Ofgem has reduced the number of applications for the LDES tender from 171 to 77 on the basis of eligibility criteria, with the vast majority being Li-ion BESS.
Assessment phase
The projects will now enter into the assessment phase which is composed of multi-criteria:
- economic assessment of the socio-economic welfare components relative to a counterfactual of that project not being built – broken down as monetised and non-monetised impacts on the electrical system as well as wider social and economic impacts on consumers, producers and LDES owners;
- strategic assessment covering the risks and opportunities of the project, including technology and geographical diversity; interdependencies; flexibility; cost overrun risk and deliverability; and
- financial assessment as regards the project’s financial viability and whether it will operate within the cap and floor corridor in normal circumstances. The revenue components for such an assessment will cover temporal arbitrage, non-energy BM actions, ancillary services and capacity market payments.
Ofgem and NESO have done a lot of work in trying to explain the assessment methodology in greater detail.
The deadline for projects to send their project assessment data submission form is 18 November 2025. Ofgem and NESO aim to undertake the project assessment in Q4 2025 and publish the initial shortlist in Spring 2026 with final decisions expected in Summer 2026.
Cap and floor levels and associated parameters
The cap and floor levels will be set using the cap and floor financial model with inputs partly set by Ofgem and otherwise provided by the project developer.
Projects may bid on two financial parameters: (a) the scheme duration (with a default duration of 25 years); and (b) residual value (with a default value of zero).
Ofgem have set the following parameters:
a) target rate of return (with the option with strong justification to request a higher rate which will be assessed accordingly);
b) Interest During Construction (“IDC”) rate; and
c) decommissioning cost (% of capex).
Indexation instead of being fixed using the Bank of England’s 2% target rate of inflation (as previously proposed) will be based on CPIH.
The floor will be set by way of either an administrative floor based on a notional cost of debt or where project financed, actual cost of debt floor.
The cap will be soft in that there will be revenue sharing as regards revenues above the cap. This cap has been increased from a 10% gainshare to 30%.
Project developers will be informed of a preliminary cap and floor in Spring 2026 (with the option to fix) and a final setting in a post construction review stage.
Delivery and performance criteria and incentives
If a project fails to deliver by 2030 or 2033 without a recognised delay or force majeure event, or by 2032 or 2035 with an approved extension, they will need to repay part of any future floor payments they receive (with the amount repaid will be proportionate to the delay).
Projects will be subject to an asset proving period over 60 days post-construction, with a specified minimum capacity and duration.
To access floor payments, project developers will be required to meet a Minimum Availability Target (“MAT”) and if the MAT is not met in a given year, there will be a clawback.