How markets are gearing up to deliver a tidal wave of storage

By Gareth Dauley

Look at any analyst projection and you’ll see the global energy storage market is set for massive growth. Although the level of battery storage installations dipped slightly in 2019, 2020 was a bumper year for batteries.

It resulted in a total global installed capacity of more than 15 GW and 27 GWh, according to the analyst firm Wood Mackenzie. But that’s nothing compared to what is about to come.

Annual energy storage deployment by country, 2013-2019
IEA, Annual energy storage deployment by country, 2013-2019, IEA, Paris

Wood Mackenzie estimates the market will grow 27 times in GWh terms by 2030, adding 70 GWh of capacity a year to exceed 729 GWh by the end of the decade. And what’s amazing about this success story so far is that it has been achieved pretty much in the absence of subsidies.

Unlike solar and wind, which were originally propped up through feed-in tariffs and similar support mechanisms, almost all battery installations worldwide have earned their keep from day one.

Batteries have been able to do this because they can support numerous value-creating applications, from improving solar power self-consumption to facilitating energy arbitrage. And as time goes by, markets are creating even further opportunities for energy storage to deliver value.

Take the UK, for instance. A few years ago, there were only limited opportunities for batteries to play an active role in grid dynamics.

Almost all battery installations worldwide have earned their keep from day one.

Recently, though, the UK electricity system operator National Grid ESO has been creating new ways for battery systems to help the grid deal with growing levels of intermittent renewable generation. The latest, introduced in October 202, is dynamic containment.

It is “a fast-acting post-fault service to contain frequency within the statutory range of +/-0.5Hz in the event of a sudden demand or generation loss,” according to National Grid ESO.

Dynamic containment came with stringent technical requirements that not all battery operators were able to comply with. That meant there was initially a lack of uptake of the service, so those who could participate in the market were handsomely rewarded.

In February this year, the grid data provider EnAppSys reported National Grid ESO was paying around £17 per MWh of capacity for dynamic containment. That was a premium of around 40%, or £10 per MWh, compared to what was on offer for weekly and monthly frequency response services.

Grid powerlines
National Grid ESO is preparing to launch two other new services, called dynamic moderation and dynamic regulation, in the first quarter of 2022.

Battery operators could essentially choose between delivering fast frequency response services or selling capacity on the balancing mechanism market, which makes sure supply always matches demand.

Now National Grid ESO is preparing to launch two other new services, called dynamic moderation and dynamic regulation, in the first quarter of 2022.

These market reforms are focused on the highly granular delivery of energy and services needed to keep the grid in check as it is buffeted by varying inputs from solar and wind and fluctuating demand from electricity consumers and, increasingly, electric vehicles.

But there is another market trend that could deliver big opportunities for energy storage. And it is one that is still getting underway.

It aims to answer a critical question for the energy transition: when fossil fuels have been phased out, what will happen for the hours or days when the sun doesn’t shine, and the wind doesn’t blow? In Europe, this can happen for several weeks a year, over large regions.

The likelihood of such weather patterns has prompted some observers to question whether there will ever be enough storage to tide the grid over.

Batteries alone will not be able to solve the problem, that’s for certain—which is why there is now growing interest in alternative fuels such as green hydrogen. In practice, what we are likely to see in time is the emergence of three storage classes.

The first, based on batteries, will help stabilise the grid and provide energy storage for durations of up to a few hours. The second, based on alternative fuels, will kick in to power the grid when it looks like intermittent renewables may not be working for days or weeks.

And there is the possibility of a third, based on a mixed bag of technologies such as thermal energy storage attached to concentrated solar power (CSP). These could operate over durations ranging from a few hours to one or two days.

The problem for these second and third energy classes is that, unlike the situation with batteries, there are not many market opportunities for them today. But markets are evolving as the need for long-duration storage grows.

As things stand, options such as green hydrogen or CSP are more expensive than wind or solar combined with batteries. So, if you simply try to procure storage on a lowest-cost basis, there is a danger you could end up without enough long-duration capacity to tide over winter doldrums. 

Hence market planners and operators are beginning to think about how to reward long-duration storage assets. At the moment, there are two schools of thought.

As things stand, options such as green hydrogen or CSP are more expensive than wind or solar combined with batteries.

One is to hold special procurement rounds only open to technologies that are flexible enough to provide power on demand over long periods of time, such as long-duration storage, hydro or geothermal plants. This approach is already used in the UK and is being proposed for California.

The idea behind specialist procurement rounds is that asset developers will not have to compete with the cheapest technologies on the market and can be assured of a fair return for their projects.

The second school of thought, meanwhile, is to essentially leave it to the market to reward long-duration storage and other flexible assets.

Here, the thinking is that if there is a shortage of capacity, for example because solar and wind plants are not meeting demand, then the price of electricity will go up. And that will make it worthwhile for developers to build projects that can meet the gap.

This mode of thinking is prevalent in Australia and Texas. The grids in both territories are characterised by points at which electricity prices soar to eyewatering levels.

For now, the jury is still out on whether this approach is better or worse than paying for flexible capacity that might rarely be used. What is clear in any event is that the scene is set for significant new opportunities for storage worldwide. And at Pacific Green we stand ready to cover all the bases.