Ofgem Unveils ‘Cap and Floor’ Scheme to Boost Investment in Super Batteries

Image Credit: Drax

After a four-decade standstill, the UK is finally turning on a long-overdue transformation in renewable energy infrastructure. Today, Ofgem launches a game-changing initiative—its first in 40 years—to supercharge the development of long-duration electricity storage (LDES), a critical backbone for a future powered by wind and sun.

At the heart of this shift is a “cap and floor” investment support scheme, a financial framework designed to unlock billions in funding for storage technologies that will anchor the nation's green energy ambitions. The idea is simple yet powerful: offer a revenue safety net to de-risk investment in large-scale storage while keeping profits in check to protect consumers.

Think of these LDES facilities as giant energy time machines—capturing surplus electricity generated when the wind blows, and the sun blazes, then releasing it hours—or even days—later, when the grid needs it most.

Among the storage options, pumped hydro stands tall—literally. It’s an elegant, gravity-fueled system in which water is pumped uphill into mountain reservoirs during periods of low demand and released downhill through turbines when demand peaks. It's clean, efficient, and proven.

But the innovation doesn’t stop there. The scheme also opens the door to emerging technologies like:

• Liquid air energy storage, where air is cooled to a liquid and stored in insulated tanks.

• Compressed air systems use underground caverns to store energy as pressurized air.

• Flow batteries are known for their ability to scale and provide consistent output over extended periods.

These solutions bring something the UK's current grid sorely lacks: flexibility and resilience. With them, the system can ride out cloudy days, calm nights, and seasonal lulls—without reaching for fossil-fuel backups.

For all its importance, no new LDES facility has been built in the UK in the last four decades. Why? High upfront capital costs, long construction timelines, and an investment landscape too volatile for comfort. Until now.

Ofgem’s new regime changes that equation. By guaranteeing a minimum return (the "floor") while capping excessive profits (the "cap"), the framework offers predictability for developers and value for taxpayers. The scheme only backs projects that deliver eight hours or more of storage—ensuring that funds go to high-impact infrastructure, not vanity projects.

And there’s a safeguard: if these facilities overperform financially, the excess flows back to households in the form of lower energy bills.

The timing couldn’t be more urgent. As the UK races to meet its target of a clean power grid by 2030 and net zero emissions by 2050, energy storage isn’t a luxury—it’s a necessity. Wind and solar, while clean, are intermittent. Storage is what turns them from promising contributors into dependable powerhouses.

Ofgem director general for infrastructure Akshay Kaul said: “Renewable energy is the key to securing Britain’s energy independence and driving down customer bills in the long term – so it’s vital that none of this precious resource goes to waste.

“By creating the confidence for investors to support new projects such as super-batteries capable of storing the extra electricity created when the wind blows hard, and the sun shines strong, we can reduce the need to turn to fossil-fuelled power as back-up when the weather changes.

“For decades, hydropower has played an important role in our energy system, and we expect it and a range of other storage technologies to make an even greater contribution to grid stability, with more projects ready to bid to play their part in this unprecedented investment in energy storage.”