News & insights
Date: March 2025 | Client: DESNZ | Sector: Energy | Energy markets | Energy transition & flexibility | Expertise: Market & mechanism design
Setting the cap and floor for long duration electricity storage
CEPA and ESP Consulting have been advising the UK Government on the design and mechanics of the cap and floor regime for Long Duration Energy Storage (LDES). The Government has now published our report, which explores different ways of designing the cap and floor contract and different approaches to setting the cap and floor thresholds. Our report has been used to inform the Government and Ofgem's Technical Design Document for the LDES cap and floor scheme, which was published alongside our report.
In our analysis, we have considered:
- How long the cap and floor contract should last and how quickly projects should be allowed to recover their investment.
- How to ensure LDES projects continue to have the incentive to operate efficiently when they are above the cap or below the floor.
- How to set the cap and floor thresholds and whether you can use competition to inform the level of the floor and the level of the cap.
- The extent to which LDES assets are different from interconnectors (which also has a cap and floor regime) and what that means for the design of the cap and floor contract.
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