The risks of leaving long-duration energy storage short of money

The continuous replacement of fossil-based energy generation with intermittent renewables, such as wind and solar, will require long-duration energy storage (LDES) to maintain the reliability of power systems. However, the lack of incentives for LDES risks harming the development of the technologies needed to fill this gap.

Duration is a metric that indicates how long an energy storage system can be discharged. While there is no standard definition for "long duration" in energy storage, more than eight hours is usually accepted as a threshold.

According to S&P Global's Clean Energy Technology Services, 99% of the existing storage capacity installed globally, excluding pumped hydro storage (PHS) installations, is in the short-duration spectrum, or below eight hours, and 75% of the total is below four hours.

This is because storage project developers have little to no economic incentive to invest in long-duration storage at the moment.

Revenues typically come from shifting energy within the day to benefit from price arbitrage opportunities or from agreements with power authorities to provide short-term ancillary services, such as frequency regulation or firm capacity. Although capacity markets could benefit from longer durations, the existing regional capacity mechanisms do not provide incentives for storage to go beyond four hours since fossil generation can close any unexpected long gaps of wind and solar intermittency.

In a decarbonized future, however, the role of storage to address intermittency and maintain reliability will grow significantly – so will the required duration of storage. This means new market mechanisms that adequately remunerate LDES will be required.

So far, most of the procurement has been driven by specific government tenders and discussions about other types of remuneration schemes are still in the very early stages.

The development of market-based mechanisms will not be simple and the challenge will grow along with the targeted durations, increasing in complexity for multi-day storage.

Most of the intermittency events of wind and solar are relatively short and predictable. Therefore, even in decarbonized scenarios, short duration storage will remain dominant.

Finding a way to remunerate an asset that will only be used in a few emergency situations – when both wind and solar generation are unavailable for multi-day periods – is likely to be complex and costly.

Future market requirements

The need for LDES will vary according to region and dispatchable clean energy sources, such as hydropower and geothermal. Other flexibility tools, such as demand response, will also play a key role to firm up wind and solar capacity in the future.

All markets analyzed by S&P Global, however, will require some LDES capacity in a hypothetical fully decarbonized scenario to maintain their energy systems' reliability. This will require the development of currently non-existent market mechanisms that provide incentives for LDES.

This lack of financial incentive also raises a technological challenge: the bulk of the energy storage capacity deployed in recent years employs lithium-ion battery-based systems, which scale up in cost along with duration.

Despite the recent plunge in lithium-ion costs, the technology is unlikely to ever become economical or practical at durations above 12 hours or multi-day. One of the key components of the lithium-ion technology is lithium carbonate, which Platts assessed at Yuan 108,000/mt DDP China on April 16. Prices had previously reached a record Yuan 590,000/mt DDP China in November 2022, highest level seen since the assessment launched in September 2018.

Several alternative technologies can increase duration at marginal costs. While a few of them are readily available, they have limitations on their siting. For instance, pumped hydro energy storage has been used for decades, but it requires the availability of different land elevations to be built, and construction can be complex and lengthy. Compressed air energy storage (CAES) depends on the availability of underground caverns for storage, while concentrated solar power (CSP) is extremely intensive in capital and operating expenses, and land use.

Most of the other technologies are still in early stages of development and are not attracting investments to accelerate their progress. According to S&P Global, 88.5% of the LDES projects that have not yet started operations are using one single technology: pumped hydro energy storage.

Without investments, many of these technologies might not be ready for commercial scale when the need for LDES arises and the required market mechanisms are in place, which could delay the transition away from fossil sources.

Emerging technologies

Storage technologies are typically categorized by the way in which the energy is stored. These categories include electrochemical storage, such as batteries; mechanical storage, like pumped hydro storage or compressed air storage; thermal storage, like molten salt CSP; and chemical storage, for example, hydrogen.

Today, lithium-ion batteries account for over 90% of global installed energy storage capacity, focused primarily on short duration applications of about two to four hours.

Alternative storage technologies are at different technology readiness levels today, with the most mature technologies being CAES and PHS. Other battery chemistries such as sodium sulfur and lead acid have been around for a while before lithium-ion really took off. Flow batteries, using vanadium and iron variants, have reached a considerable level of maturity in their development.

Despite this progress, the scale of commercial projects implemented so far remains relatively small, typically in the tens of megawatts in most cases. Nevertheless, advantages of utilizing non-critical materials, easier recyclability and longer lifespan are increasingly important technological benefits, particularly in a world increasingly prioritizing energy security and independence.

A key challenge for many alternative storage technologies is the lack of manufacturing scale that lithium-ion leverages from the electric vehicle industry, that has enabled such dramatic cost reductions over the past decade.

Non-lithium technologies, such as CAES, liquid air energy storage, sodium ion, gravity storage, can leverage existing supply chains from adjacent industries the same way lithium-ion has, and are well placed to scale production. The components and equipment used for CAES, for example, have several decades worth of track record, using off the shelf turbomachinery from the power generation industry, meaning existing supply chains are already well established.

Another notable development in this space is the growing number of sodium-ion manufacturing announcements. Sodium-ion technology benefits from well-established component supply chains and similar manufacturing processes to lithium-ion. Much lower raw material costs of sodium means sodium-ion batteries could at scale achieve a lower cost compared to lithium-ion at durations even beyond eight hours. However, proof of commercial projects and ramp-up of manufacturing production needs to develop further for this to happen.

The first 100-MWh sodium-ion project announcement in China in January is a sign of rapid movement in this direction.

Other technologies that only serve the energy storage industry may struggle to scale up manufacturing of more bespoke components cost effectively, especially if they are competing with lithium-ion in the multi-hour duration space.

Looking ahead, the fundamental need for long-duration solutions far beyond eight hours is inevitable if fossil flexibility is to be phased out and renewable shares account for the majority of power generation.

It is critical that flexibility requirements are determined in advance of this need actually arising. This will require dedicated flexibility assessments from a system level – and steps toward this direction is already noticeable in Europe's electricity market reform in 2023.

Inherent challenges also need to be overcome to create a long-term business case for long duration solutions, which will become increasingly important as renewable shares reach a tipping point, requiring multi-day storage solutions.

The persistent price competition leading to the reduction of lithium system costs poses a significant hurdle for alternative technologies aim to compete at durations up to 10 or 12 hours.

Further strategic partnerships and long duration procurements will continue to drive future pipelines of non-lithium solutions, with those able to scale most effectively and prove commercial projects at scale taking a greater market share.

This article was first published in the May 2024 edition of Commodity Insights Magazine .