British Hydropower Association and Scottish Renewables Call for "Cap and Floor" Mechanism to Boost Hydropower Investment

The British Hydropower Association (BHA) and Scottish Renewables are advocating for the introduction of a "cap and floor" mechanism to accelerate investment in hydropower energy. The UK currently has a pipeline exceeding 9GW, including several “shovel-ready” projects, but delays in action are impacting consumers, according to the associations. The two organizations have sent a joint letter to key government officials, including Secretary of State for Energy Security and Net Zero Ed Miliband, Secretary of State for Scotland Ian Murray, and Secretary of State for Wales Jo Stevens. The letter urges the UK government to support the deployment of long-duration electricity storage (LDES), with a particular focus on pumped storage hydro (PSH). The "cap and floor" mechanism is proposed to balance commercial incentives with risk mitigation for project developers. The "floor" ensures minimum revenue certainty for investors, while the "cap" places a limit on revenues to prevent excessive returns. "The delivery of a LDES 'cap and floor' mechanism is crucial for enabling PSH to support the UK government’s net zero targets and secure Britain’s clean energy future," said Kate Gilmartin, Chief Executive of the British Hydropower Association. "With economic growth and renewable energy at the centre of the new government's agenda, there is an opportunity to demonstrate a step-change in decision-making after years of delay and uncertainty. By prioritising the urgent delivery of a cap and floor mechanism, we can send positive signals to international investors and trigger large-scale capital projects and job creation." The industry is calling for the UK government to publish its response to the 2024 LDES consultation by August, confirm the decision to develop a cap and floor mechanism, and establish a policy framework by the end of 2024. They also request a consultation on the detailed design of the scheme in early autumn and the opening of the first application window for LDES technologies by early 2025 at the latest. Scottish Renewables’ report, "The Economic Impact of Pumped Storage Hydro," estimates that six PSH projects under development could generate £5.8 billion in Gross Value Added (GVA) and create nearly 15,000 jobs by 2035. Additionally, a Department for Energy Security and Net Zero analysis suggests potential system savings of up to £24 billion from deploying up to 20GW of long-duration electricity storage.