Technical Decision

Long Duration Electricity Storage: Technical

Decision Document
Publication date: 11 March 2025

Contact: Long Duration Electricity Storage Team

Team: Low Carbon Infrastructure

Email: LDES@ofgem.gov.uk

In October 2024 the Government's response to its Long Duration Electricity Storage
(LDES) consultation set out that it would publish a joint Technical Decision Document
(TDD) with Ofgem in the winter.

This TDD confirms key details of the LDES cap and floor scheme and sets out how this
scheme will operate, when application windows will open, how much capacity will be
procured, and what projects will be eligible to apply, amongst other details.

Ofgem expects to publish an application guidance document for window one when the
scheme opens this spring. Additionally, Ofgem aims to release an eligibility assessment
framework, detailing how projects will be evaluated against specific criteria.
 Long Duration Electricity Storage: Technical Decision

© Crown copyright 2025

The text of this document may be reproduced (excluding logos) under and in
accordance with the terms of the Open Government Licence.

Without prejudice to the generality of the terms of the Open Government Licence the
material that is reproduced must be acknowledged as Crown copyright and the
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This publication is available at www.ofgem.gov.uk. Any enquiries regarding the use and
re-use of this information resource should be sent to psi@nationalarchives.gsi.gov.uk.

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 Long Duration Electricity Storage: Technical Decision

Contents

Executive Summary.................................................................................................. 4

Chapter 1: Institutional framework for delivery ......................................................... 11

Chapter 2: Allocation round process and scheme duration ....................................... 13

Chapter 3: Eligibility ............................................................................................... 18

Chapter 4: Project assessment and decision-making................................................ 28

Chapter 5: Approach to cap and floor levels and financial parameters ....................... 35

Chapter 6: Operational considerations .................................................................... 47

Chapter 7: Summary of the LDES regime ................................................................. 54

Appendix 1: Draft framework for oversight of Debt Funding Competition .................... 63

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 Long Duration Electricity Storage: Technical Decision

Executive Summary
1. Background
In the Government's response to its Long Duration Electricity Storage (LDES)
consultation in October 2024,1 it confirmed that, to enable investment in LDES, it would
introduce a cap and floor scheme, similar to Ofgem’s interconnector regime.

Ofgem's December 2024 call for input letter2 noted that this aligns with the
Government’s Clean Power 2030 Action Plan3 and supports Objective 8 of Ofgem's
Forward Work Programme.4 The letter also outlined the work plan, timelines, initial
ideas on the first application window, and eligibility criteria for the LDES cap and floor
regime, inviting stakeholder views on 14 questions.

This Technical Decision Document (TDD) confirms key final details of the scheme. It
sets out how the scheme will operate, when the first application window will open, how
much initial capacity will be sought, and which projects will be eligible to apply,
amongst other details. Additionally, Ofgem will publish an application guidance
document and an eligibility assessment framework. These documents will respectively
detail the essential information required in an application and how projects will be
evaluated against specific criteria when the scheme opens this spring.

Government and Ofgem made the final decisions included in this TDD using several
additional sources of information beyond the previous consultation:

• Feedback from Ofgem’s recent call for input inviting response to several areas of
the scheme design.

• Advice from the National Energy System Operator (NESO) relating to some of the
eligibility requirements and the amount of capacity that Ofgem should seek
through this scheme in the first application window.

• Input from consultants Cambridge Economic Policy Associates (CEPA),

commissioned by Government to provide technical advice, including on setting
cap and floor levels.

Government and Ofgem expect the decisions set out in this document to be final for the
first LDES application window. This includes firm decisions, such as the
implementation of two assessment stages: the eligibility stage and the CBA stage,

1 https://assets.publishing.service.gov.uk/media/670660eb366f494ab2e7b57a/LDES-consultation-
government-response.pdf
2 https://www.ofgem.gov.uk/sites/default/files/2024-12/Dec_OpenLetter_LDES_0.pdf (also referred to

in this publication as Ofgem’s open letter)

3 https://www.gov.uk/government/publications/clean-power-2030-action-plan
4 https://www.ofgem.gov.uk/sites/default/files/2024-03/2024-25_FWP_FINAL.pdf

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 Long Duration Electricity Storage: Technical Decision

which will inform the cap and floor regime award. Additionally, there are broad areas
where Ofgem now plan further consultation, such as determining the cap and floor rate
of returns as well as incentives to manage delays and cost overruns.

We also expect that Ofgem will carefully review the arrangements for projects awarded
a cap and floor regime after the cap and floor regime period ends. The review aims to:

1. Ensure that there are measures in place to safeguard consumers' interests in

long-lasting assets that received financial support (floor payments) during the
regime period and are expected to continue operating after the regime ends.

2. Ensure that any revenues generated by these projects after the regime period
ends are used to offset the floor payments they received during the regime
period.

This review and the associated measures may not apply to projects that did not receive
floor payments during the regime period.

Ofgem remains open to considering any reasonable and material concerns caused by
decisions made in this publication.

2. Overview of the cap and floor scheme

The cap and floor scheme ensures investors receive a minimum amount of revenue to
enable investment in LDES assets. Alongside this, the cap on revenue provides returns
to consumers for their support, where LDES assets operate above the cap. While the
scheme is based on previous experience gained from the electricity interconnector cap
and floor regime, it is important to note that this cap and floor regime is not the same as
the one used for interconnectors. Although it incorporates similar concepts, there are
significant modifications to ensure it works effectively for LDES deployment.
Importantly, this policy development does not apply to approved cap and floor
interconnector projects or any future cap and floor interconnector windows.

The LDES cap and floor will be set as follows:

• The cap will be set to allow recovery of invested capital (debt and equity) and to
provide a fair return on investment if the assets perform well in the market.

• The floor will be set to allow recovery of invested capital (debt and equity) along
with a rate of return that is comparable to the cost of debt.

Government and Ofgem believe this sets the right balance of incentivising investment
and encouraging appropriate operation of LDES assets, whilst avoiding unnecessary
risk to consumers. This is discussed further in Chapter 5.

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 Long Duration Electricity Storage: Technical Decision

3. Timeline for window one

Table 1 below sets out the key stages, timelines, activities, and related publications for
the first LDES application window.

Table 1: Key stages and timeline for window one

Assessment stage Period Activity Related publication(s)

Stage 1: Eligibility Q1 2025 Development of eligibility

assessment criteria assessment
framework

Q2 2025 Window one open for Eligibility assessment

applications (two-month criteria framework
period)
Application guidance

Q3 2025 Eligibility assessment Final decision on eligibility

takes place

Stage 2: Project cost Q2 2025 Consultation on: Minded to decision on:

assessment (PCA) &
Initial CBA framework CBA framework
Cost Benefit Analysis
(CBA) Regime details such as Delivery and costs
delivery and costs incentives
incentives

Cap and floor financial Q2 2025 Consultation on: Minded to decision on:
model (CFFM) &
Draft cap and floor CFFM and handbook
regime financial
financial model (CFFM)
parameters Regime financial
and handbook
parameters
Regime details such as
cost of equity, cost of debt,
and IDC

Licence development Q2 to Q3 Review CBA framework

2025 consultation responses

Review of Standard
Licence Conditions (SLCs)
and drafting of Special
Licence Conditions (SCs)

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 Long Duration Electricity Storage: Technical Decision

Assessment stage Period Activity Related publication(s)

Q3 2025 Decision on final CBA

framework

Cost assessment guidance /

template

Q3 2025 Submission deadline for Decision on:

costs for PCA & CBA
CFFM and handbook

Regime financial
parameters and related
policy

Q3 2025 to PCA / CBA takes place Draft licence – consultation

Q1 2026 on special licence
Modelling indicative cap
conditions and details
and floor using CFFM
on cost recovery
arrangements

Q1 2026 Initial decision on PCA and Consultation on initial

CBA decision: (i) on PCA; and (ii)
cap and floor regime award

Q2 2026 Opportunity to submit Final decision on: (i) PCA,

limited cost updates for (ii) PA and (iii) cap and floor
cap and floor setting regime award

Final decision on special

licence conditions and
related statutory licence
modification

Stage 3: Construction Q3 2026 Confirm key milestones Construction Regulatory

phase and risk logs Instructions and Guidance
(RIGs) published
Develop framework for
debt competition

Q3 2026 Monitoring and reporting

onwards during construction

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 Long Duration Electricity Storage: Technical Decision

Assessment stage Period Activity Related publication(s)

Stage 4: Post c. 2029 PCR submission guidance

Construction Review development

c. 2030/31 PCR for first LDES cap and

floor projects

Stage 5: Monitoring c. 2029 Operational RIGs Regime reporting

cap and floor during development
operations

During Periodic revenue

regime assessment & reopeners

Post regime period

Stage 6: Final TBC Any outstanding revenue TBC

assessment reconciliation and post
regime arrangement
finalisation

Stage 7: End-of-life TBC TBC TBC

Arrangements

4. Next steps
Noting that not all potential projects are likely to be eligible for window one, we expect
to consult with NESO once window one is complete to understand required further
LDES capacity ranges for 2035 and 2050. Assuming more LDES installations are still
required, we then expect to open window two as soon as practicable with indicative
capacity requirements based on NESO’s assessment. We will also consider any lessons
learned from the window one process.

This TDD marks the end of the LDES scheme policy development phases, involving
extensive stakeholder engagement. It also marks the start of the delivery phase, with
Ofgem expecting to open the first application window in April 2025 and finalise any
outstanding LDES cap and floor regime aspects. This is a significant milestone in the
construction and operation of the next generation of LDES assets.

From this point, Ofgem will make final decisions relating to the cap and floor scheme.
Both government and Ofgem would like to thank stakeholders that have readily engaged
in the policy process and look forward to further engagement as this scheme opens.

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 Long Duration Electricity Storage: Technical Decision

5. Related publications
• Long duration electricity storage consultation (January 2024):
https://assets.publishing.service.gov.uk/media/659bde4dd7737c000ef3351a/l
ong-duration-electricity-storage-policy-framework-consultation.pdf

• Long duration electricity storage consultation: Government Response (October

2024):
https://assets.publishing.service.gov.uk/media/670660eb366f494ab2e7b57a/L
DES-consultation-government-response.pdf

• Ofgem’s Open Letter: A call for input – LDES cap and floor regime (December
2024): https://www.ofgem.gov.uk/sites/default/files/2024-
12/Dec_OpenLetter_LDES_0.pdf

• Clean Power 2030 Action Plan (December 2024):

https://www.gov.uk/government/publications/clean-power-2030-action-plan

• Ofgem’s Forward Work Programme 2024/25:

https://www.ofgem.gov.uk/sites/default/files/2024-03/2024-25_FWP_FINAL.pdf

• CEPA report: Cap and Floor Regime for Long Duration Electricity Storage:
Setting the Cap and Floor (published by DESNZ, 2025)

• Interconnector cap and floor regime handbook (2024):

https://www.ofgem.gov.uk/sites/default/files/2024-
12/Interconnector_Cap_and_Floor_Regime_Handbook_Updated_Version.pdf

• NESO’s advice:

(a) Long Duration Electricity Storage: Response to DESNZ Request: Q1 and

Q2 (Published by NESO, 2025)

(b) Future Energy Scenarios (2024):

https://www.neso.energy/publications/future-energy-scenarios-fes/fes-
documents

• Decision on the Final Project Assessment of the NeuConnect interconnector to

Germany (2022):
Neuconnect%20Final%20Project%20Assessment%20decision1656590974415
.pdf

• Decision on the Final Project Assessment of the Greenlink interconnector to

Ireland (2021): https://www.ofgem.gov.uk/sites/default/files/2021-
09/Greenlink%20FPA%20decision1633004200399.pdf

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 Long Duration Electricity Storage: Technical Decision

• Infrastructure and Ports Authority: Cost Estimating Guidance - A best practice

approach for infrastructure projects and programmes (2021):
https://assets.publishing.service.gov.uk/media/6050c9528fa8f55d324b0c84/IP
A_Cost_Estimating_Guidance.pdf

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 Long Duration Electricity Storage: Technical Decision

Chapter 1: Institutional framework for

delivery
This chapter sets out broad parameters for how the LDES cap and floor scheme will be
delivered from an institutional and regulatory standpoint.

1.1 Background
In October 2024, Government decided to introduce an LDES cap and floor investment
support scheme and confirmed that Ofgem would be the delivery body and regulator
responsible for delivering and administering this scheme. At that time government
noted a preference for using network charges if a cap or a floor was to be triggered (i.e.
as the route through which an LDES operator might receive support from consumers or
pay any revenue earned above the cap back to consumers).

1.2. Legislative framework, charging, and

licencing
Government will legislate for Ofgem to deliver the LDES scheme, setting out a
requirement for Ofgem to implement the cap and floor scheme and confirming the use
of network charges in the event that a cap or a floor was to be triggered.

The details of the scheme for projects that are granted a cap and floor regime will be set
out in the licences held by LDES operators, with special conditions covering the
operation of the cap and floor regime. Ofgem also expects to make separate changes to
wider industry frameworks to support the cap and floor regime, including specifically
the use of network charging.

Government will legislate for this via the Planning and Infrastructure Bill, which was
introduced to Parliament on 11 March 2025.

Justification
Legislating for Ofgem to deliver the LDES scheme ensures a clear and authoritative
framework for implementation. Ofgem has the capabilities and tools in place to set it up
quickly and manage it effectively.

Legislating for the use of network charges allows Ofgem to design and establish a
settlement mechanism efficiently. The use of network charges to settle payments has
previously been used successfully in the interconnector cap and floor regime.
Stakeholder engagement also showed a preference for the use of network charges to
settle potential cap and floor payments.

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 Long Duration Electricity Storage: Technical Decision

Further work
Ofgem will set out further details regarding the licence development process, and a
high-level timeline for any necessary licence changes and code modifications, in Q2
2025.

Government will publish an Impact Assessment for the LDES cap and floor scheme in
the spring to support the Planning and Infrastructure Bill. Where Ofgem considers it
appropriate, it will also assess the impact of relevant aspects of the LDES cap and floor
scheme.

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 Long Duration Electricity Storage: Technical Decision

Chapter 2: Allocation round process and

scheme duration
This chapter sets out how the cap and floor scheme process will be managed by Ofgem.
It includes the application process, the twin track approach, the indicative capacity
range for the first application window, and scheme duration.

2.1 Application process

The LDES scheme will use a window process where developers can submit their
applications within a set period of time. For window one, developers will be able to
apply at any time from when the window opens in April 2025, until the closing date (2
months later). Figure 1 below provides further details of the assessment timeline.

Figure 1: Window one assessment timeline

Q2 2026
Q2 2025 Q4 2025 Q1 2026 Updated
Q2 2025: Q1 2029
Eligibility Q3 2025 CBA costs for Q3 2026
Window 1 Consultation
assessment assessment C+F setting Start of Post
opens Eligibility on initial Monitoring
starts starts & final PA Construction
Decision CBA (PA) begins
2 months decision & Review
~ 2 months ~4 months decision
regime
award

This process is designed to ensure a structured and transparent approach to project

assessment and approval. Opening the application window will initiate a multi-stage
process that includes an eligibility assessment, followed by CBA and project
assessments for qualifying projects. More details are provided in the box below.

Overview of LDES cap and floor scheme process

1. The application window for the first round is expected to open in April 2025.
2. Stage 1: Eligibility assessment: From Q2 2025, Ofgem will conduct an eligibility
assessment to confirm which applications meet the eligibility criteria set out in

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 Long Duration Electricity Storage: Technical Decision

Chapter 3. Ofgem will inform developers of the outcome of this assessment in

Q3 2025 (in the eligibility decision).
3. Only projects that pass the eligibility assessment will move to the CBA and
project assessment stage starting in Q4 2025.
4. Stage 2: Project assessment: In Q3 2025, Ofgem will require detailed cost
information from projects to inform the CBA assessment. The submitted costs
will undergo a cost assessment to inform the initial decision and cap and floor
award regime decision in Q2 2026.
5. In Q1 2026, Ofgem expects to consult on the initial decision regarding which
projects will be granted the cap and floor regime.
6. In Q2 2026, where necessary, Ofgem may permit successful projects a limited
opportunity to submit updated cost information for setting the cap and floor
levels. Any updated cost submission will be expected to be within the range of
cost estimates provided for the CBA.
7. Ofgem expects to determine the administratively set cap and floor levels and all
relevant input parameters for all successful window one projects in Q2 2026.
8. The timeline for setting the cap and floor levels based on some form of
competition (as explained in Chapter 5) will be the same, with the exception of
the floor level, which will take place once financial close is achieved, similar to
the interconnector project finance process for the Greenlink and NeuConnect.5,6
9. Following cap and floor regime award, Ofgem will monitor approved projects
against milestones with a focus on how developers are managing risks such as
supply chain issues, costs, delays, and progress. The award will be subject to a
set of conditions contained within an annex of the project assessment decision
document. Please refer page 93 of the Initial Project Assessment decision for
Window 3 interconnectors to see what these conditions might look like.7
10. Stage 3: Post construction review: Once an LDES project has been delivered,
Ofgem will conduct a post-construction review (PCR) to set the final cap and
floor levels to inform our PCR decision.
11. Following the PCR, Ofgem will monitor the cap and floor regime during an LDES
installation’s operations, including compliance of licensed LDES operators with
the cap and floor regime.

5 https://www.ofgem.gov.uk/sites/default/files/2021-
09/Greenlink%20FPA%20decision1633004200399.pdf
6 https://www.ofgem.gov.uk/sites/default/files/2022-

06/Neuconnect%20Final%20Project%20Assessment%20decision1656590974415.pdf
7 https://www.ofgem.gov.uk/sites/default/files/2024-11/Window_3_IPA_Decision.pdf

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 Long Duration Electricity Storage: Technical Decision

Further work
Ofgem plans to provide detailed information about the eligibility assessment framework
when the first application window opens in April 2025 or soon after.

Ofgem will work with NESO on developing a CBA framework, which Ofgem expects to
put to public consultation in May/June 2025. Ofgem expects to make a decision on the
final CBA framework by Q3 2025. In Figure 1 above we provide the list of activities and
indicative timelines.

Other key regime documents such as application guidance, cost assessment guidance,
LDES cap and floor regime licence conditions, framework for debt competition will also
need to be developed. A summary of the activities and timelines is provided in Table 1 of
Chapter 1.

2.2 Twin track approach

As set out in Ofgem’s open letter, Ofgem intends to assess all projects with 2030 and
2033 start dates in parallel but may use a 'twin track' approach if needed: Track 1 for
projects deliverable by 2030 and Track 2 for those by 2033. Ofgem will decide on
prioritisation after the application window closes. By the end of Q2 2025, Ofgem will
know the number of applications and its capacity to handle them through eligibility and
CBA assessment processes. Applicants may be informed of their project's prioritisation
by email or when the eligibility assessment decision is published.

The majority of stakeholders were supportive of our twin track approach. They
considered that it is aligned with Clean Power 2030 requirements while maintaining the
flexibility to allow high quality projects that cannot be commissioned by the end of 2030
to continue development and be ready as soon as possible.

The CBA framework will be developed to consider projects from Track 1 and Track 2
based on their respective delivery dates of 2030 and 2033.

2.3 Capacity range for window one

The indicative capacity range for the first application window is between 2.7 and 7.7 GW
up to 2035. This is based on advice provided by NESO to government, through its
NESO’s Future Energy Scenarios (2024) which indicated a further 2.7 to 7.7 GW on the
system by 2035 would be needed by 2035.8

Ofgem will make decisions about the timing and amount of future capacity required,
using advice from NESO to ensure these decisions are based on system needs.
Government and Ofgem currently consider that Ofgem would open window two as soon

8 https://www.neso.energy/publications/future-energy-scenarios-fes/fes-documents

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 Long Duration Electricity Storage: Technical Decision

as practicable after completing window one, if it is determined that more LDES capacity
is still required.

Further work
Ofgem expects to consider the range of between 2.7 and 7.7 GW again at the project
assessment stage to calibrate our cost benefit analysis process, however, we have
decided not to set firm capacity targets for window one. We will set out further details
on how this will work in our project cost assessment and CBA guidance for window one.

2.4 Cap and floor revenue terms

Government’s and Ofgem’s initial position is that LDES assets will be subject to the cap
and floor regime for 25 years and that all capital costs would be recovered over this
period. Ofgem may consider requests for different regime lengths, but any request for a
shorter duration must be at least 20 years. This is because shorter durations are likely to
result in higher floor levels, increasing potential consumer support in any year, as the
costs would be spread over a shorter period.

Applicants must clarify in their application whether they are seeking a regime duration
that is shorter than or longer than 25 years, or if they need any specific regime
variations, detailing those variations. They must demonstrate that their proposed
regime duration or any specific variation is in the best interests of consumers, primarily
through lower floor levels. Regardless of the requested regime duration, the costs and
benefits of all projects will be assessed over a 25-year period to ensure a level playing
field.

We recognise that fully depreciating long-lived assets over a period shorter than their
expected economic life may result in increased costs to consumers through the floor
over the regime duration. However, we also do not consider it is viable to require
refinancing during the regime duration without significantly complicating the regulatory
regime and exposing us to challenges in undertaking a robust CBA. We welcome
proposals from developers on potential solutions that could lower the floor level and
benefit consumers. Separately we are considering arrangements at the end of the
regime period for assets that are able to operate for longer than 25 years, noting that
consumers in principle should benefit having provided investment support through the
cap and floor regime.

Justification
Setting the regime duration at 25 years allows Ofgem to assess projects efficiently and
support those that provide the most system benefits over that period. It will help
standardise the cost benefit analysis process.

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 Long Duration Electricity Storage: Technical Decision

If the revenue support duration is based on the project's lifespan, projects with shorter
lifespans will have higher floors, while those with longer lifespans will have lower floors,
all else being equal. The duration of revenue support under the cap and floor regime
directly affects how the cap and floor levels are set. A longer regime duration would
lower the floor level, reducing the likelihood of floor payments, but it would extend the
period during which consumers might have to cover the floor. Conversely, a shorter
regime duration with a higher floor level could lead to more frequent floor payments by
consumers.

Ofgem’s and Government’s engagement with investors also suggested that securing
financing for a term longer than 25 years was likely to be difficult. As the cap and floor
levels are fixed (subject to indexation) over the whole revenue term having a revenue
term in excess of 25 years would be likely to introduce a number of complexities to the
model that we consider may harm investablity.

CEPA recommended that projects should be supported for their operational life (up to
refurbishment), up to 25 years. However, the model Government and Ofgem are taking
forward sets the standard regime duration at 25 years, even if project’s operational
asset life is shorter (or the asset is refurbished sooner). A shorter regime duration of no
less than 20 years will only be allowed by exception.

Government and Ofgem have taken this approach so as to ensure fair comparison of all
bids, regardless of the expected lifespan of the assets participating in the cap and floor
scheme.

Further work
The detail regarding revenue terms will be set out in the LDES cap and floor special
licence conditions.

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 Long Duration Electricity Storage: Technical Decision

Chapter 3: Eligibility
This chapter sets out the eligibility criteria for the scheme, following on from the
Government’s consultation response in October 2024, and further responses to
Ofgem’s call for input in December 2024.

3.1 Eligibility criteria

Government and Ofgem will require projects to have the following evidence to be
eligible for the first application window of the cap and floor scheme.

Table 2: Eligibility criteria for window one

Criteria Description

Deliverability Cost estimates equivalent to the

Infrastructure and Projects Authority (IPA)
Ref. Classification “Outline Business Case”
(OBC) at a minimum.9

Evidence of upfront engineering

design/optioneering (FEED) appropriate to
the project's development stage; economic
viability studies; project and business plans.

Grid connection status Evidence that grid connection application

has been submitted.

N.B. Please refer to further details in

Section 6.2.5.

Planning consent Planning consent in place by the start of

project assessment phase (end of Q3 2025).

For projects deliverable by 2030 only, the

ability to demonstrate that they can secure
planning consent in the required delivery
timescales including evidence of initial
engagement and evidence of land rights.

https://assets.publishing.service.gov.uk/media/6050c9528fa8f55d324b0c84/IPA_Cost_Estimating_Gu
idance.pdf

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 Long Duration Electricity Storage: Technical Decision

Criteria Description

Minimum capacity 100MW (stream 1) or 50MW (stream 2) –

further details in Section 3.4 to 3.5;
demonstration of ability to maintain
discharge capacity over the cap and floor
regime duration.

Duration 8 hours continuous output at full power, and

maintain this capacity over the full cap and
floor regime duration (i.e. 25 years).

Technology readiness level (TRL) TRL 9 for stream 1 technologies, TRL 8 for
stream 2 technologies.

In addition to the above, in assessing projects, Ofgem may have regard to best use of
scarce natural resources (such as lochs and rivers) and may engage with relevant local
and environmental authorities to do so.

After evaluating the first application window, Ofgem will receive further advice from
NESO on the additional LDES capacity needs and potential requirements for the second
application window. Ofgem will then review the eligibility criteria and overall approach
for the second application window as soon as practicable. If the current approach is
found to be ineffective, necessary changes will be made to ensure we are able to run an
effective process and deliver the LDES capacity required in a timely manner.

There will be a hard deadline for applications to be finalised and submitted by

applicants for Ofgem’s consideration, after which there will be no automatic right for
applicants to update or expand upon their submitted application. After this deadline,
applicants will still be required to engage fully with any requests for further information
issued to them by Ofgem and to keep Ofgem informed about developments that may
impact deliverability of projects by the applicable deadlines.

3.2 Deliverability, grid connection status and

planning consent
Government and Ofgem will require suitably mature cost estimates; evidence that grid
connection application has been submitted and planning consent to be in place by the
start of project assessment phase. For projects deliverable by 2030 only, the ability to
demonstrate that they can secure planning consent in the required delivery timescales
(e.g. initial application, etc) will be sufficient.

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 Long Duration Electricity Storage: Technical Decision

In addition, Ofgem expects – and will require evidence to demonstrate – that projects
have the correct relevant environmental permits in place; a generation licence where
applicable; and sufficient proof of landownership or lease agreements or binding
options thereof.

Justification
Consultation response: The January 2024 consultation10 set out a minded-to position
for requiring valid planning consent and grid connection offers. Respondents
recognised the importance of these requirements and noted that it would help
eliminate ‘phantom projects’ from applying for the LDES cap and floor scheme.
However, some respondents highlighted that some of these processes are often subject
to delays and could make securing investment more difficult.

Ofgem’s open letter: Stakeholders again acknowledged the importance of requiring

planning consents and gird connection offers in response to Ofgem’s open letter, but
many raised concerns specifically about the feasibility of requiring evidence of full
consent, firm grid offers and completed FEED studies.

NESO is currently in the process of carrying out grid connection reform, which could
result in grid connection offers changing, bringing forward or delaying connection dates.
This makes it difficult to set firm grid connection requirements at this stage taking into
account the ongoing review. As a result of that review process, only evidence that grid
connection application has been submitted will be required.

Stakeholders highlighted that some projects would not require full planning consent by
Q2 2025 to be delivered by 2030. They proposed that flexibility should be given to these
projects. Setting the requirement too restrictively for projects deliverable by 2030 could
result in insufficient LDES being deployed to meet targets. Due to this, projects with a
deliverability date by 2030 will be allowed some flexibility to obtain planning consent
within delivery timeframes.

Stakeholders highlighted that FEED studies entail high costs for projects with no
guarantee for support under the cap and floor regime. These studies can also run up
until close to the start of construction, meaning it is arguably excessive to require this to
be completed upon application to window one of the LDES scheme. However, sufficient
evidence will be required to demonstrate credible costs of projects to review as part of
the assessment of applications. Cost estimates broadly equivalent to “Outline Business
Case” (OBC) will be required. For the eligibility phase, all cost estimates should use the
same 'Level 0' cost breakdown structure as provided in Figure 6 of the Infrastructure and

10https://assets.publishing.service.gov.uk/media/659bde4dd7737c000ef3351a/long-duration-
electricity-storage-policy-framework-consultation.pdf

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 Long Duration Electricity Storage: Technical Decision

Projects Authority cost estimating guidance.11 Additionally, FEED studies appropriate to

the project's development stage should be provided if available.

To be able to export electricity to the grid, cap and floor LDES assets will be required to
have an electricity generation licence in place, where applicable. This is in line with the
interconnector cap and floor regime and has not changed since the January 2024
consultation.

Conclusion: While these are important criteria to determine the deliverability of

projects, especially in order to meet 2030 targets, some flexibility is required to ensure
that sufficient LDES capacity is brought forward by developers. Projects will still be
required to meet these requirements in agreed timeframes to ensure sufficient progress
of delivery of the assets. In Q2 2026, Ofgem expects to set out progress milestones that
developers must meet to ensure timely delivery of projects.

3.3 Minimum duration

Government and Ofgem will require projects to be able to discharge continuously at
full power for at least 8 hours to be eligible for the cap and floor scheme.

Justification
Consultation response and alignment with international evidence: In the January
2024 consultation, Government initially proposed maintaining the minimum duration
for both streams at 6 hours. A slight majority of respondents disagreed with this
proposal, citing, for example, the LCP Delta/Regen analysis which demonstrated greater
system benefits at longer durations, and various international definitions at eight hours
or longer. However, there was a risk that this could leave valuable projects ineligible.
Government therefore committed to consider this further with NESO and Ofgem.

NESO analysis: NESO evaluated the potential impacts of increasing the minimum
duration. From a security of supply and operability point of view, it found that there are
unlikely to be material impacts from increasing the minimum duration limit to 8 hours,
however NESO noted that the 2022 Resource Adequacy Study still found that 6 hour
units are useful to security of supply. Regarding the electrical grid's ability to manage
thermal constraints (the heat produced during electricity transmission), NESO’s
quantitative and qualitive analysis suggested that there is a small benefit to moving to
an 8-hour duration. However, this benefit is highly sensitive to the location of assets,
and overall, the location of assets is more important for addressing constraints. The
NESO advice identified some potential material impacts of excluding projects which are

11

https://assets.publishing.service.gov.uk/media/6050c9528fa8f55d324b0c84/IPA_Cost_Estimating_Gu
idance.pdf

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 Long Duration Electricity Storage: Technical Decision

currently configured as 6 hours units and if projects reconfigure to meet the higher
duration threshold. The exact nature of these impacts will depend on how developers
respond to any increase in the proposed minimum duration threshold. These impacts
could be identified through individual assessments, considering their location, total
capacity and energy and technology type.

Feedback to Ofgem’s open letter: From responses to question five in Ofgem’s open
letter 12 the majority of stakeholders either supported a higher minimum duration of 10
hours or noted that their projects would not be affected by a higher minimum. However,
some stakeholders stated that a 10-hour duration would significantly delay their
projects and risk deliverability for 2030, potentially requiring resubmission of planning
applications, which could take 12-18 months. Some stakeholders indicated they would
discontinue their projects if a 10-hour minimum duration was introduced. Very few such
concerns were expressed in relation to an 8-hour minimum. This response is in line with
Government’s prior understanding of the LDES project pipeline.

For question six,13 many stakeholders cited the LCP Delta analysis, which showed that
longer durations provided greater system benefits, while some argued that shorter
duration technologies (e.g., 6 hours) could offer alternative benefits such as locational
advantages or lower capex requirements.

Conclusion: LDES projects have historically faced investment barriers, unlike short-
duration storage. They are beneficial because they can provide power for longer without
needing to recharge. Setting the threshold too low risks delays to Ofgem’s decision
making due to a surplus of applicants with potentially lower value projects, which could
put at risk the goal of achieving clean power by 2030. Raising the threshold to eight
hours poses no significant issues for the energy system or the achievement of clean
power by 2030. However, raising it above eight hours could delay achieving clean power
by 2030. The confirmed requirement is therefore that eight hours shall be the minimum
duration eligibility requirement for the cap and floor scheme.

3.4 Minimum capacity

The government and Ofgem will require projects applying for stream 1 to have a
minimum capacity of 100 MW, while projects applying for stream 2 must have a
minimum capacity of 50 MW.

12 Question 5: For stream 1 only, if your project would be affected by an increase in the minimum
duration requirement to 10 hours, would you re-scope the project to meet the new requirement or
discontinue it?
13 Question 6: Do you have views on the potential differences in system and consumer benefits

between longer and shorter minimum duration requirements, including how these differences might
affect LDES asset operation?

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 Long Duration Electricity Storage: Technical Decision

Justification
NESO analysis: NESO evaluated the potential impacts of lowering the minimum
capacity below 50 MW. This considered potential impacts to security of supply,
operability, thermal constraints, connections, and generation costs and emissions.
Overall, NESO’s analysis was not able to identify any material system impacts
(advantageous or disadvantageous) from reducing the minimum capacity threshold for
stream 2. NESO’s analysis did not weigh in favour of, or against, reducing this threshold.

Government and Ofgem are unaware of any projects below 50 MW that would make a
significant impact on delivering clean power by 2030. Government’s and Ofgem’s
position, therefore, remains that, at least for window one, setting a 50MW threshold for
stream 2 strikes the right balance between accessibility (for developers of more novel
approaches) and manageability (particularly for Ofgem in terms of assessing
applications in tight timeframes for window one). However, this position may be
reviewed for future windows of the LDES scheme.

Stream 2 technologies, being more established, should be capable of demonstrating

sufficient scale at 100 MW. Government will continue to review whether further
innovation support could help with the pipeline of novel LDES technologies that cannot
meet the eligibility requirements for window one of the LDES scheme.

3.5 Technology Readiness Level (TRL) and

assessment
Government and Ofgem will split projects into two streams based on their TRL.
Developers will be required to self-assess their project’s TRL during the application
process.

Stream 1: Projects applying for stream 1 at TRL 9 will not be required to provide detailed
evidence for their project’s TRL. There is no reason for TRL 8 projects to claim to be TRL
9, given the only difference in assessment is a lower minimum power rating for stream
2. However, Ofgem reserves the right to reject applications from technologies that are
known not to be TRL 9 (i.e. have no evidence of deployment).

TRL 9 is generally defined as a marketable product proven in repeated use, being sold in
market. The technology should actively be in use in its final form and proven through
successful operations. For the purposes of LDES, we would interpret this as meaning
that at least two assets of at least 100MW (i.e. the minimum size for stream 1) are in
working operation, in GB or internationally.

Stream 2: Projects applying for stream 2 will be expected to provide relevant detail on
how their project meets the requirements for TRL 8.

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 Long Duration Electricity Storage: Technical Decision

TRL 8 is generally defined as a technology in which development is complete, final

design and features are set, which may have limited release to clients, and for which all
fulfilment procedures are trialled and documented. The technology is proven to work -
technology design for production or roll-out is completed and qualified through test and
demonstration. For the purposes of LDES, we would interpret this as having an
installed, working example that is technologically identical or near identical to the
proposed development of at least 1MW in size.

While there is no prescribed form of self-assessment, examples of supporting

information for stream 2 applicants at TRL 8 could include, but are not limited to:

• A detailed plan outlining the steps taken to achieve TRL 8, examination of

possible project risks and the methods to manage them.

• Details on the largest installations in MW/MWh with break down between

planned, in construction, and commissioned.

• Validation report / stable performance metrics from operational assets across

various operating conditions / performance at facility (round trip efficiency,
ramp up rates, degradation and scale up quotes).

• Operational and maintenance plans for the full asset lifetime / key original
equipment manufacturer (OEM) and subcontractors’ data sheets.

• Documentation of the project's environmental footprint and measures taken to

minimise negative impacts.

• Detailed financial estimates showing whether the project is financially viable,

including cost-benefit analysis.

Indicative classifications
Projects should be at the minimum required TRL at the point of applying. As previously
highlighted in Government’s January 2024 consultation, it is currently expected that
only PSH and Li-ion batteries will have a TRL of 9 at the start of window one. PSH is
already extensively deployed, and although Li-ion batteries have not strictly been used
in longer duration applications, Government and Ofgem expect such applications to be
sufficiently similar and able to qualify as instances of well-established technology.
However, Government and Ofgem recognise that this may change quickly as
technologies develop, therefore Ofgem will adjust this view if required.

On the basis of our current understanding of the sector, we expect other technologies
such as Liquid Air Electricity Storage (LAES), Compressed Air Electricity Storage (CAES)
and flow batteries to come forward with a TRL of 8 and be assessed in stream 2, but as
these are less developed and less homogeneous, this is not a guarantee of this. We
would expect relevant applicants to make a strong case as to why their projects should

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be considered as TRL 8. This is not a definitive list of technologies, and we welcome

applications related to other technologies if applicants are able to meet the eligibility
criteria for the scheme and can justify their project’s TRL.

Justification
Feedback to Ofgem’s open letter: The majority of respondents to question seven of
Ofgem’s open letter14 agreed with the initial view not to require detailed evidence for
verifying a project’s TRL at level 9 for stream 1. For question eight,15 some stakeholders
argued that TRL should not be used for stream 2 and that projects should be able to
self-select. Similarly to the consultation response, some stakeholders recommended
an alternative approach which included using Commercial Readiness Level (CRL),
manufacturing readiness levels or adoption readiness levels, which have been used by
organisations such as the US Department of Energy.

Following review of consultation responses and further feedback from Ofgem’s open
letter, both Government and Ofgem intend to use a self-verification process for
determining project TRL.

3.6 Additionality
Beyond the previously detailed eligibility criteria on duration and capacity, there will be
no further test for additionality for projects applying in window one. Our position
remains unchanged in that we will not support projects that can already be deployed
without support, including projects that have already taken FID.

Justification
In Government’s October 2024 consultation response, Government stated that the cap
and floor scheme would not support projects that could be delivered via existing market
mechanisms. As no LDES has ever been delivered in GB without significant Government
support, and Government and Ofgem are not aware of any in the pipeline that could
progress without such support, Ofgem will treat all LDES as automatically satisfying this
requirement for the first window. This also simplifies this assessment process. Ofgem
reserves the right to review this position for future windows, for example, if certain
technologies are proven (in GB or internationally) to be deliverable on a purely merchant
basis.

14 Question 7: Do you agree with our initial view to not require detailed evidence for TRL9 projects?
15 Question 8: If you are a potential stream 2 applicant, what information do you think you would need
to provide to demonstrate TRL 8 status?

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3.7 Refurbishments
The cap and floor scheme will be available for significant refurbishments or expansions,
as well as new builds. Projects adding an amount of capacity that meets our other
eligibility criteria (e.g. 100MW over 8 hours) can apply. Only the cost of the new capacity
from the refurbishment or expansion can be supported by the cap and floor scheme.
The CBA will consider the newly formed asset against system and overall benefits as
new builds. It must be clear how to identify the costs and benefits of the newly formed
system, as well as how to separate revenues that will accrue to it.

If a developer can clearly show that any phases of a project that are already under
construction during the application window depend on the award of a cap and floor for
the entire project and cannot operate viably as a stand-alone investment, Ofgem will
consider including these costs in the cap and floor assessment. This approach ensures
that, where projects are able to progress elements of construction before a final
decision on cap and floor awards is made, the timings of the new regulatory regime do
not act as a barrier to deployment.

The project should face similar deployment barriers to new builds; otherwise, it will not
be eligible. For the purposes of cap and floor scheme support, the value of support will
only apply to the investment for the refurbishment. All revenues earned by the
refurbished, upgraded newly formed asset will be considered in cap and floor
calculations.

Justification
Most respondents supported the scheme including refurbishments. However, they
argued that refurbishments should add capacity or provide extra benefits to the system.

We consider that significant refurbishments and expansions can be more cost-effective

than new builds, allowing for the optimisation of existing infrastructure and resources.
The requirement to clearly identify the costs and benefits of the newly formed system
ensures transparency and accountability. We include significant refurbishments or
expansions that face similar deployment barriers to new builds to ensure a level playing
field. Only those refurbishments or expansions with comparable challenges and
complexities, which cannot secure funding through existing methods like the capacity
market, will be eligible.

Further work
Ofgem will need to define what 'extensive' refurbishments mean and how they align with
the 'no additionality' test mentioned above. Extensive refurbishments may include
factors such as substantial investment costs, significant increases in capacity or
efficiency, additional system benefits like improved reliability or reduced emissions,

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and projects facing challenges similar to new builds, such as high costs and long build
times.

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 Long Duration Electricity Storage: Technical Decision

Chapter 4: Project assessment and

decision-making
This chapter sets out Ofgem’s expected approach to Cost Benefit Analysis (CBA) for
projects eligible under the LDES cap and floor scheme. It covers the cost assessment
process, awarding the cap and floor regime, and setting cap and floor levels for
successful projects.

As set out in Chapter 2, Ofgem will use: (i) a two-stage process to select successful
LDES projects in the first application round; and (ii) post construction review to confirm
the cap and floor levels. The table below sets out the decisions taken at each stage of
the assessment.

Table 3: Assessment stage process for window one

Assessment stage Decision

Eligibility assessment Decision taken on which projects pass the eligibility criteria. Only
those projects that pass this stage will proceed to the project
assessment stage (CBA assessment).

Project assessment Decision taken on which projects successfully pass the project
assessment and are awarded a cap and floor regime in principle.
During this stage, preliminary cap and floor levels are also
established for successful projects.

Post construction review In this phase, the final cap and floor levels are determined. Ofgem
conducts a thorough review of the outturn costs and any changes to
the specifications that were set out in the original submission. Based
on this review, Ofgem allows costs that it deems eligible, economic,
and efficient.

This process begins with an eligibility assessment for the cap and floor scheme.
Successful projects will then undergo a more detailed assessment phase. The
assessment phase includes a project cost assessment (PCA) and a cost benefit
analysis (CBA) assessment. There will also be a further limited cost reassessment
process in Q2 2026 to set the final cap and floor levels. This additional cost assessment
is for developers who believe they might have more mature cost estimates at that time
to inform cap and floor setting.

To ensure the process runs smoothly and meets the application window timescales,
Ofgem will need to follow a strict deadline for final application submissions. After this

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deadline, applicants will not have the automatic right to update or expand their
submissions. However, they must still respond to any further information requests from
Ofgem.

Ofgem will assess each application based on its content at the time of submission.
While Ofgem may consider additional information received after the deadline, this will
be at its discretion. Any further analysis that may be required due to the exercise of this
discretion will be proportionate to the time remaining before the scheduled decision
date.

4.1. Cost Benefit Analysis

Ofgem will use a multi-criteria assessment for the CBA. This will include many different
impact categories. It may include both quantitative and qualitative assessments of
socio-economic welfare (SEW), system costs and benefits. Additionally, it may also
include quantitative and qualitative assessments of non-system impacts, such as
social and environmental costs and benefits.

• Socio-economic welfare: We should be able to measure how a project affects

the welfare of three groups: consumers, producers and LDES owners. Metrics
should be calculated on a Net Present Value (NPV) basis using an agreed
discount rate over the 25-year duration of the cap and floor regime.

• Consumer welfare: This refers to the benefits consumers get from the
electricity market when a new LDES project is added. It includes changes in
wholesale market prices that affect the cost of electricity for consumers.
Through cap and floor payments, consumers top up project revenues if
they fall below the floor level or receive refunds if revenues exceed the cap
level, shifting welfare between consumers and developers. It also impacts
capacity market costs, which ensure a reliable electricity supply and are
funded by consumers through their energy bills, transferring welfare from
consumers to producers. Additionally, the Contracts for Difference scheme
supports renewable and low-carbon energy generators by guaranteeing
stable revenues. Consumers either top up revenues when market prices
are low or receive refunds when prices are high, again shifting welfare
between consumers and producers.

• Producer welfare: This refers to the benefits producers (other than LDES)
get from the electricity market. Adding a new LDES project can change
producer welfare in several ways. It can alter wholesale market prices,
which affects the revenues from electricity production minus the costs of
fuel and carbon emissions. Producers benefit if new projects lead to higher
prices and lose out if prices drop.

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 Long Duration Electricity Storage: Technical Decision

• Long Duration Electricity Storage welfare: For LDES owners, socio-

economic welfare (SEW) includes changes in revenue from buying
electricity at low prices and selling it at higher prices. It also includes
changes in revenue from participating in the capacity market, which affects
payments under the cap and floor regime. Additionally, it covers changes in
payments to or from consumers based on the total revenue earned by LDES
projects, which is compared to the cap and floor levels. Revenue
cannibalisation happens when a new project changes electricity prices,
affecting the revenue of other LDES projects. Finally, it includes the costs of
building and operating an LDES asset, based on information from
developers' applications for the cap and floor scheme.

• Other system impacts: System costs and benefits include assessing network
costs for connecting LDES projects to the grid and any wider reinforcement costs
undertaken or avoided. It also covers system operability impacts, which are the
benefits a new LDES project can provide through ancillary services, flexibility,
and security of supply.

• Hard to monetise impacts: This category helps identify potential public

concerns when new infrastructure is built. It includes indicators such as
environmental impacts, landscape impacts, impacts on the local community,
and interactions with other uses of shared resources (e.g., land and water). This
category will also importantly consider the economic growth impacts of
individual projects. Many of these impacts are examined more closely during
planning and environmental permitting stages by other authorities better placed
to do so. Therefore, we intend to draw on the work done by the respective
authorities as part of this assessment.

Justification
In October 2024, Government published the consultation responses in respect of the
approach for assessing LDES applications. Most respondents supported using a similar
CBA method to the one used under the interconnector cap and floor regime for
evaluating LDES benefits. Some emphasised the importance of clearly defining system
benefits at the CBA stage, given the challenges in assessing broader system benefits.
Additionally, many respondents suggested that the assessment should be specifically
tailored to highlight the unique benefits of LDES assets, such as their contributions to
decarbonisation and their impact on local communities.

Similarly to the CBA assessment process for cap and floor regime interconnectors, the
CBA framework for LDES is essential to ensure a comprehensive evaluation of project
impacts. By using a multi-criteria assessment, as has been used for cap and floor
regime for interconnectors, we can consider both quantitative and qualitative aspects

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 Long Duration Electricity Storage: Technical Decision

of socio-economic welfare, system costs, and non-system impacts like social and
environmental effects to inform our decision-making. This approach will help us
capture the full range of benefits and challenges associated with LDES projects,
ensuring a balanced and informed evaluation.

Further work
We will work with NESO to develop a CBA framework for LDES projects that are
successful at the eligibility assessment. This framework will outline the methodology,
establish clear metrics for both quantitative and qualitative assessments, and ensure
consistency in applying the framework for all projects. The initial framework will be put
to public consultation in Q2 2025 for stakeholder feedback. A decision on the final
framework is expected in Q3 2025.

The CBA assessment will start in Q4 2025. Ofgem will publish a 'minded- to' decision in
Q1 2026, and make the final decision on project approval in Q2 of 2026.

4.2. First additional / marginal additional

method
As noted in the call for input letter, Ofgem expects projects to be assessed both
individually and collectively, where possible. This approach will be tailored to the LDES
CBA assessment methodology, noting that the capacity of some projects at 50MW or
100MW may make their individual impact on the system more challenging to assess.

The appraisal approach for LDES projects will likely depend on the number of
applications received, balancing the robust CBA with practical feasibility. Examples of
possible approaches include:

• Detailed first additional (FA) and marginal additional (MA) analysis: each
project's incremental benefit is assessed based on system-wide impacts.

• Grouped or zonal FA/MA analysis: projects are grouped by geography or

technology type to streamline analysis.

• Hybrid evaluation approach: a mix of individual and aggregated assessments

may be used, particularly if projects differ significantly in scale and purpose.

An adaptive approach will ensure that we can balance rigor with efficiency, enabling
LDES deployment that maximises whole-system benefits while maintaining regulatory
practicality.

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 Long Duration Electricity Storage: Technical Decision

Further work
Ofgem will work with NESO to identify an appropriate approach. Ofgem will set out
further details as part of our CBA framework consultation in Q2 2025.

4.3. Approach to cost assessment

Ofgem will conduct a thorough initial cost assessment to ensure costs are economic
and efficient, setting preliminary cap and floor levels in the Project Assessment
decision in Q2 2026. There will be two key stages for submitting costs: 1) the eligibility
assessment in Q2 2025, and 2) the CBA assessment in Q4 2025, with a limited update
allowed in Q2 2026 for cap and floor setting.

For the eligibility assessment stage, developers are expected to submit cost estimates
that are broadly equivalent to an “Outline Business Case” at the time of application.16
This should include a clear link to the overall business case, which forms the basis for
the decision to develop their LDES project, detailing how developers expect to recover
their investment and providing a view on revenue. Our assessment of cost maturity for
the purposes of eligibility will be based on evidence of the process undertaken to reach
the expected level of cost maturity, not on the detail of the cost estimates themselves.

For the CBA assessment stage, successful projects will need to submit detailed costs in
a cost assessment template provided by Ofgem. This CBA stage estimate may include
three scenarios: the reasonably optimistic case, the most likely case, and the
reasonably pessimistic case. Additionally, projects should provide a risk register, an
assumption register for the risks, and plans to mitigate and keep costs within the range.

In Q2 2026, there may be a limited opportunity for successful projects to provide

updated costs for setting cap and floor levels. However, costs submitted at this stage
must fall within the range provided at the CBA stage, as the detailed cost assessment
will be well advanced by that point. This approach ensures that the cap and floor levels
set at the regime award in Q2 2026 are based on the best available costs, whether
based on signed contracts or estimates, helping to manage risks for both consumers
and developers.

Justification
Government and Ofgem are using the cap and floor regime interconnector assessment
process as a model, which has three stages: Initial Project Assessment (IPA), Final
Project Assessment (FPA), and Post Construction Review (PCR). However, we are

16Please refer to the Infrastructure and Ports Authority Cost Estimating Guidance provided in the
Related Publication section of this document.

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 Long Duration Electricity Storage: Technical Decision

adjusting this process for LDES to allow us to reach decisions more quickly on cap and
floor levels given the aim of moving at pace to help with their finance raise process.

The initial and final cost assessments which Ofgem will follow for LDES are very
important to ensure the cap and floor levels are set correctly and fairly. By doing a
thorough initial cost assessment at the project assessment stage, we can ensure the
preliminary cap and floor levels we set at that stage reflect reasonable economic and
efficient costs. This helps create a realistic cost basis for the project. The final cost
assessment at the PCR will allow us to adjust the cap and floor levels based on the
actual economic and efficient costs. While we recognise that the final cost assessment
at PCR may create some uncertainty for developers about final cap and floor levels, the
process Ofgem will follow will be similar to the interconnector cap and floor regime
process which has worked well for both balance sheet and project finance projects.

Further work
Ofgem will publish cost assessment guidance providing more details and a cost
submission template for the CBA stage. The CBA and project cost assessment will begin
in Q4 2025 to inform Ofgem's "minded to" decision, which will be published in Q1 2026.
Any updated cost submissions in Q2 2026 for cap and floor setting at project approval
will need to be assessed ahead of the final decision.

Additionally, Ofgem will need to clarify how developers should explain their plans to
manage and mitigate construction, financial, and operational risks. Any incentives or
penalties to keep costs economic and efficient should also be outlined. Ofgem will also
need to specify the regular reporting requirements and provide Regulatory Instructions
and Guidance (RIG) templates and guidance.

Please see Chapter 5.3 for further details regarding the costs eligible for inclusion in the
cap and floor levels.

4.4 Post Construction Review

The PCR is the last stage of our cap and floor scheme assessment framework. The
primary aim is to set the final cap and floor levels for LDES. In order to confirm the cap
and floor levels at the PCR stage, we will revisit aspects of our cost assessment that
were not fixed at the project cost assessment stage and assess the efficiency of certain
costs incurred during construction. We will conduct a review of the final capital costs
(capex) and consider the efficiency of the operational costs (opex). We will also re-
examine any information or aspects of the initial submission that have changed
significantly.

At the PCR stage, Ofgem will adjust the preliminary cap and floor levels for costs that we
deem to be eligible and efficient and will update the preliminary cap and floor levels and

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set the final cap and floor values for the project. These final cap and floor levels then
remain fixed for the duration of the cap and floor regime, subject to a limited number of
reopeners, similar to those used for the interconnectors cap and floor regime opex
reopener.

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 Long Duration Electricity Storage: Technical Decision

Chapter 5: Approach to cap and floor levels

and financial parameters
The section explains how Ofgem plans to set the cap and the floor for LDES projects. By
setting clear policy, defining what is included, and explaining the process, we hope to
reduce risks related to uncertainty and give investors and lenders the clarity they need
to raise funds and complete projects to meet system needs.

Government and Ofgem have reviewed the consultation responses and the stakeholder
feedback from the call for input to shape the decisions outlined in this section. Where
there are still residual details to be decided, Ofgem will ask for more feedback from
stakeholders between the publication of this document and Q2 2026, when cap and
floor regime special licence conditions are expected to be finalised. This process will
involve further analysis by Ofgem, workshops, and public consultations on financial
metrics and special licence conditions to gather input from stakeholders. By Q2 2026,
Ofgem expects to have finalised any remaining details and set cap and floor levels for
successful window one projects. Key timelines are provided in Chapter 2.

Government commissioned CEPA to advise it on the overall approach to setting the cap
and floor levels. In general, CEPA’s conclusions on the approach needed to bring
forward the required investment without unnecessary risk to consumers support the
positions reached in this document. In some cases, Government and Ofgem either take
a different approach or have chosen to delay their final decision until Ofgem completes
additional consultations on unresolved issues. Government has published CEPA’s
report in the interests of transparency, and where our design deviates from their
proposals, we make clear why.

5.1 Cost recovery at the cap and the floor

LDES developers will be able to recover all economic and efficient capital and
operational costs as long as they comply with their licence obligations and are not
penalised by any incentive mechanisms. The LDES scheme sets a maximum (cap) and a
minimum (floor) revenue for projects. These are based on different allowed rates of
return set for the cap and the floor. If a project earns more than the cap, a larger portion
of the extra revenue is returned to consumers. If it earns less than the floor, consumers
cover all the shortfall, provided the project meets its minimum availability threshold.

This cap and floor mechanism ensures that developers of LDES projects can recover
their investment while protecting consumers from high energy costs in relation to
assets they have helped to deliver. The range between the cap and the floor is important
to incentivise projects to operate efficiently, in particular through how they earn market
revenue. This is a core design principle of the LDES scheme, and one of the reasons that

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Government has decided to use a cap and floor model and not another route like a
Contract for Difference (CfD) or a Regulated Asset Base (RAB) model.

• The cap allows recovery of invested capital (debt and equity) and provides a
fair return on investment if the assets are operating very well in the market.
The cap is flexible (a ‘soft’ cap), meaning that if revenues exceed the cap, the
extra revenue is shared between the licensee and the consumer. The exact
details of how this sharing will work will be determined after further
consultation.

• The floor allows recovery of invested capital (debt and equity) and provides a
return similar to the cost of debt for both equity and debt investors.
Developers will be given a choice between allowing Ofgem to set the floor
administratively (i.e. Ofgem makes a determination), or to undertake a
competitive debt-raising process under an optional ‘project finance’ variation.
The floor set through this approach will be designed to meet debt obligations.

Justification
In its letter of December 2024, Ofgem sought stakeholder input on a related question
12,17 regarding the calibration of the cap and floor levels, 76% of respondents opposed
setting the floor at 80% of eligible project costs instead of full eligible cost.

In this decision, Government and Ofgem are replicating the interconnector approach of
allowing full cost recovery plus a return on all allowable capital costs at a notional cost
of debt level set by Ofgem. We are also keeping the project finance variation Ofgem
currently uses for interconnectors, which allows lenders to compete to fund the project
in a process led by the project developer. This variation meets the needs of project
finance lenders and benefits from the competitive pressure of lenders bidding to fund
the floor, thereby expanding financing options and potentially improving value for
money for consumers. Both models are quickly deployable, well understood by the
market, and developers value the flexibility due to their varied financing structures.

To best contribute to clean power by 2030, Government and Ofgem have decided to
build on the existing electricity interconnector cap and floor regime while adapting it for
LDES specific characteristics. This approach leverages a proven model that has
successfully facilitated investment and is familiar to the market. By adapting this
established framework, we can efficiently implement the LDES cap and floor scheme
with components already in place.

17 What are you views on the calibration of the cap and floor levels? Do you consider setting the floor
at, for example, 80% of projects’ costs is a viable model for LDES assets, potentially alongside a
higher cap?

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 Long Duration Electricity Storage: Technical Decision

By basing the LDES approach on the interconnector model, we minimise the risks
associated with developing a new scheme. In their report CEPA have recommended
that for projects with a lifespan beyond 25 years, their capex is not fully recovered
through the length of the cap and floor regime. However, there is a risk that this
approach would not be attractive to investors, especially for projects with long -
lifespans that go beyond 25 years. This could create uncertainty for projects and risk the
deliverability of sufficient LDES for 2030 and beyond. We are therefore not
implementing this recommendation. Instead, Ofgem will review arrangements after the
regime ends to ensure that projects that received floor payments during the regime
period use some of their post-regime revenues to offset costs to consumers on an NPV-
neutral basis.

Further work
Ofgem expects to conduct a public consultation from Q2 to Q3 2025 to determine the
administrative cap and floor rates of return, as well as the competitive cap rate, its
incentivisation process, and whether to use an administrative cap or a competitive cap.
Ofgem will take into account any relevant evidence from stakeholders as part of this
exercise to ensure that the final cap and floor levels are investable and in consumers’
interest. The floor rate for the project finance process will be set according to the debt
raise timelines for each project. Ofgem will work with licensees to create a framework
for raising debt financing that aligns with each licensee's process.

Similarly to the interconnectors' cap and floor model, we expect this framework to
include key limits for gearing, debt repayment period, and debt service coverage ratio to
ensure the financial stability of the licensee. Ofgem will also progress work looking at
other measures to safeguard broader value for money, noting specifically the
challenges inherent in setting an efficient cap and floor over the duration of the
anticipated cap and floor period.

Ofgem will provide details on how the cost components listed in Section 5.3 of this
document will be combined to form the value of a project’s regulated asset (Regulated
Asset Value) for either an administrative process or a project finance process.

5.2 Approach to setting cap and floor levels

Cap: The investment rate of return at the cap can be set either administratively or
through competition. Ofgem expects to set the administrative cap for all successful
projects at the time of cap and floor regime awards in Q2 2026.

For the competition process, Ofgem may provide a range for the investment rate of
return at the cap (such as cost of equity) in the LDES window one application guidance.
This range may, for example, be based on the cost of equity of stand-alone electricity
generators and regulated network companies. Developers will then be required to

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 Long Duration Electricity Storage: Technical Decision

propose a target cost of equity (at the cap) they expect to earn on their investment in the
LDES asset and justify why this target is appropriate. Developers who consider the
Ofgem range inappropriate can suggest a cost of equity outside this range, but they
must provide strong justification for why they should earn more than fully merchant
projects. Developers who submit a competitive target cost of equity may be allowed to
keep a larger share of extra revenue above the cap or be awarded a higher target cost of
equity compared to other successful projects, encouraging competition and potentially
improving value for money for consumers.

Floor: The investment rate of return at the floor can be set either administratively or
through competition by commercial lenders to provide debt finance to the project.

Under the administrative approach, we currently expect to follow the interconnector

model and use the relevant cost of debt index to set the floor. The specific details of
how this will be calculated are subject to further analysis and stakeholder engagement.
Ofgem expects to set the administrative floor for all successful projects at the time
of cap and floor regime awards in Q2 2026.

Under the project finance variant, also known as the competitive approach, commercial
lenders would compete to fund the floor in a debt finance raise process led by the
developer, with Ofgem overseeing the process. This approach is similar to the project
finance process used for Greenlink and NeuConnect interconnectors. The process
would be based on the framework for Ofgem’s oversight of Debt Funding Competition
(DFC), which was used for both interconnectors. This is not a published document. The
framework will be adapted to suit each LDES developer and their preferred process,
ensuring it remains economic and efficient. A summary of a draft document adapted for
LDES is provided in Appendix 1.
Box 2. The competitive approach

Floor: In the competitive option for the floor, developers using non-recourse (or limited
recourse) project finance will have commercial lenders compete to fund the floor through a
debt finance raise process overseen by Ofgem. For these projects, eligible project costs can
be fixed when the cap and floor regime is awarded in Q2 2026 or based on the project
finance debt raise timeline. These costs will be converted into cap and floor levels based on
financial parameters achieved at financial close. The final project costs at financial close must
remain within the range estimated during the CBA process.

For LDES assets delivered under the project finance route, the floor covers only debt
obligations, like the interconnectors' cap and floor variation model. If this project finance-
linked competitively set floor is higher than the administratively set floor that allows full
recovery of invested capital, the licensee must repay consumers the difference before any
equity distribution can be made. This ensures the floor level is broadly fair to both balance sheet
and project finance licensees.

Cap: In the competitive option for the cap, developers will propose a target cap rate of return
when submitting their application for eligibility assessment in Q2 2025. Ofgem will then select

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one cap rate of return from the projects that passed the CBA stage to apply to all projects
awarded a cap and floor regime in Q2 2026, with the most competitive developer receiving a
bonus. It will be possible to present the outcome of this competitive cap-setting process for
consultation alongside the administratively set cap and floor return rates. A decision on whether
to use the administratively set cap or competitively set cap will be made in Q3 2025.

To keep things fair, and similar to the interconnectors project finance process, developers who
achieve a higher floor following the competitive process must first use any revenues not being
used for direct debt repayment to cover any difference between the two floors before making
equity distributions. This means that equity investors will not receive any returns until
consumers are fully paid back.

Developers who achieve a lower floor may receive a bonus either from the sharing ratio above
the cap or an uplift to the cap itself.

Justification
In Ofgem’s letter of December 18, 2024, we sought stakeholder input on a related
question 13,18 about exploring competitive mechanisms. Of the respondents, 50%
agreed that competitive mechanisms should be explored, 23% disagreed, and 27%
believed competition should be explored but only for later application rounds.
Stakeholders who disagreed argued that there are significant differences in risk
between project finance interconnectors and LDES, and that further uncertainty in a
novel regulatory scheme based on competition would increase the cost of capital.

We looked at two main options for setting the LDES cap and floor levels: one set
administratively by Ofgem, and one set through competition. Under the competitive
option, developers would propose a target cap rate for Ofgem to select one to apply to
all projects, with the most competitive developer receiving a bonus. Commercial
lenders would compete to fund the floor in a debt finance raise process led by the
developer under Ofgem’s oversight. Both options will be set once and remain fixed
throughout the regime period, except for any specific reopeners established at the time
of the licence award. This approach suits LDES assets, which are long-term
investments that raise financing once for the specific purpose of delivering the asset.

The interconnectors project finance process is already known to investors and has
proven successful, so any uncertainty in replicating that for LDES should be limited. In
their report, CEPA have set out that the floor should be set at the notional cost of debt.
For project financed solutions, they have recommended a hybrid approach that
includes an alternative floor that covers debt obligations. This is a similar approach as
outlined above. For the cap, we might use an administrative process similar to the one
used for interconnectors and as recommended by CEPA if further consultation with

18Question 13: Do you support exploring methods to lower consumer costs, including more use of
competitive mechanisms when setting cap and floor rates?

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 Long Duration Electricity Storage: Technical Decision

stakeholders shows that using competition to set the cap creates more risk than
benefits for consumers.

To be clear, developers have two options for setting the floor: the administrative
approach and the competitive approach. Under the administrative approach, the floor
is set at the cost of debt, allowing full recovery of eligible costs (both equity and debt),
with the baseline for equity returns generally being the cost of debt. In contrast, the
competitive approach (non-recourse or limited recourse project finance) sets the floor
to cover debt obligations only, with an administratively set backstop floor to protect
consumers. If the project finance floor exceeds the administratively set floor, licensees
must repay the difference before making any equity distributions.

Further work
Ofgem will continue exploring the potential role of competition in setting the cap,
pending further policy work and building on our initial proposals set out above. By Q3
2025, Ofgem expects to create a cap and floor financial model (CFFM) and a financial
handbook for LDES. In Q2 to Q3 2025, Ofgem will decide, via a public consultation,
whether to use an administrative cap or a competitive cap, and how the proposed ‘soft’
cap would work alongside either a competitive or administrative process.

Ofgem will look carefully at the arrangements for the period once the cap and floor
regime for each project has concluded. Due to the uncertain nature of LDES revenue
streams, Ofgem will carefully consider whether mechanisms are needed to protect
consumers and investors in efficiently operated LDES assets from significant
mismatches between the required cost of capital and actual returns over the asset's
lifetime. We do not expect long-life assets will operate solely on a merchant basis after
the cap and floor period ends. Instead, we will consider arrangements that ensure
fairness for consumers, who may be providing support at the floor level and
remunerating investors for their capital investment over time horizons considerably
shorter than the economic life of LDES assets.

5.3 Costs eligible for inclusion in the cap and

the floor
Similarly to the cap and floor regime for interconnectors, the following costs form the
building blocks of LDES cap and floor:

• Capex (capital expenditure):

o Development expenditure (devex): Costs related to the planning and

development phase of a project (including land acquisition, permitting
and licencing, etc).

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 Long Duration Electricity Storage: Technical Decision

o Construction capital expenditure: Efficient and economic costs of actual

construction of the project.

o Replacement expenditure (repex): Estimated costs for replacing or

upgrading existing assets.

o Spares: Estimated cost of parts and equipment that are kept on hand to
ensure the reliable operation and maintenance of the LDES.

o Interest During Construction (IDC): Interest costs incurred on loans taken

to finance the construction phase.

• Controllable opex (operating expenditure):

o Operating costs: Day-to-day expenses required for the operation and

maintenance of the project.

o Corporation tax paid on the income generated by the project.

• Decommissioning cost: Some expenses related to safely closing and

dismantling the project at the end of its life will be covered. This will be carefully
considered for projects that may or may not continue operating beyond the 25-
year scheme duration.

• Uncontrollable opex / Pass-through cost:

o Similar to the interconnector regime, these costs will be tightly defined

and not subject to cap or floor limits. They include necessary expenses to
run the asset, such as GB licence fees and GB property fees, where
applicable.

Justification
We are using a cost structure similar to the one adopted for the interconnector cap and
floor regime. Costs are divided into capital expenses (capex) and operational expenses
(opex). Capex includes spares, repex and decommissioning cost. This helps developers
know what will be recovered through depreciation and makes it clearer and more
predictable for developers. By allowing for a limited set of uncontrollable costs, we
reduce the risk for developers related to costs beyond their control. Development costs
(devex), capex, repex, and spares are all counted as capex for depreciation. These,
along with opex and decommissioning costs, are set and included in the cap and floor
levels.

Further work
Ofgem will do more work to make sure all justifiable costs relevant to LDES are included
and clearly defined and recoverable. We recognise that different technologies have

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different cost profiles and technical risk. Further work will be undertaken to take
account of the most effective way to capture this in the cost assessment process. For
example, Ofgem will also need to consider whether full recovery of decommissioning
costs is sensible within the regime duration, especially for projects that will continue
operating beyond the regime duration. Ofgem will continue to engage with stakeholders
to get feedback and improve this initial set of costs. This will help make sure the cost
building blocks work for LDES.

The timeline for the work will match our general work plan to determine the remaining
key scheme details this spring. Detailed guidelines for submitting, reporting, and
monitoring costs will be published later, before the cost submission for the CBA
process starts in Q3 2025.

5.4 Cost assessment reopeners during the

operational phase
Cost reopeners during the operational phase are expected to follow the interconnector
cap and floor regime approach, potentially allowing only limited reopeners for
decommissioning costs and opex over the regime duration. In the interconnector
regime, opex reopeners can be triggered by either Ofgem or the licensee no earlier than
10 years from the regime start date, with any related decision applying from its
publication date to the remaining duration of the regime. Decommissioning reopeners
can be triggered if there is a change in law requiring a more (or less) stringent
decommissioning process, resulting in changes to expected costs.

Justification
Reopeners are an important part of our regulatory toolkit to address areas of
uncertainty. Limiting reopeners to specific areas like decommissioning costs and opex
helps to balance flexibility and financial stability. This approach has worked well for
interconnectors. Allowing limited reopeners helps developers manage the risk of
estimating opex over long periods, like 25 years.

Further work
Ofgem will continue to work with stakeholders to develop a cost reopener process that
works for LDES. The timeline for this work is from Q2 to Q3 2025.

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 Long Duration Electricity Storage: Technical Decision

5.5 Pre-operational force majeure events and

operational force majeure events
Like the interconnector cap and floor process, Government and Ofgem plan to consider
a pre-operational force majeure mechanism for LDES projects to help developers
manage risk of project delays. This mechanism will allow:

• Track 1 projects, which are scheduled for delivery by 2030, to request an

extension of their deadline to 2032 if they encounter delays due to force majeure
events during the pre-operational period. If this request is approved, there will be
no penalties imposed on investors.

• Track 2 projects, scheduled for delivery by 2033, to be delivered by 2035 (the

backstop date for Track 2). If the request is approved, there will be no penalties
imposed on investors.

Delays beyond these backstop dates may not be covered by the force majeure
mechanism. This approach ensures that only projects highly confident of meeting the
2030 and 2033 delivery dates will be considered in the first application round.

Similarly, operational force majeure as used in the interconnector cap and floor regime
may be adapted for LDES projects. Under this regime, events covered during the
operational period include:

• Unforeseen circumstances at the time of licence grant that result in increased or

decreased costs or expenses during the operational period, exceeding a
percentage of the floor or cap level.

• Circumstances that cause the actual availability of LDES to fall below the
minimum availability target set for each LDES in any relevant year.

Relevant events will be clearly defined and set out in the LDES licence conditions.
Claims will be thoroughly assessed to confirm their validity.

Justification
Introducing mechanisms to take account of force majeure events is important to reduce
financial risks from unexpected and uncontrollable events, like natural disasters. Ofgem
will clearly define and outline the process in the LDES licence conditions to create a
transparent and predictable process for developers. Similar to the interconnector
regime, this mechanism aims to compensate licensees for revenue losses beyond their
control, boosting investor confidence and supporting the long-term success of LDES
projects.

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 Long Duration Electricity Storage: Technical Decision

Further work
Ofgem will consult with stakeholders on force majeure type events for the LDES
regime.19 This consultation will cover the relevant definitions and the process, noting the
importance of a robust process for assessing and verifying licensee claims. The timeline
for this work is from Q3 2025 to Q2 2026.

5.6 Revenue assessment against the cap and

floor levels
The approach for LDES will follow the interconnector cap and floor regime process but
with four key changes:

• Revenue assessment will be over the full length of the cap and floor regime on a
Net Present Value (NPV) neutral basis.

• Excess revenues over the cap in any year must be paid back to consumers the
following year in line with the timeline for the relevant network charging process.

• The same assessment period will apply for both project finance and balance
sheet financed LDES assets.

• Post regime arrangements will be carefully considered for each project.

Revenue assessments against cap and floor levels will happen every year or five years
as preferred by licensees. The assessment will look at the total revenue for the year or
five-year period up to that point. Initial payments are adjusted over time, with the final
adjustment made at the end of the regime period. This method treats the assessment
as if it covers the full regime length while allowing for interim payments to help
licensees manage cash flow and reduce credit risk.

In all cases, licensees will be required to pay back any excess revenues over the cap in
one year immediately (i.e., at the earliest available window or the following year). Any
initial payment will count towards the five-year adjustments and the final adjustment to
be made at the end of the regime. Arrangements will be considered carefully when the

19 For interconnectors regulated under the cap and floor regime, the definition of Force Majeure
applicable to the operational period is set out in special licence condition of the interconnector
licence and is available under “Associated documents” in this publication:
https://www.ofgem.gov.uk/sites/default/files/2024-
12/Interconnector_Cap_and_Floor_Regime_Handbook_Updated_Version.pdf or accessed under the
following link: https://www.ofgem.gov.uk/sites/default/files/2023-
12/Schedule%202%20-%20National%20Grid%20Viking%20Link%20Limited%20%E2%80%93%20S
pecial%20Conditions.pdf.
The definition of Force Majure applicable to the pre-operational period is contained in standard
licence conditions of the interconnector licence, which can be accessed under the following link:
https://www.ofgem.gov.uk/sites/default/files/2023-
03/Electricity%20Interconnector%20Standard%20Licence%20Conditions%20-%20Current.pdf

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cap and floor period ends to ensure that consumer interest is protected for assets that
will continue to operate after the regime ends.

Justification
The reason for this change from the interconnector cap and floor regime is that
stakeholders have argued there is high uncertainty around expected LDES revenue
compared to interconnectors’ revenue.

Requiring licensees to pay back any excess revenues over the cap immediately ensures
that consumers benefit directly and promptly from any overperformance. Applying the
same assessment period for both project finance and balance sheet projects simplifies
the regulatory framework, ensures consistency across different financing structures,
and maintains a level playing field. Reviewing arrangements for the period after the
regime ends will ensure that developers that received floor payments during the regime
period do not make excessive profits afterwards, as this would be unfair to consumers.

CEPA’s advice to Government is that revenues should be assessed over the full length of
the cap and floor regime. This aligns with the approach taken forward for the LDES cap
and floor scheme.

Further work
Ofgem will develop a clear methodology for revenue assessments and create guidelines
for submitting, reporting, and monitoring revenues ahead of the 2030 delivery date.
Engaging with stakeholders will be essential to refine the interconnector assessment
process for LDES. Ofgem will ensure that any approach taken forward does not hinder
developers' ability to raise needed financing.

5.7 Financial resilience

Government and Ofgem plan to require cap and floor LDES project licensees to show
they are financially strong. This means they should have enough money saved, good
financial management, and access to funds for operating the asset and handling
unexpected costs. This will help make sure projects can handle financial pressures and
keep providing reliable service.

Justification
Making sure LDES project licensees are financially strong is important for the stability
and reliability of the energy system. By requiring licensees to be in good financial health,
we can prevent service disruptions due to financial difficulties. This is especially
important given the uncertainty around LDES revenue, as highlighted by stakeholders. It
is important to ensure licensees are managing their finances well and planning ahead.

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 Long Duration Electricity Storage: Technical Decision

Further work
Ofgem will need to set out the process for checking the financial strength of LDES
licensees. This includes defining the specific financial measures and levels they must
meet. Talking to stakeholders will be important to get feedback and make sure the rules
are practical and achievable. Ofgem will also create guidelines for monitoring and
reporting financial health to ensure transparency and compliance.

Government and Ofgem recognise that some of our initial decisions in this document
may need further refinement to work well for LDES. We understand that as we work with
stakeholders to develop the regime, specific considerations for LDES that were not
relevant to the interconnectors may come up. Following the publication of this
document, Ofgem will continue to engage with all stakeholders, including consumer
groups, commercial lenders, institutional investors, sovereign wealth funds, and
international financial institutions. This ongoing engagement will ensure that the LDES
scheme works for consumers while remaining an attractive investment framework for
investors.

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Chapter 6: Operational considerations

This chapter covers risks and potential incentives for efficient project delivery and
operation. Government’s consultation response in October 2024 and Ofgem's call for
input in December 2024 noted the potential for LDES operators not to use their asset in
the most efficient and economic way to help meet the system needs. This section looks
at these risks, focusing on the potential for gaming of the gross margin, market
activities, and measures or incentives to manage these risks.

6.1 LDES gross margin reporting

An adaptable approach will be adopted for LDES, allowing the licensee operator
flexibility in their trading methods. Operators can choose how to trade power and, for
example, use a third-party optimiser or the ‘in-house’ trading arm of a related party.
There will be a clear set of licence conduct and reporting requirements applicable to all
operators.

Justification
In the response to the December 2024 Ofgem letter the majority of responders to
question 1420 thought that in-house trading should be permitted. Government and
Ofgem also received substantial stakeholder feedback that the existing assimilated
REMIT Regulation and related enforcement provisions are substantial enough to prevent
the cap and floor regime from being used to manipulate electricity markets.

Ofgem’s and Government’s view is that instead of a prescriptive mandate on power

trading requirements, a clear set of rules around conduct will give operators flexibility
while ensuring there are sufficient controls to prevent gaming of the gross margin. The
approach balances operational freedom with necessary regulation, ensuring efficient
and economic use of assets to meet system needs without dictating the exact trading
methods or routes to be used.

Further work
To make sure the choice-based approach works well, Ofgem will need to set out details
so licensees know what is expected. The special licence conditions for LDES cap and
floor assets will set out the additional reporting requirements and internal trading and
ringfencing restrictions needed to manage gross margin and market risks.

20Question 14: Do the potential benefits of allowing LDES assets to be managed by in-house trading
teams outweigh the potential risks? How can we effectively mitigate any potential risks of gaming,
such as manipulating trade bookings or market manipulation?

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Previous work by Government has also identified a range of low regret mitigation
measures which could be introduced alongside the dual pathway route. These
measures include:

• profit sharing above the cap, discussed below;

• sub-meters for co-located assets;

• mandatory participation in the capacity market;

• limits on LDES structured transactions.

Ofgem will look into the extent to which these extra measures are needed alongside the
relevant provisions of the REMIT Regulation21 and decide what other steps should be
taken. We will set out further details as part of our licence workstream, from Q2 2025.

6.2 Incentives
We expect to explore further whether additional incentive mechanisms are necessary
and desirable for LDES assets. We note that in general the cap and floor regime
implicitly incentivises pro-consumer outcomes in the following four areas:

• Timely delivery through ‘payment on completion’- revenues only start when

the project is complete;

• Efficient asset operation, trading and market operations – as the floor only
provides a limited return on equity to developers, the incentive is strongly to
outperform through efficient ongoing market operations allowing developers
to earn a higher return up to the cap;

• Cost efficiency – Ofgem will assess costs both ex ante and ex post to ensure
these are economic and efficient; and

• Financial efficiency – through both administrative and project finance routes

we consider there are strong incentives on developers to raise debt finance
efficiently.

We will consider further whether the above incentives are sufficient to ensure LDES
projects deliver the required system and consumers benefits. We note that incentives
may be reputational as well as financial, and that licence requirements can also help to
reinforce expected behaviours.

21 Regulation (EU) No 1227/2011 of the European Parliament and of the Council, as assimilated
following the UK exit from the EU, available here:
https://www.legislation.gov.uk/eur/2011/1227/contents

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6.2.1 Timely delivery

We expect each developer to specify a delivery date that they can achieve. There are
strong inherent incentives on timely delivery. Meeting delivery dates ensures that the
project's benefits are realised as planned and helps maintain overall cost efficiency.

As set out in Chapter 5 above, we expect to give applicants a two-year period (backstop
date) to deliver their projects, if they can prove that the delays are beyond the
developers’ reasonable control as defined in the pre-operational force majeure
provisions. If a project is delayed by more than two years, we will take further action,
within our remit, as appropriate. This could involve changes to aspects of the licence
and, in extremis, we may look to reassess the needs case of the relevant project. This
could result in us withdrawing regulatory support if we consider that a project no longer
delivers sufficient benefits.

We also want to incentivise projects to be delivered on time or ahead of schedule if

possible. We welcome further input from stakeholders on potential positive delivery
incentives for LDES projects. These developer-proposed incentives may only be
considered if they can be implemented consistently for all LDES projects. The
incentives must provide sufficient motivation and deliver better outcomes for
consumers.

Justification
The Clean Power 2030 and 2035 capacity requirements mean we cannot afford delays
in delivering projects. Therefore, Government and Ofgem need a strong incentive
package to make sure that the developers submit within their applications realistic
delivery schedules and manage their projects well to avoid delays they can control.
Large infrastructure projects usually have performance incentives to ensure they are
delivered on time.

Ofgem has used backstop date and delivery incentives under its cap and floor
interconnector regime. Other regulators, like the CAA, Ofwat, and Ofgem’s in its
regulation of onshore transmission networks, also use delivery incentives for large
projects. These incentives usually reward early and/or on-time delivery and penalise
late delivery.

Further work
Ofgem will work on improving the incentives after consulting further with stakeholders.
This will happen at the same time as the licence drafting, from Q2 2025 until project
approval in Q2 2026.

In the box below we set out details on how the backstop and delivery incentives
operate.

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Backstop date and delivery incentives

In this section we set out the timing of the backstop date and delivery incentives for the:
(i) 2030 connection date; and (ii) 2033 connection date.

For 2030 Connection dates:

• 2026: Award cap and floor regime to projects that pass the project assessment.
• 2030: Projects delivered by this date may be eligible for an early delivery reward,
starting the cap and floor regime early.
• 2032: Backstop date. Developers have a two-year grace period (2030-2032) where
penalties don’t apply if delays are due to force majeure.
• After 2032: Projects delivered after this backstop date will be subject to a penalty.

For 2033 Connection dates:

• 2026: Award cap and floor regime to projects that pass the project assessment.
• 2033: Projects delivered by this date may be eligible for an early delivery reward,
starting the cap and floor regime early.
• 2035: Backstop date. Developers have a two-year grace period (2033-2035) where
penalties don’t apply if delays are due to force majeure.
• After 2035: Projects delivered after this backstop date will be subject to a penalty.

6.2.2 Incentives below the floor

We expect that each LDES licensee must meet a minimum availability threshold to stay
eligible for the floor, similar to the interconnectors' cap and floor regime. This means the
floor is a ‘soft floor’. LDES must meet the minimum availability requirements each year
to keep the full floor. If the requirement is not met in any year, the floor may be removed
for that year. If the requirement is met, the floor remains in place. For LDES, 'availability'
may include both charging and discharging capabilities.

Justification
Setting a minimum availability threshold makes sure that LDES projects provide reliable
and consistent service for the floor support they are getting. This is similar to the
interconnectors' cap and floor regime, which has worked well to keep high performance
standards.

In their report, CEPA have recommended that a similar approach to a ‘soft floor’ should
be introduced.

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Further work
Ofgem will need to define availability for LDES and set specific minimum availability
thresholds for each project. Ofgem also needs to determine how the licensees should
measure and report availability. Consulting with stakeholders will be crucial to ensure
that our definitions and thresholds are practical and achievable. Ofgem will provide
guidelines for monitoring and enforcing the availability requirement to ensure
compliance. The timeline for providing these details is expected to be by June 2026.

We will also consider further the range of obligations it may be necessary to impose on
LDES operators to ensure projects achieve consumer and system value.

6.2.3 Availability incentives above the cap

The cap for LDES will be a ‘soft’ cap. This means any extra money earned above the cap
will be shared between the licensee and the consumer. The exact details will be worked
after further consultation, using a 'sharing factor' to decide how much is shared.

Justification
Government and Ofgem are making a small change from the interconnector approach,
which uses a hard cap with a 2% adjustment up if an interconnector meets its target
availability and a 2% downwards adjustment if it does not. This change is introduced
because the expectation is that interconnectors and LDES behave differently during
system stress events, and the system operator's ability to use the asset varies. A soft
cap can ensure that LDES operators stay motivated to make their asset available and
help meet system needs, even when their revenues are above the cap.

In their report CEPA have recommended introducing a ‘soft cap’ to preserve operational
incentives. However, we also consider that conduct based licence obligations may be
an effective means to ensure that LDES licensees continue to meet expectations at all
times, noting that the consumer support provided by the cap and floor is in itself
significant.

Further work
Government and Ofgem consider that a soft cap could provide an incentive for LDES
asset operators to ensure high availability when revenues are over the cap. Ofgem will
develop the details for how this could work in practice, before taking a final decision on
implementation. In doing so Ofgem will consider the interaction between the ‘soft cap’
and how the cap level is set. This will be put to consultation as part of the overall regime
details consultation. The timeline for this work is until Q3 2025.

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 Long Duration Electricity Storage: Technical Decision

6.2.4 Cost overruns

Similar to the interconnector cap and floor regime, LDES developers must plan for
possible extra costs during construction and operation. Developers should carefully
think about costs, clearly explain assumptions, use a risk register and mitigation
methods and market tools and contractual arrangements to manage risk of cost
increases and overruns in a timely manner. If done well, this should help control project
costs and prevent budget overruns.
The approach to hold developers to account may involve setting financial penalties or
rewards for LDES related to cost management. This can help incentivise operators to
stay within budget and manage resources effectively. Ofgem will consider each case
and only allow costs deemed economic and efficient within the cap and floor values.

Justification
Cost overruns may occur during the construction phase of an LDES project. Some cost
overruns may be due to factors beyond the developers' control, while others could
result from inadequate cost controls. It is important to only allow cost overruns that are
necessary and efficient, not those reflecting inefficient and uneconomic planning and
operations.

Further work
Ofgem will consider further the need to develop incentives and penalties to manage
cost underspends or overruns beyond those already included in the high level regime
design set out in this document. The details of this policy will be developed alongside
other LDES cap and floor regime details and will be put to a public consultation. The
timeline for this work is Q2-3 2025.

Ofgem will provide further details on the evaluation of project cost overruns in our cost
assessment guidance, which will be published in August 2025.

6.2.5 Grid connection reforms

The connections reform annex to the Clean Power 2030 Action Plan notes that the TDD
would define LDES for those purposes. As stated elsewhere in this document, to be
considered LDES, an asset must be capable of discharge at full power for at least eight
hours, and full power must be at least 50MW or 100MW (depending on technology
maturity).
In addition, given the large number of lithium-ion batteries already in the connections
queue and that the modelling which informed the permitted capacities in the Clean
Power 2030 Action Plan did not include lithium ion as LDES, we are clarifying that for the
purposes of the Clean Power 2030 Action Plan pathway which will be used for
connections, lithium-ion electricity storage projects will be treated as batteries. This

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 Long Duration Electricity Storage: Technical Decision

does not affect their eligibility for the LDES cap and floor regime, should they otherwise
be eligible.
NESO and Ofgem are exploring whether successful bids for the LDES cap and floor
which had lost their place in the queue will be able to re-enter as batteries (if lithium-
ion) or LDES (in all other cases). Note that this categorisation as ‘battery’ or ‘LDES’
would not affect queue position or connection date.

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 Long Duration Electricity Storage: Technical Decision

Chapter 7: Summary of the LDES cap and

floor regime
The details of the LDES cap and floor regime, as outlined in Table 4 of this chapter,
describe the proposed standard process. Similar to the cap and floor regime for
interconnectors, LDES developers may request project specific variations to the regime
and process to reflect individual circumstances, provided they can demonstrate how
these variations would benefit consumers.
Developers considering requesting variations to the financial aspects of the LDES cap
and floor regime should first refer to the guidance Ofgem published in December 2015
for interconnectors,22 as the scope of regime variations for LDES is expected to be
similar. Ofgem may publish guidance on variation requests for the LDES cap and floor
scheme following project approvals in Q2 2026.
Developers of projects that have passed the eligibility assessment and expect to
request variations to the regime should clarify this in their submission for the CBA stage.
This will ensure that any expected variations are factored into the CBA assessment for
the respective project.

Table 4(a): Summary of the LDES cap and floor Regime for Window one

Regime element Detail Further work Timeline

• Define: i) regime • Further work will

start date, ii) cap follow the licence
start date, iii) floor drafting timeline
start date; iv) expected to start in
The regime duration is 25
Regime duration arrangements post Q2 2025
years
regime period • Minded to decision
• Provide details for publish: Q1 2026 (1
variation request for month consultation)
durations other • Decision: Q2 2026
than 25yrs

• Define project costs • Timeline similar to

and outline details licence drafting;
Project cost Administratively set cap and on cost reopeners decision in Q2 2026
covered by the floor levels cover 100% of • Publish cost • Cost assessment
regime eligible project cost assessment guidance/template
guidance and cost in Q3 2025
submission
template

22https://www.ofgem.gov.uk/sites/default/files/docs/2015/05/open_letter_-
_electricity_interconnector_financing_under_the_cap_and_floor_regime_2.pdf

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 Long Duration Electricity Storage: Technical Decision

Regime element Detail Further work Timeline

Cap and floor Fixed in real terms for the • Specify inflation • Decision expected
levels 25-year regime duration index in Q3 2025

All sources of revenue will • Define “Revenue” • Similar timeline as

be considered for and related terms licence drafting,
LDES revenues with a decision
assessment against the cap and any pass-
and floor through cost items expected in Q2 2026

Assessment period: 5 years

with an option for 1 year

Revenue compared to cap

and floor levels on NPV
neutral basis every 5 years
or 1 year Define relevant
licence terms such
Carry overs between as:
Assessment assessment periods (unlike
period interconnectors regime), • Assessment
meaning final assessment periods • Similar timeline as
(assessing
based on full regime • Relevant years licence drafting,
whether
duration • Partial years with a decision
interconnector
• Discount rate expected in Q2 2026
revenues are Excess revenues over the applied for the NPV-
above the cap or cap must be repaid within neutrality
below the floor) the following year calculations
Yearly interim payments
subject to true-up on NPV
neutral basis at end of 5-
years / 5-yearly interim
payments subject to true-up
on NPV neutral basis at end
of the regime

Development phase:
Reports on cost and supply • Details on
chain plans / risk logs - development phase
identifying risk, assumptions reporting
and mitigations • Development of
RIGs for the • Similar timeline as
Construction phase : construction and
Regulatory licence drafting,
Reports on construction operational phases
reporting with a decision
progress and costs during • Details on post- expected in Q2 2026
construction phase. regime reporting
Operational phase: Annual • This reporting must
reports on revenues, be in line with the
availability, and costs during ‘regulatory
operational phase instructions and

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 Long Duration Electricity Storage: Technical Decision

Regime element Detail Further work Timeline

Post-regime period: Annual guidance’ (RIGs)

reports on revenues, issued by Ofgem
availability, and costs during
post-regime phase

• Outline details that

Payments between licensee will enable cap and • Similar timeline as
Cap and floor and NESO, recovered and floor payments licence drafting,
payments distributed via network between the with a decision
charges licensee and NESO expected in Q2 2026
• Confirm network
charges to be used

Table 4(b): Calculating the cap and floor levels

Regime element Detail Further work Timeline

Cap and floor built

from capital costs,
operational and • Confirm cost
maintenance costs, components • Further engagement:
decommissioning • Detail policy for Q2 2025
Building blocks costs, tax, and allowed combining costs • Minded to decision
approach return components to set publish: Q2 2025 (1
cap and floor levels month consultation)
Cap and floor levels • Decision: Q3 2025
profiled so that they are
flat over time in real
terms

• Further engagement:
• Confirm inflation Q2 2025
Indexation of the cap Inflation index index to be used • Minded to decision
and floor levels potentially CPIH publish: Q2 2025 (1
month consultation)
• Decision: Q3 2025

Maximum availability: • Define the relevant

Soft cap to incentivise licence terms such
maximum availability as 1) exceptional
events; 2) soft cap
Minimum availability: and 3) sharing ratio • Further engagement
Licensees lose over the cap from Q2 2025
Availability incentive
automatic eligibility for • Specify minimum • Decision expected by
full floor payments if availability target Q2 2026
availability is below a • Clarify soft floor
minimum (%). Ofgem policy for project
may reinstate eligibility finance and balance
for floor payments if sheet projects

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 Long Duration Electricity Storage: Technical Decision

outage caused by force

majeure type event

Includes devex,
construction capex,
spares, capital
replacement
expenditure, IDC, and
financial transaction
costs

Combined, these give

the regulatory asset
value (RAV) which
reflects the cost of
• Further engagement:
building the LDES • Details on final cost
Q2 2025
components and
Allowances determined • Minded to decision
cost assessment
by cost assessment or publish: Q 2025 (1
process
benchmark approach, month consultation)
• Specify financial
as follows: • Decision: Q3 2025
transaction costs for
Capital costs • Cost assessment
• Devex, construction debt raise & equity
decision expected to
capex, spares, and raise
be made for all
repex assessed for • Clarify the process
projects by Q2 2026
efficiency for project finance
when cap and floor
• IDC and financial • Cost assessment
awards are made
transaction costs detail and decision
determined by process
benchmark
approach
• Capital costs
allowances
determined at two
stages: Project
Assessment (before
construction), FID
(update financial
parameters), and
PCR (after
construction)
• Establish a
methodology for
IDC treated as a capital determining IDC (%) • Further engagement:
cost during Q2 2025
• Specify when will be
construction
determined and what • Minded to decision
Interest During IDC for construction period it would apply publish: Q2 2025 (1
Construction (IDC) delays will not be • Clarify whether the month consultation)
included, unless delays final IDC allowance • Decision: Q3 2025
result from force (£) will reflect the
majeure type events final RAV at the PCR
stage or initial RAV at
the PA stage

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 Long Duration Electricity Storage: Technical Decision

Any grants are netted

off project investment
costs used to set cap
and floor levels • Detail policy on
calculations that will
Capital costs may be • Further engagement:
underpin cap and
depreciated on a Q2 2025
Financial assistance floor levels
straight-line basis over • Minded to decision
and Depreciation of • Cap and floor
25 years or longer, or publish: Q2 2025 (1
capital cost financial model and
shorter but not less month consultation)
handbook
than 20 years. • Decision: Q3 2025
development
Annuitised to make cap
and floor levels
constant in real terms
over the regime
duration

Developer provides
forecast of
decommissioning
costs

Assessment of
efficiency of proposed
costs

Baseline allowance for

efficient and economic • Clarify if full recovery • Further engagement:
decommissioning of decommissioning April 2025
costs included in cap costs during the • Minded to decision
and floor levels, regime is sensible publish: June 2025 (1
Decommissioning
reflecting legislative and fair for month consultation)
costs
requirements at consumers, • Decision: September
PA/PCR stage especially for assets 2025
Changes in legislative that will operate long
requirements related to after the regime ends
decommissioning cost
treated as ‘non-
controllable’

Additional or reduced
costs due to legislative
changes passed
through as adjustment
of cap and floor levels

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 Long Duration Electricity Storage: Technical Decision

Table 4(c): Approach to operating costs

Regime element Detail Further work Timeline

Developer provides
forecast of operating
costs

Assessment of
proposed costs (only
efficient and economic
• Definitions, detail on
costs allowed)
the process and final
Opex may be reviewed decision • Similar timeline as
Operating costs (opex) and re-set once during licence drafting, with
the regime, no earlier a decision expected
than 10 years into the in Q2 2026
regime. Either party
(the licensee or Ofgem)
may trigger review,
leading to adjustment
of cap and floor levels
(upwards or
downwards)

Defined as property
rates and property
taxes, licence fees, and
network rates

Baseline allowance
included in cap and
floor levels, reflecting
• Definitions, detail on
economic and efficient
the process and final
costs at the PCR stage
decision • Similar timeline as
Non-controllable Changes in economic licence drafting, with
operating costs and efficient costs a decision expected
relative to baseline in Q2 2026
allowance passed
through as revenue
adjustment during
revenue assessments,
regardless of LDES
asset’s revenue in
relation to cap and
floor levels

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 Long Duration Electricity Storage: Technical Decision

Developer may claim

efficient costs caused
by force majeure event • Definitions, detail on
the process and final
Assessment of costs
decision • Similar timeline as
(only efficient and
Capex reopeners economic costs licence drafting, with
a decision expected
allowed). Accepted
in Q2 2026
costs netted off
revenue for assessing
against cap and floor
levels

Allowances for tax at

both cap and floor
determined using UK
tax rates Tax annuitised
and added to
annuitised cap and
floor levels of all costs
other than tax
allowance

Allowances for tax (%)

determined at cap and • Definitions, detail on
the process and final • Further engagement:
floor regime award
decision Q2 2025
Tax Final allowance (£) • Minded to decision
reflects regulated asset publish: Q2 2025 (1
value (RAV) at the PCR month consultation)
stage. No re-openers • Decision: Q3 2025
for changes to tax rate
changes

Alternatively, unlike the

interconnector
approach, tax can be
treated as a pass-
through. This means
the tax burden is
passed directly to
consumers

Table 4(d): Approach to returns

Regime element Detail Further work Timeline

Cost of debt (return at • Further engagement:

Allowance for return at • Detail policy work to
the floor) floor calculated based specify benchmark Q2 2025

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 Long Duration Electricity Storage: Technical Decision

on a cost of debt and determine when • Minded to decision

benchmark to 100% of calculation on policy details
RAV methodology publish: Q2 2025 (1
month consultation)
The administratively set
• Decision: Q3 2025
return at floor (%)
determined at cap and
floor award stage in Q2
2026 for all projects

Reference date is
expected to be the
month the cap and
floor award decision is
made

Final floor level (£)

reflects final RAV at
PCR stage (initial
administrative value
specified at PA for all
projects)

Commercial lenders
compete to fund the
floor under Ofgem's
oversight. The floor only
covers lenders'
obligations, with no
Floor set to cover debt • Developer led and
equity interest or • Framework for
obligations (project oversight of debt specific to each
return. If the
finance) funding competition project
competitive funding
floor is higher,
consumers will be
reimbursed before any
distribution to equity
holders

• Further engagement:
• Detail policy work to Q2 2025
Allowance for return at
specify benchmark • Minded to decision
Cost of equity (return cap based on the cost
and determine when on policy details
at the cap) of equity, and applying
calculation publish: Q2 2025 (1
this rate to 100 of RAV
methodology month consultation)
• Decision: Q3 2025

Re-financing is
• Developer led and
Re-financing encouraged if it is • Detail policy work to specific to each
expected to result in a set out the process project
lower floor without

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 Long Duration Electricity Storage: Technical Decision

extending the initial

regime length

In years with less than

minimum availability
target (%), only • Further engagement:
revenues above the Q2 2025
floor level carried over • Minded to decision
Low availability years into assessment of • Detail policy work to on policy details
revenues against the set out the process publish: Q2 2025 (1
floor level. All revenue month consultation)
considered for • Decision: Q3 2025
assessment against the
cap level

• Review generation
Standard Licence standard licence • Q1 2026: special
Conditions conditions to ensure licence conditions
Licence suitability for LDES consultation
Special Licence • Q2 2026: Licence
• Develop LDES
Conditions modification
special licence
conditions

Operators can choose

how to trade power
and, for example, use a
third-party optimiser or
the ‘in-house’ trading • Q1 2026: special
LDES gross margin arm of a related party licence conditions
• Details policy on consultation
and revenue reporting However, there will be a approach • Q2 2026: Licence
clear set of licence modification
conduct and reporting
requirements
applicable to all
operators

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 Long Duration Electricity Storage: Technical Decision

Appendix 1: Draft framework for oversight of

Debt Funding Competition
Overview: This framework outlines Ofgem's approach to overseeing the Debt Funding
Competition (DFC) for LDES projects, drawing on the processes used for the Greenlink
and NeuConnect interconnectors. It proposes a risk-based oversight strategy to ensure
that the floor level from the DFC is minimised and consumer value is preserved.

Objective of the DFC: The goal of the DFC is for LDES developers to identify suitable
funding structures and lenders, ensuring that the DFC is as low as necessary for project
delivery. This process aims to help developers secure financing needed for their
projects.

Ofgem’s oversight role: Ofgem will oversee the DFC to ensure transparency, manage
conflicts of interest, and keep the debt raise process competitive. This oversight
ensures the funding solution does not change the risk allocation in the cap and floor
regime, unless it reduces consumer risks. The framework helps LDES projects get
financing that benefits consumers and supports their deployment to meet the Clean
Power 2030 and 2035 targets.

Scope of oversight: Ofgem’s oversight will cover all aspects of the DFC, particularly
areas that pose value for money risks or present potential conflicts of interest.
Developers must notify Ofgem of any conflicts and demonstrate how these are being
mitigated. Key areas of oversight include:

• DFC delivery timetable

• Transaction structure (company and financing structure)

• Selection framework for financial institutions

• Elements of the debt funding package subject to competition

• Evaluation framework for bids received

• Ensuring the DFC remains stable between DFC completion and financial
close

DFC process stages

Transaction structure: Developers will select the preferred company and financing
structures, considering risk, return, and regulatory requirements. Developers will
ensure that the chosen structure delivers on expectations.

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 Long Duration Electricity Storage: Technical Decision

Preparing for debt competition: Developers will outline the scope of the debt funding
competition and potential funding solutions. Ofgem will review the documentation
provided to lenders.

Overseeing debt competition: Developers will manage the process of receiving and
evaluating bids from lenders. Ofgem will ensure the process achieves the DFC
objective.

Financial close: Ofgem will work with developers to manage risks between DFC
completion and financial close, ensuring the DFC remains unchanged.

Risk-based approach: This focuses on areas with the highest potential impact on
achieving an efficient cost of debt, and ultimately, an efficient capital structure
consistent with consumers interests. This includes monitoring the DFC delivery
timetable, transaction structure, and evaluation of bids.

Developer responsibilities: Developers must comply with the framework, notify Ofgem
of conflicts of interest, and provide necessary documentation throughout the DFC
process.

Examples of potential Ofgem approval areas

Financial and non-financial covenants: Gearing, debt service coverage ratio, and debt
tail etc.

Floor portion for debt repayment: Ensuring that a portion of the floor revenue is
allocated to debt repayment, both deflated and inflated to match repayment schedules.

No equity distribution: Ensuring no equity distributions are made until the DFC floor is
lower than the administratively set floor.

Evidence of competition: Ensuring that the debt funding process is competitive, with
multiple lenders participating and transparent criteria for selecting the winning bids.

Additional potential considerations:

• Tenors: Balance the debt tenor with its price.

• Refinancing: Address pre- and post-completion costs and refinancing

assumptions.

• Hedging: Oversee floating to fixed hedges at financial close to ensure

competitiveness.

• Bank raises and bonds: Consider bond issuance and include credit rating
information.

• Debt and debt-like instruments: Review to ensure regulatory alignment.

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 Long Duration Electricity Storage: Technical Decision

General feedback
We believe that consultation is at the heart of good policy development. We are keen to
receive your comments about this report. We would also like to get your answers to
these questions:

• Do you have any comments about the quality of this document?

• Do you have any comments about its tone and content?

• Was it easy to read and understand? Or could it have been better written?

• Are its conclusions balanced?

• Did it make reasoned recommendations?

• Do you have any further comments?

Please send your feedback to stakeholders@ofgem.gov.uk.

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