IN Brief:
- Ofgem has updated proposed special licence conditions for Window 1 LDES projects.
- Final conditions will follow the cap-and-floor award decisions expected in autumn.
- Responses on the revised position are due by 18 August 2026.
Ofgem has revised the special electricity licence conditions proposed for projects selected through the first Long Duration Electricity Storage cap-and-floor window.
The regulator published an initial draft in March 2026 and has altered its position after reviewing consultation responses. The revised document sets out the current approach before final project awards and the subsequent statutory licence-modification process.
Cap-and-floor award decisions are expected during autumn 2026. Successful projects will then move towards individual licence arrangements containing the regulatory terms under which support will operate.
The mechanism establishes a minimum level of revenue for qualifying projects while limiting returns above an agreed ceiling. It is designed to reduce investment uncertainty without removing all exposure to construction, operating, and market performance.
Window 1 licence conditions will define how the regulatory regime interacts with project revenues, reporting, compliance, and the calculation of payments. More detailed guidance is expected to accompany the final conditions.
Ofgem is seeking responses from storage developers, operators, generators, investors, electricity-market participants, advisers, and other organisations involved in the first selection window.
Licence detail will shape construction and finance
The regulator has already advanced 16 projects through its minded-to Window 1 selection. The portfolio includes pumped-storage hydro, compressed-air energy storage, lithium-ion batteries, and vanadium redox-flow batteries across England, Scotland, and Wales.
Those technologies have different construction periods, operating characteristics, asset lives, degradation profiles, and maintenance requirements. A licence framework must remain consistent enough to protect consumers while recognising that a hydro scheme and an electrochemical battery do not carry identical engineering or commercial risks.
Long-duration storage is defined for the scheme as capacity able to discharge for at least eight hours. Such systems can move substantial energy volumes between periods, rather than concentrating principally on fast response or short wholesale price spreads.
Britain currently has approximately 2.8GW of operational long-duration capacity, mainly through four pumped-storage hydro stations. The first cap-and-floor window is intended to broaden that base as wind generation increases and the electricity system experiences longer periods of surplus or shortage.
Revenue floors support debt finance by reducing exposure to years in which market income falls below a defined level, while the cap returns part of exceptional upside to consumers. The detailed calculation determines how much risk remains with the developer and whether lenders regard expected cash flow as sufficiently predictable.
Availability standards will also influence commercial performance because an asset receiving regulated support must remain capable of delivering when required. Maintenance and outage patterns vary significantly between technologies, so the licence conditions need to distinguish reasonable engineering downtime from persistent underperformance.
Construction risk remains substantial outside the revenue calculation. Pumped-hydro and compressed-air projects involve major civil works, geological conditions, long equipment lead times, and complex grid connections, while battery and flow-battery schemes can be built more rapidly but face equipment, degradation, augmentation, and supply-chain risks.
Connection dates create another critical dependency. A completed storage project cannot provide system services until transmission or distribution works are ready, protection and controls have been accepted, and the asset has qualified for its intended markets.
Delays can affect financing costs, construction contracts, and the start of regulated support. The licence framework therefore needs clear treatment of project milestones, late commissioning, changes in capacity, and exceptional events without transferring avoidable delivery risk to consumers.
Reporting obligations must provide enough information to calculate revenue adjustments and assess performance without imposing incompatible assumptions across technologies. Auditable metering, market-income records, availability data, and cost information will form part of the continuing regulatory relationship.
Refinancing provisions may also affect long-term returns because supported assets are likely to operate across several financial cycles. Where the risk profile falls after construction, the treatment of refinancing gains will influence both developer incentives and the share of benefit retained for consumers.
The first window will establish precedents for later projects. Decisions around risk allocation, availability, refinancing, performance, and revenue calculation are likely to affect future bids and the range of technologies able to compete.
Ofgem plans to issue further guidance and complete the licence process after the autumn award decisions. Responses on the revised conditions can be submitted through the Window 1 call for input until 18 August 2026.
The final framework will determine whether the selected pipeline can progress into financeable construction while maintaining a clear limit on consumer exposure. Its effectiveness will depend on how precisely the conditions reflect the engineering and commercial characteristics of the technologies selected.
