Long Duration Energy Storage – 77 projects proceed to Project Assessment as Ofgem makes its eligibility assessments

On 23 September 2025, Ofgem published the results of its initial eligibility assessment for the first application window of the long duration energy storage (“LDES”) cap and floor scheme (the “Cap and Floor Scheme”), marking a significant milestone in the UK’s efforts to support the deployment of long-duration energy storage projects. This was accompanied by:

• Ofgem’s decision on the Project Assessment and a detailed Multi-Criteria Assessment Framework (“MCA”), detailing how Ofgem and NESO will analyse and select projects for support;
• NESO’s Cost Benefit Analysis (“CBA”) Methodology for System and Welfare Impacts, which explains how NESO will conduct the market modelling in support of Ofgem’s decisions under the MCA Framework;
• “Cost Guidance” which explains how Ofgem will assess a project’s costs, both at Project Assessment phase and during the lifetime of the Cap and Floor Scheme;
• the “Financial Framework”, detailing the decisions Ofgem has made in respect of the financial elements of the Cap and Floor Scheme; and
• various templates which projects will be required to use in their submissions for the upcoming Project Assessment stage.

We have set out below the key outcomes published in the results, the key points to note from the range of newly-published documents, and the next steps and key dates relating to the Scheme.

For more detail on the progress of and background to the Cap and Floor Scheme, you can read our previous commentary on June 2025’s consultations on the Project Assessment and Financial Framework, and our commentary on March 2025’s technical decision document (the “TDD”).

Initial eligibility assessment outcome: key findings from window one

Ofgem received 171 applications during the first application window which closed on 9 June 2025, of which Ofgem determined that 77 projects satisfied all the eligibility criteria and were suitable to move to the Project Assessment stage, as summarised in the table below:

Reflections on the amount of capacity eligible – push for pre-2030 delivery

The 28.7 GW of proposed LDES capacity represents over four times the 7.7 GW that DESNZ and Ofgem have previously indicated is the upper limit of the capacity to be supported through the Cap and Floor Scheme. Given the requirement for projects to have a duration of eight hours or more at full power throughout the Cap and Floor Scheme’s 25-year term, this indicates a total energy capacity of at least 230 GWh that has made it through the eligibility assessment (with the actual energy capacity being much higher than this as a result of the much longer durations of projects such as pumped storage hydro assets).

Reasons for ineligibility

Ofgem determined that the remaining 94 submissions failed to satisfy one or more eligibility criteria. The most common shortcomings related to:

• Lack of evidence on financial deliverability, including unclear funding strategies and insufficient visibility over capital and operational costs;
• Insufficient detail on delivery timelines, with some applicants unable to provide credible construction and commissioning schedules;
• Gaps in technical documentation, particularly in relation to minimum discharge duration or demonstration of TRL maturity.

To support applicants, Ofgem has issued letters outlining their minded-to decisions, including the specific grounds for ineligibility. We expect Ofgem to reflect on areas for improvement and clarify in future guidance the evidentiary standards expected in future windows.

Key changes to note from the MCA, CBA, Cost Guidance and Financial Framework

Ofgem has issued a range of key clarifications to the Project Assessment process and its constituent elements. We’ve set out below a high-level summary of the key changes, although as ever the devil will be in the detail of the MCA, CBA, Cost Guidance and Financial Framework, and we expect all stakeholders to be well-occupied in parsing the final suite of documents during the Project Assessment process.

MCA approach

Deliverability will now be assessed during Project Assessment, not just at the Eligibility phase.  This means Ofgem will consider how realistic project plans are, including progress on planning consent, connection offers, and the developer’s track record from now until the end of the Project Assessment. Developers will be well-incentivised to demonstrate such deliverability through their submissions.

In-the-round assessment

In response to consultation feedback, the method by which it will evaluate “non-monetised” impacts such as system impacts (like avoided renewable curtailment) and wider economic and social impacts (like impacts on landscapes) is set out in further detail in the MCA and the CBA.

Competitive bidding

The competitive process has been simplified: projects can now only bid on two parameters (regime duration and residual value post-decommissioning) rather than the proposed five parameters which also included target rate of return, interest during construction (IDC) rate and decommissioning cost.  Ofgem intends for this change to address concerns raised about complexity of the bidding and the risk of strategic underbidding, however it does reduce flexibility for projects who might seek to take advantage of certain structural advantages they might have (for example with respect to cost of capital).

Revenue streams

Ofgem have explicitly acknowledged LDES assets’ participation in the intra-day and balancing markets, which were previously overlooked. These benefits will be considered in both the Economic Assessment (which will feature a non-monetised, qualitative assessment of a wider range of system operability benefits), and the Financial Assessment (which will include project revenues from ancillary services).

Economic assessment

As noted above, a broader range of system operability benefits (e.g., balancing, stability, restoration, voltage support) than initially flagged will be included as non-monetised impacts Projects can provide evidence of their real-time flexibility benefits, which will be considered as non-monetised impacts. These benefits will feed into a Benefit-Cost Ratio, which will be used to normalise project benefits by lifetime costs and compare projects against one another for selection.  

Strategic assessment

The “System Security” and “Resilience” elements of the strategic assessment have been removed to avoid double counting. The “Technology Diversity” and “Locational Diversity” criteria have been clarified, and definitions for “option value”, “flexibility”, and “risk of cost overruns” have been improved.  The “need for cap and floor support” criterion has been removed, having been roundly criticised by stakeholders as running contrary to the entire purpose of the Cap and Floor Scheme (by penalising projects with merchant potential who are not yet investable).

Other strategic impacts

Broader benefits like economic growth and supply chain development are recognised as non-monetised benefits in the Economic Assessment. Projects must provide their own revenue estimates, which will not “directly feed into the Financial Assessment”, but that Ofgem may use to calibrate its assessment.

Financial assessment

Ofgem’s decision highlights “project revenue as a percentage of the Project’s floor level” as the key metric for the financial assessment, with a minimum threshold acting as a specific criterion for receipt of a Cap and Floor Scheme. This is calculated on an annual basis, without considering any cap or floor payments, and is intended to allow for consistent comparison between projects by expressing what proportion of the floor level is covered by the project’s expected revenues (i.e. where the percentage is <100% then floor payments would be payable, and 100% or greater means that revenue is above the floor and no payments are due). The level of the minimum threshold is yet to be determined.

Balancing Mechanism revenue assumptions

Ofgem has revised its approach, recognising that revenue neutrality is unsuitable for LDES assets. A new methodology (set out in detail in the MCA Framework) will separately estimate revenues from non-energy actions and energy actions in the Balancing Mechanism, reflecting the substantial revenue potential for storage assets. 

Next steps: Project Assessment and future windows

The 77 eligible projects will now proceed to the Project Assessment stage in Q4 2025, whereby the applicants have an 8-week period from the date of publication of the eligibility outcome to submit further required information, including more detailed technical, financial and delivery documentation. Ofgem will conduct a multi-criteria assessment (MCA) in collaboration with NESO in order to evaluate each project’s economic and strategic contribution, system impact, deliverability, and cost-effectiveness. This phase is intended to identify those projects that are most aligned with the Scheme’s policy objectives and that warrant a cap and floor award.

Ofgem will undertake the Project Assessment in Q4 2025, before aiming to publish an “Initial Decision List” of projects to be offered a cap and floor under the Scheme in Q1 2026, with the final list of successful projects to be published in summer 2026. Ofgem has indicated that it will continue to refine the application and assessment process in light of feedback from this first window, with a view to ensuring that the Scheme remains accessible, transparent, and effective in supporting the deployment of long-duration storage as a core part of the UK’s decarbonised electricity system.

The overall timeline for the first window of the Cap and Floor Scheme (which remains unchanged from previous Ofgem updates) is set out below.