Dear Colleagues,
Today sees this government’s landmark Planning and Infrastructure Act 2025 receive Royal Assent, which marks the conclusion of its passage through Parliament. This legislation will speed up and streamline the planning process for housing and critical infrastructure, including major clean energy and transport projects, accelerating delivery while securing better outcomes for nature. Together with the government’s wider planning agenda, the Act will ensure this country has a planning system which supports the delivery of our ambitious targets to build 1.5 million homes in England, fast-tracks 150 planning decisions on major infrastructure projects, and supports the delivery of our Clean Power 2030 target.
I want to highlight in particular, however, the role this Act will play in safeguarding the UK’s long-term energy security in a clean and cost-effective manner by enshrining in law a new mechanism to support the delivery of the next generation of long duration electricity storage (LDES). As set out in the ‘Clean Power 2030 Action Plan’, LDES is critical to achieving this government’s Clean Power 2030 ambition, which will in turn help us to develop homegrown energy with the enhanced energy security and affordability that it brings. It has been over 40 years since the last new LDES asset was commissioned on the GB grid and this measure addresses the specific LDES market failure.
LDES can encompass pumped storage hydro (PSH), compressed and liquid air energy storage (CAES and LAES), and certain types of battery that can supply electricity continuously for eight hours or more without recharging. This 8-hour plus duration, which is significantly higher than existing electricity storage assets, meets a specific electricity system security need. It enables the electricity system to store clean wind and solar power when it is plentiful and use it when most needed. It’s a crucial part of making Britain a clean energy superpower.
In the government response to the LDES consultation in October last year which followed extensive industry consultation, government confirmed that to enable investment in LDES, a cap and floor scheme should be introduced, similar to that used successfully by Ofgem to significantly increase GB electricity interconnection capacity. It also confirmed that Ofgem would act as the delivery body and regulator responsible for delivering and administering the LDES cap and floor scheme.
The cap and floor scheme is technology neutral. It provides revenue support to developers should their returns fall below a set threshold known as the ‘floor’, to provide additional confidence to investors that debt costs will be recovered. In return, if profitability is above a defined ‘cap’, developers will have to return most or all the returns above the cap to energy consumers. This gives the market confidence to deliver the LDES we need without undue risk to consumers. Under the interconnector cap and floor regime, a floor has never been engaged, though a cap has and energy consumers have been able to share in high revenues.
Ofgem began work to develop the LDES cap and floor scheme as soon as it was announced in the government consultation response in October 2024. Ofgem opened the first application window for the scheme in April 2025 and plans to make final decisions on successful projects in Summer 2026. In parallel to Ofgem’s delivery work commencing, the government introduced legislation to Parliament, via the Planning and Infrastructure Act, directing Ofgem to implement this scheme. Government had the firm expectation that this legislation would be enacted in advance of Ofgem’s decisions on the identity of LDES projects to award a cap and floor scheme to within a scale of capacity Ofgem has been advised by NESO is required to meet electricity system needs.
I am grateful that Ofgem has already made great progress in taking steps to implement the cap and floor scheme. In March, we jointly published a Technical Decision Document. In April, Ofgem opened the scheme for applications, assessing 171 bids for eligibility over the summer. In September, Ofgem shortlisted 77 eligible projects alongside its publication of the Financial and Multi-Criteria Assessment Frameworks. Given the importance of LDES to achieving this government’s ambition of becoming a Clean Energy Superpower, I am delighted that delivery of this scheme by Ofgem remains on track, and that Ofgem’s design of the scheme ensures the interests of consumers are protected.
Ofgem will have some difficult decisions to make over the coming months on the scale and identity of LDES projects to support with a cap and floor agreement. I know Ofgem will have the interests of energy consumers at heart as it ensures GB develops the LDES needed to deliver reliable and cost-effective clean energy that reduces our dependency on volatile international fossil fuel markets. There are a small minority who oppose this scheme, or who would prefer that its design shifted focus to some goal other than supporting investment in the very best LDES assets under the best terms for consumers. Let me be clear: this government gives full support to Ofgem for its overall approach to delivering the LDES cap and floor scheme. I look forward to an exciting 2026 for LDES, in which Ofgem successfully concludes the first application window of the scheme with the support of government, Parliament, NESO and industry.
Michael Shanks MP,
Minister of State (Minister for Energy)