A new system of limits and thresholds for large long-duration energy storage projects in UK
On Thursday, October 10, 2024, the UK government confirmed the implementation of a new system of limits and thresholds for large long-duration energy storage (LDES) projects. At the core of this system is a “cap and floor” mechanism, which guarantees a minimum income for investors and aims to stimulate investments in LDES technologies such as vanadium flow batteries.
What is the “Cap and Floor” System?
The “cap and floor” system ensures that investors receive a guaranteed minimum income (the “floor”), while also limiting the maximum revenue (the “cap”). This model gives investors confidence in future revenues while protecting consumers from excessive costs. The program aims to increase the attractiveness of LDES projects, which are critical for stabilizing the power grid as the UK transitions to renewable energy sources like wind and solar power.
LDES technologies, capable of long-term energy storage, play a vital role in stabilizing the power generated from renewable sources. The program will support large projects with a minimum storage capacity of 300 MWh, in line with the UK’s goal to expand green energy infrastructure and create new jobs in this sector.
Support for Innovative Energy Storage Technologies
The program offers two separate application streams, tailored to both established and innovative technologies. Stream 1 includes proven mechanisms, such as energy storage using pumped hydroelectric power stations, which must have a minimum capacity of 100 MW and the ability to store energy for at least six hours. Stream 2 is dedicated to more innovative solutions, such as vanadium flow batteries or compressed air energy storage, which are at an earlier stage of commercial development. These projects must have a minimum capacity of 50 MW and the ability to store energy for six hours to qualify for support.
Initially, lithium-ion batteries were excluded from the program, but the government revised its stance, allowing innovative projects using this technology, provided they are not currently commercially viable without a guaranteed minimum income. This approach recognizes the role diverse storage technologies can play in meeting the UK’s energy needs.
Regulatory Oversight and Next Steps
The Office of Gas and Electricity Markets (Ofgem) has been appointed as the regulatory and executive body responsible for implementing the program. A technical document outlining further details of the program is expected to be published in the winter of 2024. Following this, the first round of financial support applications will be opened.
The government is also considering broader systemic benefits, such as job creation, impact on local economies, and energy security, when evaluating projects. These factors, along with the results of further analyses, will influence the final criteria and support structure.
Impact on the Industry and Future Prospects
The announcement of the program has sparked great optimism in the energy sector. For companies like Invinity Energy Systems, which are at the forefront of long-duration storage technology development, the new program offers a clear path for business growth and contributing to the UK’s climate neutrality goals.
Jonathan Marren, CEO of Invinity, expressed enthusiasm about continued collaboration with the Department for Energy Security and Net Zero (DESNZ) and key stakeholders. He emphasized that support for LDES technologies would strengthen energy security, accelerate decarbonization, and reduce energy costs for consumers.
As the UK accelerates its transition to a low-emission economy, the success of the “cap and floor” program could make the country a leader in long-duration energy storage, paving the way for a cleaner and more resilient energy system. The program has the potential to unlock billions of pounds in investments, which not only supports the renewable energy sector but also sets an important precedent for other countries facing the challenges of balancing renewable energy sources with the need for grid stability.
The structure of the “cap and floor” mechanism, qualification criteria, and project evaluation methods will be further clarified in the coming months, offering the industry greater transparency before the first application round opens in 2025.
Source: freeths.co.uk; invinity.com