In short
Storage moves electricity from when it's plentiful to when it's needed. Battery storage, mostly lithium-ion with one to four hours of duration, has grown very quickly in Great Britain on market revenues alone. Long-duration storage, such as pumped hydro, can store power for many hours or days, but costs more and takes longer to build, so Ofgem has created a cap and floor scheme to support it.
Why the system needs storage
Wind and solar output depends on the weather. Storage helps in several ways:
- shifting energy from windy or sunny periods to peaks;
- responding within a second to keep the system's frequency stable;
- easing local and national network constraints, so less wind is turned off;
- providing capacity at times of stress, such as cold, still winter evenings.
Batteries cover the first three well over hours. Covering longer gaps, such as days with little wind, needs longer-duration storage alongside other firm capacity.
How batteries earn money
Grid-scale batteries usually combine, or "stack", several income streams:
- Wholesale trading: charging when prices are low and discharging when they are high, in day-ahead and intraday markets.
- The Balancing Mechanism: being paid by NESO to increase or reduce output to balance the system.
- Frequency response and reserve: NESO's services such as Dynamic Containment, Dynamic Moderation and Dynamic Regulation, and newer reserve products.
- The Capacity Market: payments for being available at times of system stress, awarded through auctions. Shorter-duration batteries receive less, because their contribution is "de-rated".
- Local flexibility: payments from DNOs. See DSO and flexibility.
Early projects relied heavily on frequency response. As that market filled up, revenues fell and projects moved towards trading and the Balancing Mechanism, which favours longer durations. That is one reason new projects are increasingly two hours or more.
Connections and co-location
Batteries made up a large share of the connections queue before connections reform, because they are quick to develop. Under the reformed process, the number of batteries that can get firm dates is limited by the capacity the government's plans call for, by region. Many projects choose flexible connections to connect sooner.
Co-locating a battery with a solar farm or wind farm lets the two share a connection and capture output that would otherwise be curtailed. Planning rules, the way connection capacity is shared, and the CfD rules on co-location all affect whether this makes sense.
Long-duration storage
Long-duration electricity storage (LDES) generally means storage that can discharge for eight hours or more. Technologies include:
- Pumped hydro: pumping water uphill, then releasing it through turbines. It's the most established, with large schemes in Scotland and Wales and several new ones proposed.
- Liquid air and compressed air: storing energy by cooling or compressing air.
- Flow batteries and other emerging technologies.
These projects are capital-intensive, take years to build and last for decades. Their revenues are hard to forecast that far ahead, so investors have struggled to finance them on market revenues alone.
The cap and floor scheme
The government asked Ofgem to run a cap and floor scheme for LDES, modelled on the regime used for interconnectors. A project's revenues are assessed over a long period:
- if they fall below a floor, consumers top them up, which protects investors and makes the project financeable;
- if they exceed a cap, the excess is returned to consumers.
The first application window opened in spring 2025, for projects that meet minimum size and duration requirements. Ofgem assesses projects for eligibility, then on their value to the system, before deciding which receive a cap and floor. Follow long-duration storage for decisions.
What to watch
- Ofgem's decisions on the first LDES window, and the timing of a second.
- How many batteries get firm connection dates after the queue is re-ordered.
- Changes to NESO's balancing services, and how often batteries are used in the Balancing Mechanism.
- Capacity Market rules for storage and other low-carbon flexible capacity.
- Safety and planning rules for large battery sites.
Sources
Based on Ofgem's LDES cap and floor publications, NESO's balancing services information and government policy documents. Follow battery storage for the latest.
Follow the news
Latest stories on Battery Storage, Long-Duration Storage, CfD & Capacity Market. For terms, see the glossary; for key dates, the policy timeline.