Ofgem, in collaboration with the Department for Energy Security and Net Zero (DESNZ), has advanced the development of the Long Duration Energy Storage (LDES) Cap and Floor Scheme with the release of two pivotal consultations in May and June 2025. These documents, following the March 2025 Technical Decision Document (TDD), aim to provide critical clarity on the assessment process and financial framework for LDES projects, a move that is highly anticipated by the 171 projects that have already submitted applications for support. Stakeholders, including developers, lenders, and investors, have until July 17, 2025, to provide input on the Financial Framework Consultation.

The Project Assessment Consultation outlines Ofgem’s proposed Multi-Criteria Assessment (MCA) framework for evaluating LDES proposals. Developed with the National Energy System Operator (NESO) and external advisors, this framework encompasses three core dimensions: Economic, Strategic, and Financial. The Economic assessment will model costs and benefits, including changes to wholesale market costs and security-of-supply metrics, while the Strategic assessment will consider non-monetizable factors such as technological diversity and system resilience. The Financial assessment will analyze project cashflows against proposed cap and floor levels. Ofgem plans to select a portfolio of projects within a pre-determined LDES capacity target, aligning with the CP2030 Action Plan and Strategic Spatial Energy Plan, with awards anticipated by Q2 2026. The consultation also explores competitive mechanisms for certain cap and floor parameters, such as the rate of return, to potentially reduce consumer costs and ensure a level playing field across diverse technologies.

Complementing this, the Financial Framework Consultation details the financial metrics that will inform the cap and floor levels. Projects will submit bids detailing five key financial parameters: target rates of return at both the cap and floor (benchmarked at 7.31% CPIH-real at the cap and 4.47% CPIH-real at the floor), residual value at scheme end (assumed zero), requested regime length (minimum 20 years, benchmarked at 25), interest during construction, and estimated decommissioning costs. Ofgem proposes increased flexibility for projects to set their own floor below the administrative benchmark, which will be based on the iBoxx index of BBB+ rated GBP non-financial bonds with 15+ years remaining maturity, using April 8, 2025, as a common reference date. A key feature is the 'soft cap,' allowing projects to retain 10% of revenues above the cap to incentivize continued operation, with an enhanced sharing rate for the top 25% of bids based on administrative Cap and Floor level cuts. These consultations are vital steps in establishing a robust and predictable regulatory environment for LDES, addressing limitations such as fully capturing real-time flexibility revenues and large-scale system interactions within current modeling.