Cap and Floor Scheme: Will there be a Window 2?

June 2025

We are now at the start of the first bidding round for the cap and floor long duration battery energy storage (LBESS) scheme. The doors for applicants closed on 9 June. Some have asked whether that’s a deadline: Ofgem describes it as such but fudges the possibility of extension when it says:

The deadline for submitting applications is 9 June 2025. After this date, applicants will not have the automatic right to update or expand their submitted applications.

Note the denial of an “automatic right”, implying the possibility of extension.

We don’t know how many projects have applied, though perhaps we will be told.

Of those that have applied, we don’t know how many will fail the eligibility tests (conducted from June 9 to August 9 and which have yes/no or go/no-go answers). If many fail, I would hazard a guess that it’s because they didn’t consider submitting pre-planning applications (Ofgem didn’t ask for them but clearly requires something tantamount to them) or because they fell over the connections pause hurdle and can’t prove they have started the connections process.

Curiously, the outcome will be decided in August but won’t be announced until Q3. Perhaps that indicates that there is room for adaptation, by Ofgem even if not for applicants.

At the same time (i.e., still in Q3), the outcome of the consultation that has just been published on the shape of the required cost benefit analysis will be announced, far too late for any applicant to take account of since, at the same time the decision is published, the cost assessments by projects have to be submitted.

Following on the heels of this, in the same quarter, projects are indicated as selected. And following that, in Q1 2026, announcements of selected projects are made, to be consulted on and confirmed, or otherwise, in Q2 2026. In the midst of all this there’s a slew of techie consultation papers, including from NESO which plays a major role in the process, plus publication of other working documents.

It’s a squashed process.

Window 2

There are two additional separate announcements intended to be made. First, how much more LBESS capacity is needed and, second, when window 2 for any extra capacity will open.

What is the capacity sought? Ofgem says this:

The indicative capacity range for the first application window is between 2.7 and 7.7 GW up to 2035. This is based on advice provided by NESO to government, through its NESO’s Future Energy Scenarios (2024) which indicated a further 2.7 to 7.7 GW on the system by 2035 would be needed by 2035.

This is a curiously opaque bit of writing. Whereas it seems to indicate that there are two quantities of LBESS being referred to there is, in fact, one. We know this because the basis for the assumed system needs is the 2024 Future Energy Scenarios published by NESO (to be updated in July this year) and it indicates that by 2050 only 15GW of BESS (BESS not LBESS alone) will be needed.

The figure, whatever it is (2.7 or 7.7GW) will inform the joint appraisals of Ofgem and NESO in Q3, but it won’t be announced until the start of next year. Coyness with the figure suggests yet another bit of room for manoeuvre by Ofgem.

As to a timing for window 2, no time has been suggested other than ‘as soon as practicable’. It must be surmised that this answer depends wholly on what the capacity sought was (why not 7.7?) and how much has been achieved.

The gap between 2.7 and 7.7 is not non-significant. What explains it? Is it that after all this time and all this work NESO doesn’t know how much LBESS capacity will be needed? Or because it doesn’t know the rate of growth of BESS capacity in the merchant market.

The answer to both questions has to be ‘no’.

It is for NESO to decide what’s needed on the basis of its system modelling which would surely have been tested before being used in earnest on projects that have spent considerable time and funds. So it must have a narrower (much narrower) range in view.

And if anyone knows the rate of growth of BESS it is NESO above all others. The last available BESS figures are for 2023 which showed there to be 3.5GW on the system with an increase from 2.1GW in 2021, so it’s growing, quite fast. But NESO will have to hand the list of all those BESS projects that have applied for a connection offer (it is now in control of the whole connections process) so will know how much BESS capacity could be installed before taking project decisions in Q3 this year. (And yes, for the avoidance of doubt, I am assuming that LBESS is in a semi-protected category and that in a race to get on the system LBESS will beat BESS and others.)

The potentially hugely substantial amount of plant of 7.7GW has to jump value for money hurdles to be able to succeed in obtaining a cap and floor contract – it can’t have the effect of increasing wholesale market costs, increasing capacity market costs, increasing interconnector offset costs (all measured by reference to what would be costs in its absence); it can’t need overly high floor payments or inappropriate caps; and so on. The scheme is designed to leave the consumer as neutral as it can be to energy costs. Unless NESO is unsure about its modelling, a target of 7.7GW must be assumed.

The proviso to that is Ofgem – Ofgem doesn’t know whether applicants will accept the constraints of (relatively speaking) a high floor and a low cap and the outturn may be a smaller number of GW than it (covertly) hoped for.

In the sheer size of the number and Ofgem’s justified uncertainty lies the answer to the question ‘will there be a window 2?’. Ofgem must be expected to be prudent in window 1 and, in being prudent, is likely to lose a number of scheme applicants and so open the need for a window 2 to provide the LBESS target modelled by NESO.

As soon as possible as a date for window 2? I would suggest six months to allow Ofgem to adjust its figures and three months to kick-start the process.