New Scheme To Attract Investment In Renewable Energy Storage

10th October 2024

Long Duration Electricity Storage investment support scheme will boost investor confidence and unlock billions in funding for vital projects.

Government will unlock investment opportunities in vital renewable energy storage technologies to strengthen energy independence, create jobs and help make Britain a clean energy superpower
new scheme will remove barriers which have prevented the building of new storage capacity for nearly 40 years, helping to create back up renewable energy.

increasing long duration storage capacity could lead to billions in system savings, helping reduce bills.

The UK is a step closer to energy independence as the government launches a new scheme to help build energy storage infrastructure.

This could see the first significant long duration energy storage (LDES) facilities in nearly 4 decades, helping to create back up renewable power and bolster the UK's energy security.

These technologies work like giant batteries by storing renewable energy and releasing it onto the grid and into homes when needed. This includes pumped storage hydro, which stores electricity by pumping water up a reservoir, to be released later.

By having a steady supply of clean, home-grown energy, these projects would strengthen the UK's energy independence, and protect consumers from volatile global gas markets.

However, barriers including high upfront costs - despite low operating costs - have held back investment in this critical infrastructure.

The investment support scheme announced today will boost investor confidence and unlock billions in funding for vital projects which will help create thousands of jobs and deliver clean power as the country accelerates to net zero.

This comes days before the government’s set-piece International Investment Summit which is poised to put the UK back at the global table – kickstarting a decade of economic renewal and giving business confidence and opportunity to invest in the United Kingdom.

Energy Minister, Michael Shanks, said:

We are wasting no time in unlocking Britain’s vast renewable potential by expanding wind and solar power. But we also need to increase our ability to store this energy for when the sun isn’t shining, or the wind isn’t blowing.

We’re reversing a legacy that has seen no new long duration storage built for 40 years - and taking steps to unleash private investment in both established and new technologies.

With these projects storing the surplus clean, homegrown energy produced from renewable sources, we can boost our energy security by relying less on fossil fuels, protect household bills, and help deliver our key mission to make Britain a clean energy superpower.

The announcement follows a consultation held earlier this year which proposed a ‘cap and floor’ scheme to encourage LDES investment. A cap and floor model would provide a guaranteed minimum income for developers, in return for a limit on revenues. Ofgem has agreed to act as regulator and delivery body and the scheme’s first round is expected to be open to applicants next year.

Great Britain currently has 2.8 GW of LDES across 4 existing pumped storage hydro schemes in Scotland and Wales, which already play a significant role in powering the country.

Other technologies include liquid air energy storage, compressed air energy storage and flow batteries, which are currently in development and would benefit from investor support.

Analysis has found that deploying 20 GW of LDES could save the electricity system £24 billion between 2025 and 2050, reducing household energy bills as additional cheaper renewable energy would be available to meet demand at peak times, which would cut reliance on expensive natural gas.

Meanwhile, the National Electricity System Operator has estimated that a total of 11.5 to 15.3 GW of LDES will be required by 2050 to achieve net zero.

Several projects are currently under development and with some expected to be operational by 2030, and the introduction of an investment support scheme will help deliver them.  

A similar cap and floor scheme is used for electricity interconnectors which connect Great Britain’s grid with other countries. Introduced in 2014, no floor payments have been made but developers have shared revenues with consumers.  

Ofgem will design the investment support scheme and under these proposals, it will be split into 2 application routes, with one focusing on mature technologies, while another will be dedicated to new innovation.

This is the latest step in the government’s mission for clean power and energy security, building on the confirmation last week of major funding for 2 carbon capture sites in Merseyside and Teesside, to create thousands of jobs and attract £8 billion of private investment.

It also follows the launch of Great British Energy, lifting the ban on onshore wind and delivering a record number of clean energy projects through its renewables auction – all part of the plan to protect billpayers from volatile energy price spikes driven by fossil fuels.  

Beatrice Filkin, Director of Major Projects at Ofgem said:

We are pleased to see the government’s publication today on its plans for long duration electricity storage. Unlocking investment in this important technology is another significant step towards decarbonisation of the the power system.

We are looking forward to continuing to work closely with government as we take on the role of regulator and investment support scheme delivery body for the sector.

A cap and floor scheme provides revenue support to developers should their gross annual margin (the difference between the revenues from selling electricity back to the grid, and the cost of charging) fall below a set threshold known as the ‘floor’.

Floor levels are set low to minimise the likelihood of their use, while still providing comfort to investors that operators can meet debt payments in the unlikely scenario that revenues are much lower than forecast. They are not high enough for the asset owners to make a profit (when considering the cost of debt), so there is no incentive for them to seek floor payments – they are merely a form of insurance.

In return for consumers underwriting this risk, a revenue cap ensures that LDES asset owners must share some or all profits above a certain level.