Long-duration Electricity Storage Consultation: Government Response

(Limited Text - Ministerial Extracts only)

Thursday 10th October 2024 Written Statements

[The Parliamentary Under-Secretary of State for Energy Security and Net Zero (Michael Shanks)]

This Government are committed to making Britain a clean energy superpower. I am announcing a further important step in enabling this mission: a decision to introduce a cap and floor regime to support investment in the next generation of long-duration electricity storage assets.

Our national mission to achieve clean power by 2030 and accelerate to net zero will require the capability to store energy when it is abundant to be used when supply is scarce. LDES technologies, which include pumped storage hydropower as well as new, innovative solutions like liquid air energy storage, are designed to store large quantities of excess electricity, such as that generated by solar and wind during periods of high output, and then supply it back to the grid over periods of several hours or days when it is most needed.

Low carbon long-duration flexibility technologies such as LDES will be pivotal in meeting and maintaining our clean power needs as electricity demand grows. LDES will also diversify our technology mix, giving us greater resilience. And by using renewable energy that can be stored, LDES can help the UK move towards energy independence. Analysis commissioned by Government found that in the central scenario, 20 GW of LDES resulted in electricity system savings of £24 billion by 2050. This represents a saving to consumers of 3.5% of the total system costs.

However, despite the clear benefits of LDES and the potential for significant expansion, it has been almost 40 years since any meaningful new sites were commissioned. This is partly due to uncertainty faced by investors in committing to these complex, long-term projects that have high upfront costs despite having low operating costs. In January 2024, under the previous Government, a consultation was published exploring the introduction of an LDES cap and floor investment mechanism. Today I am announcing the publication of the Government response to this consultation, in which we set out our decision to introduce a cap and floor investment mechanism.

A cap and floor mechanism is an established way to provide investor confidence and enable investment decisions to be made by project developers. It does this by providing revenue protection—via the revenue floor which is set at a low level—while offering benefits to consumers in return by regulating revenue via the revenue cap. A similar approach has been used successfully to deliver several critical electricity interconnector projects—cables that allow us to trade electricity with overseas markets—without a revenue floor ever being triggered. We are also announcing that Ofgem has agreed to expand its role in regulating LDES assets, by becoming the investment framework delivery body for LDES, building on its existing role and expertise in already delivering the cap and floor mechanism for electricity interconnection projects.

I would like to thank stakeholders who have taken the time to respond to the previous consultation. My officials will continue working at pace alongside Ofgem to facilitate Ofgem implementing the investment framework as soon as possible. Following this response, we expect the publication of a technical decision document this winter, along with documents by Ofgem as the LDES regulator and investment framework delivery body. We intend for Ofgem to be able to open the investment support scheme to applications from LDES developers in 2025.

[HCWS119]