What is long duration storage and why do we need it?

The GB electricity system is designed to balance supply and demand. But with more and more intermittent renewable power coming onto the grid, there will be less reactive power available on the grid when needed. The ability to store up excess power in advance and release it when it's needed will be crucial. And when there's more renewable power being generated than needed, the ability to store the excess means renewable generators do not have to be curtailed.

Great Britain currently only has 2.8GW of LDES, across four pumped storage hydro schemes in Scotland and Wales, and there have been no new schemes in the last 40 years, as we've reported previously (see Pumped Storage Hydro – the forgotten solution?). But the National Energy System Operator (NESO) has estimated that we need up to 15.3GW of LDES by 2050 to meet our net zero target. Deploying 20GW of LDES could save the electricity system £24 billion between 2025 and 2050, reducing household energy bills.

The reason there aren't more LDES projects is that, even though they are cheap to run, they are very expensive to build. With no regulatory support, LDES projects would need to make all their money through power trading, meaning a lack of certainty over long term cashflows and therefore a major bankability issue.

The most mature technology is pumped storage hydro, which stores electricity by pumping water up from one reservoir to a higher one. When released back down, the water turns turbines which generate electricity. Other more novel technologies include liquid air energy storage, compressed air energy storage, gravitational, high-density pumped hydro, and flow batteries.

How will the support scheme work?

The scheme will be a cap and floor, similar to the support scheme for interconnectors, involving a regulated return on investment that guarantees a minimum revenue but also caps total profits. If an operator's annual margin (the difference between the revenues from selling electricity back to the grid, and the cost of charging) falls below the 'floor', they will be topped back up to the floor level, which is set so as to cover the cost of debt. A revenue 'cap' ensures that operators must share some or all their profits above a certain level.

Ofgem will regulate the scheme and be the delivery body. They already perform this role for the interconnector cap and floor scheme.

The cap and floor contract will last for either the length of the project up until its first refurbishment, or 25 years, if longer. This is in line with the interconnectors cap and floor scheme but is subject to final confirmation.

LDES projects receiving cap and floor support will still be able to participate in the Capacity Market, but DESNZ is considering whether there need to be further parameters around this.

The LDES cap and floor scheme will be funded by network charges.

There will be measures in place to mitigate distortion (where the asset operator might reduce operation as it approaches the cap threshold, or not be incentivised to operate above the floor level) and also to mitigate gaming risk (exploiting the cap and floor for financial gain).

What projects will be eligible?

Any technology type that meets the definition of electricity storage in the Energy Act 2023 (energy that was converted from electricity for the purpose of its future reconversion into electricity) is technically eligible if it falls within one of two streams:

• Stream 1 – established technologies with a Technology Readiness Level (TRL) of 9, which means a marketable product in final form that has been proven through successful operations: effectively pumped storage hydro. They must have a minimum capacity of 100MW and a minimum duration of 6 hours.
• Stream 2 – more novel technologies with a TRL of 8, which means a production prototype or beta project that has been successfully deployed in a demonstration phase. So this will be things like compressed air energy storage, liquid air energy storage and flow batteries. They must have a minimum capacity of 50MW and a minimum duration of 6 hours (these thresholds are still to be confirmed).

Projects will have to show 'additionality', i.e. that they are technically feasible but not otherwise commercially feasible without a guaranteed minimum revenue. So this could include novel iterations of Lithium-ion batteries which are specifically designed for longer-duration energy storage.

Projects will be assessed for support on their merits against a range of criteria, and on what whole system benefits they can bring – so not just on cost.

There will be pre-qualification criteria that a project must meet, such as a grid connection, strong commercial case, planning consents, environmental permits, land rights and a generating licence (where applicable) These are to be finalised.

When will projects be able to apply?

The aim is to open the scheme for applications in 2025.

What still needs to be decided?

Much of the finer detail of how the scheme will work still needs to be finalised, including: whether to keep the minimum duration at 6 hours or raise it; how to set the cap and floor; how to determine the length of the cap and floor agreement; and the pre-qualification criteria. These will be set out in a Technical Decision Document to be published this winter.

After that, Ofgem will need to clarify the exact assessment methodology and how to calculate 'gross margin' in setting the cap and floor thresholds.