-to positions on the special licence conditions that would apply to successful Window 1 projects. These proposals are discussed further below.

Ofgem’s minded-to decisions – what was announced?

Ofgem’s 26 June 2026 announcement represents a major step in the process.

The regulator identified 16 projects that it is minded to support under the first application window of the LDES cap and floor scheme. Together, the selected projects are expected to provide approximately 7,645 MW of storage capacity.

The projects are located across England, Scotland and Wales and include a range of storage technologies, including pumped storage hydro, compressed air energy storage, lithium-ion batteries and vanadium redox flow batteries.

The scale of the selected capacity is significant. The total capacity identified by Ofgem sits towards the upper end of the range anticipated by wider government and National Energy System Operator (NESO) planning for the UK’s future electricity system.

The minded-to decisions remain subject to consultation and further regulatory processes before final awards are made. Ofgem currently expects to publish final decisions for Window 1 in autumn 2026.

The proposed licence framework

Alongside its minded-to decision on the Window 1 project portfolio, Ofgem has continued to develop the regulatory framework that will support the LDES cap and floor regime.

On 21 July 2026, Ofgem published a call for input setting out its minded-to positions on the special licence conditions that would apply to successful Window 1 projects, together with revised draft licence conditions. This was followed on 28 July 2026 by draft guidance explaining how the regime is intended to operate in practice, including the calculation of cap and floor payments, reporting requirements, licence-holder obligations and consumer protection measures.

The proposed special licence conditions provide the detailed regulatory framework through which the LDES cap and floor regime would operate. They address how project revenues and cap and floor payments would be calculated and reported, the construction and operational requirements applying to supported facilities, and the circumstances in which regulatory relief or enforcement action may arise.

Ofgem’s revised proposals address key financial, construction and operational matters, including the assessment of revenues and costs, project delays, availability requirements, cost overruns and the end of the support period.

What does this mean for the market?

The announcement is likely to be welcomed by many participants across the energy sector, particularly developers and investors seeking greater certainty regarding the future of large-scale storage in the UK.

One of the principal challenges facing LDES projects has been the difficulty of securing finance for infrastructure that involves substantial upfront expenditure but uncertain future revenues. By providing revenue certainty through the cap and floor framework, the regime is intended to improve project bankability and attract long-term investment into the sector.

The selection of 16 projects also provides an important market signal that the government and regulators are committed to supporting commercial deployment of LDES at scale. This may encourage further investment not only in storage projects themselves but also in associated supply chains and supporting infrastructure.

The special licence conditions will be central to project bankability. They will affect both the practical value of the floor and the allocation of risk under project, operational and financing documents.

From a wider system perspective, increased storage capacity should support the continued expansion of renewable generation by helping to manage periods of fluctuating supply and demand. Greater storage capability may also help reduce renewable curtailment, improve network flexibility and contribute to a more resilient electricity system.

The announcement may also be significant for developers whose projects were not included in the current selection round. Ofgem has indicated that it intends to consider a second application window, suggesting that further opportunities may arise as the regime develops.

Next steps

The consultation on Ofgem’s proposed Window 1 portfolio closes on 7 August 2026, followed by the 18 August 2026 deadline for responses on the revised special licence conditions. Ofgem expects to make final cap and floor award decisions in autumn 2026. Following those awards, it intends to make its final decision on the licence framework and then consult through the statutory licence-modification process for successful Window 1 projects. Accordingly, neither the proposed portfolio nor the present draft licence conditions should be treated as final.

Successful projects would then move through the development, construction and commissioning stages, subject to the applicable licence obligations and regulatory milestones. Post-construction review processes may affect the cost base and the final cap and floor parameters applying to individual projects.

Stakeholders with an interest in the regime should monitor both consultation processes closely and consider whether any aspects of the proposed decisions warrant engagement with Ofgem.

Looking further ahead, Ofgem has indicated that it expects to confirm by 2027 whether a second application window will be opened. If the first round proves successful, the regime may play a significant role in accelerating investment in energy storage and supporting the UK’s longer-term objectives for energy security, system flexibility and decarbonisation.

In the meantime, Ofgem’s minded-to selection of 16 projects, together with its revised special licence proposals, represent a significant step forward for the UK’s emerging LDES sector and provides the clearest indication to date that large-scale energy storage is set to become an increasingly important component of the UK’s future energy system.

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This article was co-authored by Paralegal, Frank Zanner-Entwistle.