Investors see light ahead for the LDES market

2023 wasn’t an inflection point for the technology, but investors have near-term optimism, thanks in part to the low low price of solar.

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Image of batteries and clocks

AI-generated image: Gold Flamingo

Image of batteries and clocks

AI-generated image: Gold Flamingo

The need for long-duration energy storage is immense: the United States grid will need as much as 460 gigawatts of long-duration energy storage by 2050. 

The potential for this still-elusive technology is also immense: it has the potential to store up to 10% of global electricity consumption by 2040, with market value in the neighborhood of $4 trillion. 

But the market is still hovering at the bottom of this potential growth curve. In 2023, there were just 1.4 gigawatts of LDES capacity commissioned worldwide, and the U.S. is well behind the Department of Energy’s goal of reducing costs by 90%, as compared to a 2020 lithium-ion baseline.

It’s a nascent and challenge-plagued market, especially because it’s facing the urgency of reaching technological maturity and cost parity, alongside interconnection problems and transmission bottlenecks. LDES solutions currently range up to $600 per megawatt hour.

However, investors say the combination of low-cost solar and millions in federal funding is creating an extremely positive outlook that could see the tech hit its inflection point in the next two to five years.

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“Right now, because the cost of solar and wind are very low, it’s the right timing for long duration energy storage,” said Laurie Menoud, founding partner of At One Ventures. The market itself is incredibly young, she added, but super cheap solar is giving it an advantage.

In parallel with those low costs, there’s been a “noticeable uptick” in activity in the LDES market in the last few years, Menoud said. That uptick has included a wave of new technologies, including diverse flow batteries, gravity-based storage, and advanced chemical batteries.

Basing optimism about LDES on the success of the solar market is entirely warranted, said Ryan Gibson, a partner at Eclipse Ventures. He pointed to the International Energy Agency's estimate that more than $1 billion invested in solar every day in 2023.

“What we’ve seen in the last few years, accelerated by the IRA, is that these projects are exponentially increasing in abundance, and the ability to sell [storage] into them is fantastic,” Gibson added.

But solar isn’t propping up the market on its own. According to Gibson, the reason LDES solutions can already “stand on their own economics” is in part thanks to the electric vehicle market. 

Specifically, he attributes the success to the industrialization of battery technologies that has happened as a result of the EV market’s explosion, as well as the industrialization of that supply chain. To avoid bottlenecks, DOE estimates that the country needs to deploy up to 15 gigawatts annually by 2035, with a total supply chain expansion of $330 billion by 2050.

Testing the tech

The LDES landscape has diversified rapidly. A wide range of startups now target potential solutions that span mechanical (compressed air, pumped hydro), thermal (molten salts,aluminum alloy), and electrochemical (flow batteries,metal anode batteries,) technologies.

However, despite the number of new LDES companies that have hit the market in the last two years, the vast majority of solutions are still in development and pilot stages.

“Very few meet our ideal criteria for long-duration storage,” said Menoud. For At One, that includes high energy density, round-trip efficiency of over 80%, a life cycle of at least 20 years, and a significantly lower levelized cost of storage than lithium ion. 

Menoud is also on the lookout for batteries that don’t rely on rare earth minerals or toxic chemicals, she said, in the interest of long-term sustainability.

At One has looked at around 30 LDES startups since 2020, Menoud said, with technologies spanning from pumped hydro to liquid air storage.

As far as which solutions in At One’s portfolio tick all the boxes, Menoud pointed to Noon Energy. The company’s carbon-oxygen battery targets the 100-200 hour storage range, and Menoud said it will ultimately supply storage for less than $20 per kilowatt hour.

Very few [LDES technologies] meet our ideal criteria for long-duration storage.
Laurie Menoud, founding partner of At One Ventures

Meanwhile, Gibson said he’s “very excited” about sodium-ion batteries — like those from Eclipse portfolio company Peak Energy — in part because of their longevity.

“They’ve been in the lab and had decades of research already,” Gibson said. “They just haven’t had the limelight.”

Sodium-ion is poised to be competitive with lithium-ion “very imminently,” he added. “I like how de-risked the industrialization of the technology is. I also like its fundamentally lower cost.”

Batteries that rely on sodium-ion technology have a similar manufacturing process to lithium-ion, Gibson said: “That means you benefit from the learning rate of the lithium-ion industry. You can buy very similar if not the same equipment, and everyone’s skillset to work in the factories, to get that equipment to hum along and produce, also applies in sodium-ion.”

Gibson said he’s especially encouraged by the rate of improvement in the market when it comes to cyclability, which has historically been one of the technology’s challenges. And he’s not particularly concerned by sodium-ion’s low volumetric energy density, which he said is one of the reasons the solution hasn’t yet been scaled.

“Most of these large-scale energy projects sit in fields, where space is abundant, and so volumetric energy density is not an issue for the application and doesn’t really drive up the total cost of the system,” he said. “It’s a technology that sort of feels purpose-built for the application.”

For Prelude Ventures co-founder Gabriel Kra, the clear market leader for grid-scale storage is Form Energy, which developed iron-air batteries that are already in relatively high demand from utilities. The company is in the process of building an 800,000 square foot factory in West Virginia to churn them out. (Editor’s note: Prelude Ventures is a lead investor in Latitude Media.)

But investing in today’s still-nascent LDES market isn’t just about cyclability and energy density, Kra said. Early iterations of utility-scale LDES providers didn’t have the fundamental understanding of the utility space that he sees as essential both to success, and to product market fit.

“Cost is only one part of the equation,” Kra said. Dollars per megawatt isn’t the only selling point that utilities care about, he added, and battery makers therefore need to focus on how their product interacts with other grid assets, and the ways it improves grid operations.

“Some thought they were selling a battery, but the product they were really selling was grid reliability, was capacity, was some other feature of grid operations that they didn’t really understand.”

Near-term optimism

The next two to five years are likely to bring with them the liftoff point for LDES, said Menoud, but commercialization will largely start on the shorter-duration end of the industry.

“The market is ripe for four to 12-hour storage technologies, and I expect significant pilot and commercial deployments soon,” she added. “With the initial wave of storage solutions in place, I’m confident the adoption of longer-duration storage systems will follow.”

Kra said he’s anticipating “an explosion” in deployment over the next five years, in part thanks to the policy environment.

“We have most of the policy tools in place right now that make this a really attractive market opportunity,” he said. “The stimulus and the incentives are incredibly important for the energy storage industry in general, and long-duration energy in particular.”

Even with that influx of cash, there are several key barriers to LDES market maturation. 

Regulatory structures in the U.S., for instance, are still adapting to storage, and most storage on the grid today is in the form of two- to four-hour lithium-ion batteries. Then there are transmission and distribution bottlenecks and, of course, permitting.

”We’ve got to get better at permitting and interconnects,” Kra said. “Not just marginally better, a whole lot better.”

But despite the steep challenges, Kra thinks the golden hour of LDES is almost upon us.

“Sometime around the end of 2027, we’re going to see a lot of companies that are big, profitable, still growing, with a lot of growth ahead of them,” he said.

Those companies, he added, will be “serving the energy transition — the low-carbon grid, the electrification of transportation, of heating, of cooling — in a really dramatic way.”

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