Long Duration Electricity Storage: Draft Special Licence Conditions

What this is about

Ofgem is consulting on a working draft of the special licence conditions that will govern Long Duration Electricity Storage projects awarded support under the cap-and-floor regime. This is the operative layer of the scheme. The cap-and-floor financial framework and the Multi-Criteria Assessment determine which projects get appointed and on what economic terms. The special licence conditions determine what those projects must actually do once they hold a licence: how they operate, how revenues are measured against the cap and the floor, what counts as available capacity, what triggers penalties or clawback, and how Ofgem can intervene if a project underperforms or restructures.

The timing matters. Ofgem is running this as early, non-statutory engagement ahead of a statutory consultation planned for Q2 2026. That sequencing is deliberate: get drafting and operability feedback now from the projects bidding into the first application window, then put a refined draft through the formal statutory process. The first window's bidders need to know the licence terms they would be living under before they finalise their applications, and Ofgem needs to know whether the conditions as drafted are workable for the technologies in scope (pumped hydro at one end of the duration and capex spectrum, novel long-duration chemistries at the other). The consultation closed 20 April 2026, so this is a past-deadline call for input rather than an open one; the substantive next event is the Q2 2026 statutory consultation on the same conditions.

How to respond

The deadline has passed. Responses were due by 11:59pm on 20 April 2026, submitted via a Microsoft Forms link titled "Call for Input: Draft Licence Framework for Long Duration Electricity Storage (LDES)". Alternative submission methods could be arranged by contacting the LDES team at ldes@ofgem.gov.uk.

Two documents accompanied the call for input: the call for input document itself (459KB PDF) setting out the policy areas where Ofgem most wanted feedback, and the Draft LDES Special Licence Conditions (1.68MB PDF) containing the operative drafting. Anyone preparing for the Q2 2026 statutory consultation should read both now, because the statutory draft will be a refinement of this version rather than a clean restart, and the questions Ofgem has already decided are settled will not be reopened.

What to watch in the Q2 statutory consultation

The call-for-input page does not publish a structured question list, so the substantive questions are inside the 459KB document rather than in the page text. The areas where licence-condition design will materially shape LDES economics, and where the statutory draft should be read carefully when it lands, are:

Cap-and-floor revenue measurement. How is the revenue that counts against the cap defined? Gross trading revenue, net of imbalance and ancillary costs, or net of all operating costs? The treatment of Balancing Mechanism income, ancillary services revenue, capacity market payments, and any locational or constraint payments determines how often projects hit the cap and how often they draw from the floor. A wide definition (all revenue streams count) makes the cap binding more often and reduces the public liability. A narrow definition lets operators stack revenues outside the regime.

Availability and performance obligations. A cap-and-floor without an availability obligation is a soft revenue guarantee. The licence conditions need to define what counts as an outage, what the minimum availability target is, how planned versus unplanned outages are treated, and what the consequences are for sustained underperformance. The drafting here is what turns the floor from a subsidy-for-existing into a payment-for-delivering.

Floor eligibility and clawback. Under what conditions can a project draw from the floor? Is there a duty to have tried to earn merchant revenue first? Are there efficiency obligations on dispatch decisions, or is the operator free to under-dispatch and rely on the floor? Clawback mechanisms for projects that draw the floor while having mismanaged operations are the discipline lever; their absence is the route to capture.

Treatment of capital and refinancing gains. Cap-and-floor regimes are vulnerable to refinancing gains being privatised while losses are socialised through the floor. The licence conditions should define whether refinancing benefits are shared, how changes of control are handled, and whether equity returns above a threshold get clawed back. Interconnector cap-and-floor (the precedent here) has these provisions; whether LDES copies them or weakens them is a key drafting question.

Definition of LDES and technology neutrality. The conditions need an operative definition of what counts as long-duration storage for the purposes of the licence. Duration thresholds, round-trip efficiency floors, and treatment of hybrid configurations (e.g. pumped hydro with pumped-storage-plus-battery) all sit in the licence. Tight definitions exclude innovation; loose definitions let conventional storage rebadge itself.

Decommissioning and end-of-asset-life. Pumped hydro assets have multi-decade lives; novel chemistries may not. The licence conditions need to set decommissioning obligations, security arrangements, and what happens to the cap-and-floor support if the asset is repowered or rebuilt mid-regime.

Information and reporting. What does the operator have to tell Ofgem, how often, and in what form? Reporting obligations are the substrate of regulatory oversight. Light-touch reporting means Ofgem cannot detect underperformance; heavy reporting raises compliance costs and risks deterring smaller projects.

Modification and dispute mechanisms. How can the licence conditions be changed once granted? The cap-and-floor runs for decades. The conditions need a modification process that protects operators from arbitrary tightening while letting Ofgem respond to regime-level failures. Whether modifications follow the standard licence modification route or a bespoke LDES route matters for predictability.

Why the drafting discipline matters

LDES under cap-and-floor is administered economics, not a market. The cap-and-floor structure is borrowed from the interconnector regime, which has a track record of revenue protection but also of refinancing windfalls and contested availability definitions. Whether LDES delivers what the regime is meant to buy (firm, dispatchable, long-duration capacity at peak system stress) or just delivers revenue stability to a small set of incumbents depends on the licence conditions, not on the headline cap and floor numbers.

The case for tight conditions is straightforward. Ofgem is committing consumers to underwrite a revenue floor for decades. The floor exists to make projects financeable that would not otherwise clear a merchant test. The justification for the floor is the system value of long-duration storage at peak stress events. If the licence conditions do not require operators to actually deliver at those events, with verifiable availability, dispatchable response, and clawback for non-performance, then consumers pay for an option they never exercise.

The case for looser conditions is also real. LDES technologies vary widely. Pumped hydro is a well-understood civil engineering proposition with predictable availability and 80+ year life. Novel chemistries are not. A conditions regime calibrated for pumped hydro will exclude the new entrants the policy is meant to support; a regime calibrated for novel chemistries will let pumped hydro operators capture rent. The drafting needs to handle technology variance without either excluding innovation or socialising operational risk that should sit with the developer.

The question to track through the statutory consultation is whether the conditions impose performance discipline matched to the revenue protection on offer, or whether the floor becomes a soft guarantee for projects that would have been built anyway. The drafting choices on revenue definition, availability obligation, floor eligibility, and refinancing clawback are where that question gets answered. Press releases and policy summaries will not show it; the licence text will.