The Energy Transition | UK to implement cap and floor scheme for long duration energy storage

This week we look at the UK's plans for a cap and floor scheme for long duration energy storage, the highest NESO winter outlook forecast in five years, Ofgem awarding the next round of the strategic innovation fund, and more.

UK to implement cap-and-floor scheme for long duration energy storage

Following a consultation period at the start of the year, the Department for Energy Security and Net Zero (DESNZ) is planning to introduce a cap-and-floor mechanism to support and stimulate investment in the development of Long Duration Energy Storage (LDES) projects. Ofgem will be responsible for designing the scheme and will act as its administrator once implemented.

The scheme aims to address the lack of revenue streams for LDES applications that can cover the high investment cost. Ofgem's scheme will do this by providing revenue certainty for investors as there will be a guaranteed revenue. Conversely, there will be also be a revenue cap in place, offering protection to consumers. A similar cap-and-floor mechanism has already been implemented for electricity interconnectors.

The investment support scheme will be split into two routes, one which will support existing technologies and the other dedicated to new innovation. The first round of the cap-and-floor model is expected to be open to applicants in 2025.

Government analysis has shown that developing 20GW of LDES could save the electricity system £24 billion over the next 25 years. NESO has also estimated that around 11.5 to 15.3 GW of LDES will be required by 2050 to reach net zero.

Energy minister, Michael Shanks has spoken in support of the scheme, saying: "We’re reversing a legacy that has seen no new long duration storage built for 40 years - and taking steps to unleash private investment in both established and new technologies. 

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

NESO winter outlook forecast is the highest in five years

The newly formed National Energy System Operator (NESO) (see our  "Who's Who in British Energy"' guide which explains how NESO fits into the energy market) has published its annual winter outlook forecast for 2024/2025. The forecast expects available generation to exceed peak demand by 8.8%. This is higher than last year's forecast which predicted a margin of 7.4%.

NESO expects 65GW of de-rated capacity to be available and forecasts only 59.8GW of peak average cold spell demand, leaving a supply margin of 5.2GW. This margin is the widest since 2019/20, and is the first forecast since the closure of the UK's last coal-fired power station, Ratcliffe-on-Soar (which we have reported on).

NESO state that the higher year-on-year margin is a result of new interconnection, growth in battery storage capacity and an increase in generation connected to the distribution network. Although the forecast suggests sufficient operational surplus through this winter period (factoring in allowances for natural demand variation, intermittent renewable generation and outages), NESO may still have to use operational tools including the use of system notices on certain days.

Craig Dyke, director of system operations at NESO, said: “While our margin assessment has improved from previous winters, we are continuing to monitor risks and uncertainties and, if necessary, will take steps to build resilience.

“We and the rest of the energy industry will as always continue to prepare for a range of potential eventualities, so that we are fully prepared for this coming winter.”

Ofgem awards superconductor study part of £9.7 million innovation funding

A study into the potential use of superconductors by National Grid Electricity Transmission (NGET) has been selected as one of the projects to receive funding in the alpha phase of the third round of Ofgem's Strategic Innovation Fund (SIF). The technology has the potential to transmit large volumes of power at low energy voltages, while reducing energy losses to almost zero.

The SIF aims to fund ambitious, innovative projects with the potential to accelerate the transition to net zero. This round was aimed at tackling four challenges:

1. whole system network planning and utilisation to facilitate faster and cheaper network transformation and asset rollout;
2. novel technical, process and market approaches to deliver an equitable and secure net zero power system;
3. unlocking energy system flexibility to accelerate electrification of heat; and
4. enabling power-to-gas (P2G) to provide system flexibility and energy network optimisation.

This alpha phase of SIF funding follows the discovery phase that took place in March, which primarily focused on feasibility studies for 44 innovation projects. In the current phase, applicants were able to apply for up to £500,000 to develop and test the ideas submitted in the previous phase. If the studies prove successful, applicants will then be able to apply for up to £10 million to conduct large-scale demonstrations in the beta phase.

Other successful applicants in this round included a Scottish and Southern Electricity Networks project to develop nature-based solutions to protect the network from risks such as flooding and extreme heat and a UK Power Networks software platform for obtaining and managing landowner consents.

Floating Offshore Wind Taskforce touts potential for £47bn economic boost

The Floating Offshore Wind Taskforce, a joint government-industry initiative, has published a report highlighting the opportunities for the UK presented by floating offshore wind.

The report highlights the success of two pilot floating wind projects, with a particular focus on the Kincardine site near Aberdeen which is capable of powering 35,000 homes in Scotland. The report suggests further investment could contribute £47 billion to the UK economy by 2050.

Although currently more expensive than conventional offshore wind, floating wind farms could significantly reduce costs as they can be located in deeper waters where the wind speed is higher. The report indicates that by 2050, floating turbines could provide a third (up to 40GW) of the UK's offshore wind capacity.

In his foreword to the report, Ed Miliband, secretary of state for energy security and net zero, states that the newly established Great British Energy will work with the private sector to speed up the deployment technologies like floating offshore wind, noting its recently announced partnership with The Crown Estate.

Climate Change Committee announces new Chief Executive

The Climate Change Committee (CCC) has announced that Emma Pinchbeck will be its new chief executive. Ms Pinchbeck will join on November 11 2024 from Energy UK where she has been chief executive for the past five years.

The CCC was established in 2008 and its purpose is to advise the government on the UK's emissions targets, how to reduce greenhouse gas emissions and to provide advice as the UK adapts to climate change. As part of her role in delivering this, she will be responsible for the Seventh Carbon Budget which will set the carbon emission limit for 2038-2042. Ms Pinchbeck will also be responsible for managing the fourth Climate Change Risk Assessment independent assessment in 2026 detailing how to address climate risks in the UK.

As part of the press release announcing her appointment, she said:

"We are behind on our national targets, and time is running out to catch up with delivery. […] I take the opportunity to influence the UK’s progress on reducing emissions incredibly seriously, and to support Government make this transition in the way that most benefits people and the economy. You can expect the CCC to have much to say about this going forward.”

This article was written with the assistance of James Harnett and Joe Sandom, trainee solicitors.