The Long Duration Electricity Storage (LDES) Technical Decision Document (TDD) was published on 11 March 2025 by Ofgem and the Department for Energy Security and Net Zero (DESNZ). It sets out the UK government's approach to supporting investment in long-duration electricity storage through a cap and floor scheme, similar to the one used for electricity interconnectors. The document provides key details on how the scheme will operate; eligibility criteria; project assessment processes; financial parameters; and next steps for implementation.

Background and purpose

The LDES TDD follows the government's October 2024 consultation response, which confirmed its intention to introduce a long-duration storage support mechanism. This decision aligns with the Clean Power 2030 Action Plan and Ofgem's Forward Work Programme, aiming to enable investment in large-scale energy storage projects that can provide system flexibility and security.

Institutional and regulatory framework

The scheme will be delivered and regulated by Ofgem, with its legal framework set out in the Planning and Infrastructure Bill (introduced in March 2025). The primary mechanism for cost recovery will be network charges, ensuring that any required consumer support payments (floor payments) or revenue redistributions (cap payments) are handled efficiently.

Cap and floor scheme design

The core concept of the cap and floor scheme is to provide a minimum revenue guarantee (floor) to protect investors from downside risks, while also capping excessive profits, ensuring that consumers benefit if projects perform exceptionally well. Although this model draws on the electricity interconnector cap and floor framework, it has been specifically adapted to meet the requirements of LDES technologies.

The financial structure under the scheme will involve:

• Cap: Set to allow a fair return for investors.
• Floor: Designed to cover investment costs and provide financial stability, especially for debt financing.
• Revenue sharing: Ensuring consumer protection through a proposed "soft cap" that allows consumers to receive a share of revenue generated beyond the cap and an expected "soft floor" that means a project needs to achieve minimum availability thresholds to remain eligible for support.

Further consultation on the specific financial parameters is expected during 2025.

Project eligibility and assessment criteria

Eligibility requirements

Projects applying to the scheme must:

• provide long-duration energy storage services (minimum eight-hour storage duration);
• demonstrate a significant contribution to system flexibility and net-zero objectives;
• be located in Great Britain; and
• meet technical and financial viability criteria.

Assessment process

The assessment framework consists of:

• Stage 1 – Eligibility Assessment: Determines whether projects meet baseline requirements. Projects not passing this stage will not proceed further.
• Stage 2 – Project Assessment: Consists of:
• Cost-Benefit Analysis (CBA) and Project Cost Assessment (PCA): Evaluates economic efficiency, potential system benefits and financial robustness;
• Scheme Award and Financial Modelling: Establishment of cap and floor financial models and final project approvals; and
• Construction Phase Monitoring: Monitoring of approved projects against milestones/conditions set out in the project assessment decision document.
• Stage 3 – Post-Construction Review: Reviews actual construction costs to set final cap and floor levels.
• Stage 4 – Monitoring and Operations: Regular reporting on project financials and operation performance.
• Stage 5 – Final Assessment: Reconciliation of outstanding revenues (with the potential for further arrangements to be put in place for projects with a lifespan of more than 25 years).

Evaluation of the CBA will, in part, involve a collective assessment of all applications so as to maximise whole-system benefits. To an extent, therefore, projects will be in competition with each other.

Indicative cost information will need to be submitted as part of the eligibility submission with more detailed information being submitted for the CBA. Whilst there may be a limited opportunity to update cost information when the cap and floor rates are set, developers will need to be reasonably confident that their costs are accurate at CBA submission stage. This is important because it is likely that supported projects will face financial penalties or rewards relating to cost management. That said, the TDD does anticipate that some cost information will be based upon estimates (rather than confirmed contract sums) when submissions are made.

Allocation rounds and timeline

The first application window for LDES projects is expected to open in April 2025 and will last for two months. The expected timeline for Window One is as follows:

• Q2 2025: Eligibility assessment begins.
• Q3 2025 – Q2 2026: Cost-benefit analysis and project cost assessment.
• Q2 2026: Cap and floor award decisions finalised.
• Q3 2026 onward: Construction monitoring begins.
• 2029 – 2031: Post-construction review stage initiates.

Ofgem is planning for Window One to create between 2.7GW and 7.7GW of additional storage capacity in the system by 2035.

A second application window is anticipated after Ofgem reviews the results of Window One, with future capacity volumes to be determined based on National Energy System Operator (NESO) advice.

Financial parameters and risk mitigation

Many elements of fine detail for the scheme are still to be finalised, with some being the subject of consultation over the coming months. Key financial parameters under review include:

• Cost of debt: The floor will be set so that it provides a return similar to the cost of debt for both equity and debt investors.
• Return at the cap: Will be adjusted to allow investors a competitive but fair return.
• Taxation: Consideration of whether tax-related costs should be handled as a pass-through cost.
• Debt financing model: Encouraging competitive funding competitions for project finance structures.
• Availability incentives: Ensuring LDES projects operate efficiently both under normal conditions and during system stress events.

Operational considerations

The TDD highlights operational risks such as potential market manipulation, delayed project delivery and inefficiencies in energy trading strategies. Proposed measures to mitigate these include:

• gross margin reporting obligations for LDES projects;
• timely delivery incentives to avoid unnecessary delays;
• availability thresholds to ensure system value is delivered consistently; and
• profit-sharing mechanisms to balance investor interests and consumer protection.

Next steps

Moving forward, Ofgem and DESNZ will:

• finalise the cap and floor financial framework in Q2-Q3 2025;
• host a consultation on cost-benefit methodologies in mid-2025; and
• publish detailed application guidance and technical assessment criteria before the first application window opens in April 2025.

Additionally, ongoing engagement with stakeholders, including developers, investors, consumer groups and grid operators, will be critical for refining the regime before financial commitments are made.

Conclusion

The LDES TDD is a crucial milestone for developers promoting long-duration energy storage projects. These projects will play a key role in the UK's energy transition. While the cap and floor mechanism provides a promising investment framework, further details on scheme financials, regulatory oversight and post-regime arrangements will need to be carefully refined in the coming months so as to achieve the right balance between the interests of consumers and developers (and their funders), and
whole-system benefit.

With the first application window on the horizon, LDES developers, investors and regulators must now work closely to translate policy into real-world projects that enhance grid stability, support decarbonisation, provide long-term consumer value and are financially viable.