The UK government has unveiled its preference for a cap and floor investment framework as the chosen mechanism to stimulate private investment in large-scale, long-duration electricity storage projects. The decision, outlined in the Department for Energy Security and Net Zero's (DESNZ) consultation on Long Duration Electricity Storage, aims to reinforce and stabilize the nation's electricity grid through the development of new projects.
DESNZ's consultation document emphasized the cap and floor regime's similarity to the mechanism used for interconnectors and identified it as the most suitable policy to fulfill the government's commitment to facilitating investment by the end of 2024.
The proposed mechanism would offer revenue certainty for investors by guaranteeing a minimum revenue in case returns from operational assets fall below an agreed floor. Additionally, it would establish a revenue cap to protect consumers, with any excess revenue earned over the cap potentially being returned to consumers.
This decision by the UK government has received positive feedback from Drax, a key player in the energy sector currently working on plans to expand its existing Cruachan pumped storage facility in Scotland with the construction of a new 600MW plant.
Ian Kinnaird, Drax's Scottish Assets Director, sees the government's preference for a cap and floor mechanism as a significant stride toward realizing a new generation of pumped storage hydro plants. He highlighted the potential contributions of these new plants to UK national energy security and their pivotal role in combating climate change.
The move underscores the UK's commitment to fostering a robust and sustainable energy infrastructure, leveraging innovative investment frameworks to drive the development of crucial electricity storage projects.