By James Basden, founder director of battery storage specialist Zenobe
The Cap and Floor scheme for Long Duration Electricity Storage (LDES), introduced by the Department for Energy Security and Net Zero (DESNZ) and regulated by Ofgem, is designed to drive investment into storage technologies that can deliver electricity for 8 or more hours. It works by offering a minimum revenue guarantee (the “floor”) to protect against low returns, while placing an upper limit (the “cap”) to return excess profits to consumers. This creates greater financial certainty for investors, helping to unlock much-needed LDES capacity for the grid.
However this certainty comes at a cost – to both consumers and the Government’s own clean power ambitions.
The Government’s Clean Power 2030 plan sets a target of 4 to 6 GW of operational Long Duration Electricity Storage (LDES) by 2030, up from 2.9 GW today, with that figure growing to 5-10 GW by 2035. While these are ambitious and necessary goals, they prioritise just one piece of the energy storage puzzle.
The majority of the UK’s flexible capacity will need to come from shorter duration Battery Energy Storage Systems (BESS), with 23 to 27 GW required by 2030 and up to 29 GW by 2035. Currently, the UK has only around 5 GW of BESS in operation, meaning there is a significant gap to close.
Yet the LDES Cap and Floor scheme risks making that gap even harder to bridge. By allowing subsidised LDES assets to compete directly with unsubsidised BESS in markets like balancing, response and capacity, the policy could distort pricing and bidding behaviour, reducing the competitiveness of battery storage and ultimately undermining investment in the very technologies critical to decarbonising the grid.
This is especially concerning given that many of the services being targeted by LDES, such as frequency response and short-term balancing, do not require long duration storage. In these markets, shorter duration batteries are not just sufficient – they are often the more efficient and cost-effective solution. This is already evident in today’s ancillary markets, where batteries have significantly reduced costs for consumers and displaced more carbon-intensive sources like gas.
So why risk slowing down BESS deployment?
Analysis from LCP Delta suggests that the Cap and Floor scheme, if not carefully designed, could jeopardise as much as 20% of the projected BESS build-out. The concern is simple: while LDES projects will benefit from revenue certainty, BESS assets will continue to operate without a floor price, fully exposed to market volatility. This unequal playing field can significantly influence market dynamics – particularly in the wholesale and balancing services markets – where subsidised LDES assets could outcompete unsubsidised BESS projects.
The analysis also suggests that this could lead to a 12% reduction in operating margins for shorter duration BESS, a substantial hit to project viability and investor confidence.
Consumers shouldn’t pay the price for Government’s favouritism
The government is clearly backing pumped-hydro, a costly technology with long lead times and a well-documented history of complexity and cost overruns. If long-duration storage is genuinely needed, the Government should enable the market to identify and deliver the most effective solutions at the lowest cost to consumers. Implicitly favouring pumped-hydro risks locking in higher costs – LCP’s analysis shows this could add an extra £122 million per year to consumer bills. That translates into over £2 billion across the 25-year scheme.1
Allowing batteries to compete on a level playing field would help lower the scheme’s price floor. Most importantly, the Government must ensure that the total capacity supported under the scheme is scaled appropriately, so consumers are not burdened with subsidising more expensive technologies than necessary.
As Ofgem’s application window for the Cap and Floor scheme opens, the detailed design of the mechanism remains a critical piece of the puzzle
Key decisions such as how market participation is structured and whether protections are in place to prevent distortion will determine whether the scheme can successfully support the growth of long duration storage without undermining the equally vital expansion of battery storage.
The stakes could not be higher. Up to 7.7 GW of LDES assets may receive subsidies through the scheme. Without well-designed safeguards, this well-intentioned policy risks unintentionally derailing the Government’s own ambition to deploy 27 GW of shorter duration BESS by 2030.
Getting this right is not just a matter of fairness – it is fundamental to building a resilient, flexible and future-proof electricity system.
View the report here
Read the industry Open Letter here.
Notes
[1] Slide 14: Value of long-duration BESS to the GB power system
