June 28, 2022

Long-Duration Storage: the key to a decarbonised energy sector

Beatrice Böhm, Investment Associate at Munich Venture Partners

According to the latest IPCC report, to stop temperatures rising by more than 1.5 degrees Celsius, greenhouse gas levels will have to fall by 43% as early as 2030 compared to 2019 levels. This will not be achieved without an overhaul of our energy system, which accounts for more than one-third of global emissions. The move from fossil fuels to renewables is pivotal in the fight against climate change. It is also a key driver of energy security, as demonstrated by the Russian war in Ukraine. However, renewables face intermittency and seasonality issues. To fill a majority of our energy needs, they will need to be coupled with long-duration energy storage (LDES). This article explains the need for LDES, and how the EU could accelerate its deployment.

Long duration energy storage is essential to decarbonise the energy sector

The rapid integration of large variable renewable energy (VRE) capacities with fluctuating power production calls for an increasingly flexible power system. However, this brings  3 major challenges with it, one being the balancing of renewable electricity supply and demand.

Balancing electricity supply and demand will require a massive roll-out of short- and long-duration storage capacity to deliver renewable electricity on demand. Yet, recent years have only seen a build-up of short-duration energy storage technologies. As of 2021, 93% of global storage capacity was of short-term nature, providing maximum 8 hours of discharge. That type of storage is helpful for handling peak demands on a daily basis, but ensuring energy security requires vast long-duration energy storage (LDES) capacities that can provide firm power generation during periods of insufficient renewables production.  

LDES is defined as a system that can store energy for more than 8 hours. It can store energy at times of surplus and release it when needed, i.e., when the wind isn't blowing and the sun isn't shining for extended periods of time, or because of seasonal patterns. These technologies complement short-duration solutions – such as Li-ion batteries – by delivering renewable energy to fulfil long-duration system flexibility needs, ranging from hours to weeks or even months.

LDES covers a wide range of technologies that can store energy through chemical (e.g. power-to-gas), electrochemical (e.g. flow batteries), mechanical (e.g. compressed air), or thermal (e.g. heat) means. As of today, these various LDES technologies are at different levels of maturity and market readiness. Some are still in the pilot phase, while others are close to commercial deployment or have already reached their roll-out phase.

These storage technologies can be assessed by the capacity of energy stored (typically measured in kWh) as well as by the maximum power delivered (typically measured in kW). Other important assessment criteria are efficiency, costs, as well as reaction speed.  

For short-duration energy storage, capacity is less important, and the goal is low investment costs for maximum delivered power. For LDES, storage capacity is at least as important if not more important than the power delivered, so the cost of storage capacity, which is usually caused by the required infrastructure, has to be minimised.

Projections show that a cost-optimal, net-zero energy system requires scaling-up LDES by a factor of 400, globally to 1.5-2.5 TW by 2040. This implies that 10% of all electricity generated will be stored in the form of LDES at some point in time and that $1.5-3 trillion in investments will have to flow into LDES over the next 18 years. While this is a significant amount, the total anticipated investment is comparable to what is invested in transmission and distribution networks every 2 - 4 years. Adding flexibility to the energy system can therefore avoid some transmission and distribution investments.

Large-scale LDES deployment is expected to avoid 1.5 to 2.3 gigatons of CO equivalent per year by 2040 globally, representing roughly 10-15% of today’s power sector emissions. Also from an impact perspective, it is important to note that storing electricity in the form of gases or heat – so-called sector coupling –not only adds storage and flexibility capacity to the energy system, but also supports the decarbonisation of other sectors such as transport, buildings, and industry.

The EU's energy independence ambitions will not be achieved without storage

The REPowerEU plan aims to safeguard the EU’s energy security, through: (1) an accelerated roll-out of renewables; (2) massive and swift deployment of clean technologies; (3) diversification of energy supplies.

It increases the ambition in terms of share of renewables in the energy mix from 40% to 45% by 2030, equivalent to 1236GW of installed renewables capacity. It also sets particular targets for the deployment of PV, hydrogen, and heat pumps. However, while it recognises the importance of storage technologies to support the deployment of renewable energy, it does not include specific targets for roll-out of LDES. Expansion of renewables even with current targets – let along more ambitious ones – will be impossible without providing the required storage capacity. A recent BCG study highlighted that 15 gigawatts of long-duration energy storage, equivalent to some 30 TWh of stored power, will be needed to hit REPowerEU’s target. A clear European storage strategy would help to ensure that this capacity is fulfilled.

Proposal 1: Create an EU Energy Storage Directive with binding national targets  

Underpinning investor confidence and stimulating companies to roll-out LDES solutions requires long-term system planning – including clear targets for renewables’ share in the power-generation mix and the infrastructure required to maintain system stability. We therefore believe that setting up a well-defined regulatory environment is a first crucial step for a stable market environment for LDES. This could be done with the creation of an EU Energy Storage Directive with binding national targets for deployment.  

A good example in this sense is already under way in New York. Furthermore, the US Department of Energy launched an effort to push down costs of long-duration energy storage by 90 percent by 2030 through the Energy Earthshot Initiative set up last year.

A Flow Battery Installation by Elestor, a leading EU LDES scale-up
Proposal 2: Create supportive market mechanisms to capture the full value of LDES

The deployment of LDES is strongly dependent supportive market designs that accelerate investment. As of today, there are only a few market structures in place recognizing the value of LDES over short-duration energy storage (SDES). This is detrimental as SDES has smaller CAPEX but targets the same revenue streams as LDES and therefore makes it impossible for LDES to compete with SDES.  

Policies supporting and recognizing diversification in the profile of energy storage deployed could help overcome this hurdle and incentivise the rollout of LDES. Trailblazers such as the States of California and Arizona have already come up with examples of legislation explicitly designed to meet the needs of LDES. In this sense, California launched a $380 million funding program intended to improve LDES margins and accelerate project development via grants supporting 10-20 deployment projects for various technologies. Additionally, in 2021, California Public Utilities Commission (CPUC), called for a 1,000MW long-duration energy storage procurement for 2026, offering between eight and 100 hours of duration.

Even in these markets, current constraints for system modelling and implementing energy storage, such as state of charge management, co-located charge, and discharge or batteries, do not yet provide tools to assess the value of LDES for large temporal and geographic displacements between storage and return to power. Market mechanisms that enable monetisation of long-term storage and distribution of renewable energy will encourage investors to provide capital for large grid-scale LDES projects.  

Another significant barrier in today’s market design highlighted by the European Association for Storage of Energy (EASE) is that EU energy market rules don’t put a value on decarbonisation, helping gas peaker plants win capacity auctions. EASE therefore rightfully calls for changes in European energy market rules that recognise and valorise decarbonisation efforts enabled by LDES.

Proposal 3: Utilise government support to de-risk the early deployment of LDES and scale-up the market

Although the need for LDES is already on the policy agenda, high upfront costs, a lack of revenue certainty and missing market signals are slowing down investments in the field.

Government support could play a decisive role in kick-starting the LDES market. Short-term funding for these technologies can be viewed as a long-term investment that will pay-off in the form of a lower-cost and decarbonised power system as well as a de-risked energy transition. An example in this sense is the U.S. Energy Act of 2020, which includes a research budget for long-duration storage.

Besides de-risking the market, government could also support the scale-up and commercialisation phase of different LDES technologies, for example with large-scale demonstration plants to help these technologies reach their full technological and cost-reduction potential. The United Kingdom launched a $100 million LDES demonstration competition in early 2021 to accelerate the commercialisation of LDES technologies. Spain has also announced that it would spend part of its Recovery funding to ramp up energy storage, in a €7 billion package that also includes investments in green hydrogen and renewables.

Additionally, this public support can be used as a great vehicle to mobilise private funds for the development of LDES.

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