Lithium BESS reigns supreme – Who are the winners and losers of the LDES Cap and Floor Scheme?

On 23^rd September, Ofgem published the results of the first application window for the LDES (Long Duration Energy Storage) Cap and Floor Scheme. The scheme is part of a drive from the government to maximise the power generated from renewable energy, by encouraging investment in a technology that could bring stability to UK power generation and has previously not had much traction in the UK.

There are two tracks to the scheme - the first track is for projects which can be delivered by 2030 and the second track is for delivery by 2033. The window for applications opened earlier in the year on 8 April and closed on 9 June. In their published guidance, Ofgem refer to the current phase of application and assessment as 'window 1' which implies that they will run multiple rounds of the scheme. Although there has been no official confirmation that the scheme will be extended, it is understood by industry insiders that there are likely to be further rounds, subject to how the current round plays out.

Which projects will move to the next phase?

Turning to the current round, Ofgem have confirmed they received a total 171 applications, with 77 proceeding to the next phase, having been successful at the eligibility assessment phase. The significant majority of the successful 77 applied for Track 1 with only 6 applying for Track 2. The total capacity that these eligible projects will contribute across both tracks will be 52.6GW.

Lithium-ion BESS schemes came out as the clear winner overall in terms of the preferred technology type. This is notable given that LDES is more typically associated with alternative storage types such as Vanadium Flow Batteries (VFBs), Liquid Air Energy Storage (LAES) and Compressed Air Energy Storage (CAES) because these technologies offer longer storage times than a typical BESS system. Pumped Storage Hydro, for example, can offer storage times between 24 and 60 hours when compared with the upper limit of Li-ion BESS which maxes out around 10 hours. This means that the 48 successful Li-ion BESS projects must have met the minimum 8-hour storage duration that was mandated in Ofgem's eligibility criteria.

Ofgem's press release to launch the scheme on 8 April talked about this being an opportunity to build the first new large scale LDES infrastructure in 40 years, so the prevalence of traditional Li-ion BESS projects within this selection may be a disappointing outcome for some, and hints at a market at odds with the design and intention of the scheme.

There was some concern amongst BESS providers when the cap and floor scheme was announced that this would undercut them in the market; the consequences have yet to be realised, but it appears some developers have managed to leverage their projects to meet the eligibility criteria in any case. The lack of alternative technologies in the list also reflects the difficulty in driving investment in some of these newer technologies (some of which require prohibitively high CAPEX).

It will be interesting to see whether this trend of long duration Li-ion BESS projects carries across future windows in the scheme (should it be re-run) or whether the industry will start building up steam towards using truly long duration technologies. We also noted with particular interest that 8 applications were made for other alternative technologies (sodium, iron-air and hydrogen) but that none of these were successful in progressing to the next stage. Sodium-ion batteries have been touted for some time as a potential alternative to lithium-ion as a safer cleaner alternative, but at present they still do not have the equivalent efficiency needed in order to contend with tried and tested lithium-ion.

What's next?

For the 'winners' of this round, this is the first stage in a three-stage process, as the eligible projects will now move to a Project Assessment phase where each project will be reviewed and assessed based on its economic, strategic and financial merits. This stage will involve a comprehensive assessment that factors in the objectives of the scheme against risk/opportunities of the project, the impact on socio-economic welfare of consumers, producers and asset owners (both LDES asset owners and owners in the wider electricity system), the impact on the wider grid system, the effect on natural capital and the economic viability of the scheme. Consequently, even if projects have passed the initial eligibility sift, they still have substantial hurdles to overcome in the next 6 months in order to get the green light.

The final stage will be a Post Construction Review when the projects start commercial operation.

Ofgem and NESO state that they are aiming to publish an initial list of approved projects in Spring 2026 with final decisions on those that have passed the Project Assessment phase being announced around Summer 2026.