When the U.S. Department of Energy announced in September its plans to earmark up to $325 million for multiple long-duration energy storage projects across the country, it was essentially making a bet.
As the grid grows more renewables-heavy, it’s going to need options that can cost-effectively store energy for longer periods of time. But many of those technologies have yet to take off, commercially speaking. DOE is seeking to put a finger on the scale with its recent funding, which will go to a slew of approaches with durations from 10 hours to multiple days.
Julia Souder, CEO of the Long Duration Energy Storage Council, said that the funding is a fantastic signal to the market that LDES is a critical decarbonization solution and that these technologies will need to scale up.
But the industry still has a gap to bridge before it can stand up on its own: electricity markets and regulatory structures in the U.S. don’t always properly account for, much less compensate, the host of benefits LDES can provide the grid.
“The markets are still adapting to storage overall,” said Ryan Katofsky, senior fellow with the trade association Advanced Energy United. “There’s still a ways to go before you can fully account for how it operates and how you compensate for it.”
Although a lot of energy storage has been added to the grid in recent years, the bulk of those resources are two- to four-hour lithium-ion batteries. As longer-duration options proliferate, there’s still room to improve how electricity markets incorporate them.
The challenge: Capacity markets and modeling tools
A March DOE report estimated that the grid may need between 225 GW to 460 GW of LDES capacity to support a net-zero emissions economy by 2050. That amounts to some $330 billion in capital.
The report focused specifically on two duration segments: inter-day storage (10 to 36 hours) and multi-day storage (up to, or even exceeding, 160 hours).
The players and storage mechanisms emerging in the space run the gamut. Form Energy, for instance, has developed an iron-air battery that could provide 100 hours of energy storage capability. Meanwhile, Invinity’s vanadium flow batteries have a discharge duration of up to 12 hours; Eos Energy Storage’s zinc batteries offer similar durations.
But what they all have in common is the host of challenges — and opportunities, some would say — when it comes to navigating regulatory processes and power markets.
Take vertically-integrated utilities, which handle the tasks of generating power, getting it to their customers, and planning out their electricity portfolios. Many of these markets are adding large amounts of renewable energy to their systems. This means long-duration — and specifically multi-day — storage has a critical role to play in them, said Marco Ferrara, co-founder and senior vice president of software and analytics at Form Energy.
But, he added, many of these markets also lack the right integrated resource planning tools, methodologies, and approaches to actually capture the technology’s full value.
And then there are the “unbundled” states, in which independent system operators and regional transmission organizations manage competitive wholesale electricity markets, and regulated utilities focus on electricity delivery.
Most of these markets are capacity markets that are essentially intended to incentivize resources to come online and be present to address “grid stress events,” Ferrara said. Historically, a “grid stress event” meant that there was a specific point in time when electricity demand was high, but the grid didn’t have enough generation capacity.
But in a renewables-heavy grid, Ferrara added, these events are more likely to be about extended periods of under-generation. And to factor in these changes, capacity markets will need to identify these new kinds of grid stress events, and incentivize assets — including energy storage — that can kick in to support the grid when need be.
“Right now, capacity markets are not doing that,” Ferrara said. “Capacity markets are just incentivizing the power — they’re not incentivizing the ability to continuously serve electrical load … for extended periods of time.”
Larry Zulch, CEO of Invinity, agreed that the fact that electricity markets don’t currently compensate for reliability in the way you’d expect on a highly renewable grid still represents a gap.
As of now, the DOE report noted, no electricity market in the U.S. supports standalone long-duration energy storage economics. Some states — like California, Texas, and New York — have high potential for near-term growth in the sector. But by and large, deploying long-duration storage at scale will require concrete market and regulatory reforms across the country.
The solution: ‘Imagine the grid of the future’
So, what could these electricity market reforms look like?
Ferrara envisions a three-step process. The first is to “imagine the grid of the future” — likely one that is heavy with renewable sources of power, like solar and wind. Policy-makers will then need to study how weather patterns and the inherent intermittency of these resources could lead to periods of renewable under-generation. The third step comes down to actual market reform.
“In order to provide reliability in a high renewable grid,” he said, “we need to have assets that are capable of sustaining generation for several days in a row.” This may mean awarding full capacity credits to long-duration assets as required, be that for 50 hours or 100 hours.
On the regulatory front, a lot of vertically-integrated states plan their long-term electricity mix through a process called integrated resource planning. Katofsky said this will be an important venue in which utilities can consider LDES as an option, and then hammer out their assumptions around the cost and performance of the technology.
Ferrara said that many of the market reforms that the industry wants to see are in reality quite straightforward, and can be enacted immediately. But before that can happen, industry players will need to coalesce behind a consolidated message, and navigate regulatory processes that can be long and complicated. (This is one of the goals of the LDES Council, which counts Invinity, Form Energy, and Eos Energy Storage among its members.)
“The reality is this is a multi-year process,” Ferrara said, though it’s “certainly something that we need to get in place by the end of the decade at the very latest,” given decarbonization goals.
Many companies have already started to engage with regulators on these issues. For instance, Form Energy’s senior director of state affairs Mark Thompson said that the company is approaching its conversations with regulators and electricity system planners from an analytical perspective, showing them modeling tools that can pinpoint potential lulls on the grid.
The industry widely agrees that LDES technologies have an important role to play in bridging gaps and creating a resilient power grid. But getting the industry to the point of “liftoff” — essentially, where it becomes a self-sustaining market — will hinge in part on whether the power sector adequately compensates it for that role.
Laying the foundation for true market reform involves “a rethinking of how the system is designed, what technology solutions are available to us,” Katofsky said. “It is going to take time and it is a lot of work.”
