More renewable energy in the mix means, on the whole, a greater need for power storage capacity. Currently, all of the green electrons cannot always be absorbed by grids or used by consumers as they are produced
CLEAR SIGNALS
Most markets are not incentivised to send signals for storage to consider multi-hour, multi-day or seasonal
FAR HORIZONS
The European Union’s ongoing review of market rules could unleash grid storage by allowing the sector to more easily access long-term contracts
KEY QUOTE
Policies, legal systems and lawmakers are lagging behind the technology at the moment. This is one obstacle that is slowing down everything
Some clean power can be used to produce next-generation fuels like green hydrogen or e-fuels but it will still be storage capacity that will play the most important and sizeable role in future energy systems.
Pumped hydro—which uses excess electricity to refill a reservoir behind a dam before releasing the water through a turbine when power is needed—has been the go-to large-scale storage option for many countries. But the obvious limits of hydropower, such as costs, environmental concerns and geographical constraints, mean that other forms of grid storage are rapidly coming into contention to be crucial energy transition linchpins.
Battery storage in particular is set to enjoy a boom as installation costs come down, policies converge around maximising clean energy output and regulators slowly but surely get their act together.
GRID SUPPORT
According to the International Energy Agency’s 2023 report on electricity markets, battery installations rose nearly 100% in China last year, compared with 2021. The United States saw an 80% increase, while in Europe it was around 35%.
The technology’s ability to store clean energy is its most obvious value but additional factors like grid balancing services are also needed, particularly as power systems move further away from being designed around peak loads.
Jarand Rystad, the founder of energy research firm Rystad Energy, told FORESIGHT’s Policy Dispatch podcast that “batteries will revolutionise the grid” and that storage goes hand-in-hand with solar power production in particular.
“The business case going forward will be integration with upstream resources. Every solar farm will have a battery plant because if you do not, you risk not being paid for your electrons during the day when competition is high,” Rystad explained.
With assumed storage costs of about $30 per megawatt-hour (MWh), solar plants can build a business case around generating power during the day when prices are low, storing some of it and then selling it later in the day when demand and prices increase.
REGULATORY HURDLES
Political priorities around the world have prompted energy market analysts to be more optimistic about storage’s future prospects. BloombergNEF, an energy outlook analyst, says the European Union’s (EU) REPowerEU strategy and the US’ Inflation Reduction Act have both turbocharged the industry.
In its latest predictions, BloombergNEF expects an extra 13% increase in capacity compared to previous forecasts, equal to some 46 gigawatts (GW) of storage. China and the US will continue to lead the field but Europe is quickly catching up.
However, the battery revolution is not yet fully global. “In many countries, you are still not allowed to integrate battery plants into the grid because there is no definition under the legal system,” Rystad warned. “Policies, legal systems and lawmakers are lagging behind the technology at the moment. This is one obstacle that is slowing down everything,” he added.
CONSISTENT ACCESS
Other factors that penalise battery developers are yet to be tackled. Across Europe, there is no consistency on grid access charges, for instance. Some countries either charge operators to add or remove power, while in some cases double-charging occurs. The storage sector is on the whole struggling with a lack of consistency in rulemaking.
The European Commission is yet to crunch the numbers on what level of storage will be needed to meet its various decarbonisation goals. The European Association for Storage of Energy (EASE) estimated in 2022 that the EU will need 200 GW by 2030 and 600 GW by 2050, meaning annual deployment rates will have to hit at least 14 GW.
“Energy storage needs to become a political priority alongside renewables. Without a parallel storage strategy and scaling up of market-ready energy storage technologies, the EU will be unable to achieve a net-zero power system,” EASE concludes in its 2022 annual report.
DELAYED RESPONSE
Claudia Gamon MEP (left) called for an energy storage strategy in 2020
SLOW PROGRESS
Claudia Gamon, an Austrian member of the European Parliament, points out that she and her fellow lawmakers urged the Commission to come up with an energy storage strategy three years ago. “This call has remained unanswered until this day,” Gamon says, adding, “We have a broad range of mature storage technologies on our hands and it needs a strategy to roll out storage capacity within the EU.”
The Commission has published a number of strategies on energy systems as part of its Green Deal, including the hydrogen strategy in July 2020. EASE has urged the EU executive to “replicate its scope and ambition”.
In March 2023, there were some notable steps forward. The Commission issued a number of non-binding recommendations to governments on how to prioritise storage projects and the EU’s Joint Research Centre (JRC) published a study into the flexibility requirements of the European power system in 2030 and 2050.
Both documents will guide lawmaking at national and EU-wide levels, hopefully leading to the comprehensive strategy and targets for which the sector is currently crying out.
MISSING SIGNALS
Long-duration energy storage (LDES) includes those technologies that can store power for more than ten hours and can potentially make it available days, weeks or even months later. Their potential to hasten the energy transition is marked but there are shortcomings in the market that prevent them from contributing more.
“Most markets are not incentivised to send signals for storage to consider multi-hour, multi-day or seasonal,” says Julia Souder of the Long Duration Energy Storage Council. Various ancillary services that can be provided by long-duration storage are often not fully taken into account, she adds.
Souder insists that market design rules need to be improved to maximise LDES’s potential by allowing for flexible charge and discharge criteria. She also points out that LDES can help relieve congestion and can be seen as a transmission asset.
Form Energy, a US-based storage firm that aims to commercialise LDES, including iron-air batteries, agrees that markets need to allow for long-term stable revenue streams for low-carbon firm capacity.
“It is helpful when state and federal leadership set targets and goals,” says Form Energy’s Mateo Jaramillo, pointing to recent decisions by California, Massachusetts and New York to fund LDES projects or include them in energy policy strategies.
IMPRESSING INVESTORS
The European Investment Bank (EIB) sees grid storage projects as a priority and a big part of its lending strategy, which was reformed in 2019 to better align it with the EU’s tilt towards green policies. Investments have been made in demonstration and small-scale projects in the past, particularly in areas that are isolated from conventional energy supply, such as island communities.
But market-ready grid storage is now firmly on the docket. In 2022, the bank approved €16 million in financing for a 105 megawatt (MW) lithium-ion battery project located near Bordeaux, France. The site is currently under construction. The EIB insists that the business model “can be replicated for other projects, in France and other European countries”.
Energy storage deployment has suffered since 2020 due to supply chain issues triggered first by the Covid-19 pandemic and then Russia’s invasion of Ukraine. Nevertheless, the EIB still sees only one way forward for storage: up.
It is a forecast shared by BloombergNEF, which predicts that global storage capacity will top 400 GW by 2030. This would mark a fifteen-fold increase in the amount of capacity installed at the end of 2021.
BloombergNEF expects battery technology to dominate storage rollout until the 2030s, due to price competitiveness and established supply chains but acknowledges emerging technologies like compressed air and thermal storage are being developed.
Advisory firm McKinsey says “unprecedented interest from governments, utilities, and transmission operators” in LDES technologies justifies its forecast that there is potential for between 1.5 and 2.5 terawatts globally by 2040—around ten times the amount of energy storage currently available and would be capable of storing 10% of all electricity consumed. McKinsey estimates investments of at least $1.5 trillion would be required.
HYBRID PLANS
The EIB is triple-A rated for a reason though and likes to bet on projects that come with proven credentials. Long-term contracts are among the most bankable factors, along with a diverse set of revenue streams.
A growing trend towards more hybrid projects—made up of wind or solar with battery storage—should help developers prove to lenders that they are financing a safer bet and helping get more storage capacity into the mix.
The European Commission’s REPowerEU strategy, which aims to insulate the EU’s economy from Russian energy import dependence, will accelerate permitting for those kinds of hybrid projects, making them even more attractive.
LOOKING LONG-TERM
The ongoing review of EU electricity market rules could also be a boon for grid storage if the sector is able to access long-term contracts more easily. Thomas Lewis at EASE says investors love diversity and a dose of certainty.
“To attract investors, energy storage projects need a diversified range of revenue streams, stacked on top of each other,” Lewis says, adding that long-term contracts are also a massive selling point.
“Long-term contracts, looking at beyond ten years, can come from a range of sources. Hybrid PPAs with renewables plus storage can provide 24/7 clean power and guarantee solid revenue for energy storage projects,” he explains.
Stacking revenue streams and securing long-term deals are essential because of another factor too: arbitrage services will become less profitable, the more renewables are added to the energy mix. The energy system equivalent of trading stocks, arbitrage involves battery operators buying and storing power when it is cheap and then selling it back into the system when the price increases.
“The less gas we have in the system in the long run, the smaller the price spread, which is obviously good for consumers and the climate, but can eat into the basic revenue needed to operate energy storage,” Lewis warns.
BRIGHT FUTURE
Despite regulatory holes and the tough financial situation that grips the global economy, the storage sector continues to cross milestone after milestone. A battery project in the northeast of the United Kingdom dubbed “Europe’s biggest” went live in late 2022 and promises to provide enough capacity to power 300,000 homes for up to two hours.
It is designed to provide important balancing services for the UK grid, which will earn the project crucial revenue. The site also benefits from being located next to the grid access point that will be used by the world’s largest offshore wind farm at Dogger Bank.
Constructed using Tesla battery technology, the site in Yorkshire will also help the UK’s grid operator avoid paying curtailment fees when clean energy generation outstrips either demand or the electricity’s network’s capacity to handle it.
In 2022, the UK’s transmission system operator National Grid paid more than £200 million to wind farm operators to switch off their turbines when supply was simply too great and a further £700 million to gas plants to make up for shortfalls.
Between October 2022 and January 2023, the UK wasted wind power equal to the energy demand of more than one million homes, according to Stonehaven, a consultancy.
FINDING A BALANCE
Storage projects can provide grid balancing services as part of a revenue stacking business plan
ISLAND LIFE
On the other side of the continent in Greece, battery storage is also becoming an integral part of the energy mix, as the country’s impressive clean energy potential and isolated island grids offer a perfect environment in which to roll out the technology. Regulatory changes are coming in thick and fast to prepare the ground for more capacity to be linked up to the grid.
The list of projects in the pipeline ranges from batteries in coal mines and ceramics factories to co-location with renewable energy installations. Some of these storage projects can only feed power that has been generated by the co-located renewables project into the grid—and cannot take power from the grid. It is these sites that will have priority when grid connections are being established.
According to a renewables bill submitted to the parliament in mid-2022, renewables developers will automatically move up permit waiting lists if their project includes storage capacity. The government’s wider energy plan hopes for at least 3 GW of storage by 2030.
Greece’s regulator had already approved more than 2 GW by the end of January 2023 and more applications are on the way. A general election later in spring 2023 is likely to delay a first auction for battery storage capacity, which will aim to get another 1 GW on the books.
GOAL SETTING
Spain too is looking to leverage its massive renewable energy potential and is aware that storage will play a big role in that effort, setting a 20 GW storage target for 2030 and including those projects in power auctions.
“Targets have been shown to be very beneficial in steering investors towards energy storage technologies and ensuring issues such as permitting are tackled to meet set aims,” EASE’s Lewis explains, adding that it is “a good road to go down”.
Across the Atlantic, the United States is set for a vintage year in clean energy rollout, partly triggered by President Joe Biden’s Inflation Reduction Act and storage is no exception. According to the US Energy Information Administration, 8.6 GW of grid storage is planned to be added by the end of 2023, which would double the current total US battery capacity.
CAPACITY MARKETS
Capacity remuneration mechanisms (CRMs), or capacity markets, are schemes designed to secure supply. However, they are often expensive and only somewhat shield consumers from the high costs of ramping up emergency power generation.
Most countries keep a pool of power plants in reserve, often gas that can be switched on and off quickly, and hold auctions to decide what generators should be granted these lucrative contracts.
Storage advocates are eyeing CRMs as a guaranteed way to prop up revenues, build gold-plated business cases and get even more green power into energy systems.
Inroads are already starting to be made. Italy’s capacity market auction for 2024 resulted in 1.1 GW of clean energy storage, half of which was located on the island of Sardinia.
CHOICE OF TECH
What kind of storage should be allowed to bid in CRMs is an ongoing question. The LDES Council points out, “Current capacity markets are designed to capture just a few hours of short-term storage technologies mainly for frequency response”.
According to EU rules, projects included within CRMs must respect a CO2 emission limit of 550 grams per kilowatt-hour. After 2025, an additional separate annual average limit of 350 kilograms of CO2 per installed kilowatt will be introduced.
But a debate about this emissions limit and whether it should be reduced at all is now heating up, with some green energy groups pinpointing the Commission review of electricity rules as an opportunity to rewrite the CRM standard as well.
“We should avoid incentivising backup generation based on fossil fuels where possible. There is already an emission cap in place, decreasing the cap for capacity assets can be one possibility to reduce the carbon intensity of these projects,” says MEP Gamon.
The capacity market limit was previously aligned with the EIB’s lending policy but the bank updated its rules in 2019 and now imposes a stricter benchmark of just 250g of CO2 per kWh. EASE’s Lewis insists that the emission cap should initially be aligned with the EIB benchmark and “eventually lowered to zero, to ensure only clean technologies take part”. •
TEXT Sam Morgan PHOTO Harmony Energy