Performance incentives can play a significant role in driving the adoption of long-duration energy storage but generally are not sufficient on their own to fully accelerate widespread deployment.
How Performance Incentives Help:
Performance incentives, such as payments tied to a battery system’s actual operation—like demand response, capacity market participation, or virtual power plant (VPP) services—encourage owners to maximize the utility and value of their energy storage systems. These incentives create ongoing revenue streams that improve the economics of energy storage, making investments more attractive over time.
Limitations of Performance Incentives Alone:
- Until battery costs decrease substantially and energy markets evolve to appropriately value long-duration storage services, performance incentives alone may not overcome the high upfront capital costs and financial risks inherent in long-duration storage projects.
- Many current programs combine upfront rebates (which lower the initial investment cost) with ongoing performance incentives, reflecting a recognition that both types of incentives are needed to drive adoption effectively. For example, California’s SGIP program offers a 50% upfront rebate plus a 50% performance-based payment.
Need for a Multi-Faceted Incentive Approach:
- Federal incentives such as the Investment Tax Credit (ITC), recently expanded under the Inflation Reduction Act (IRA) to standalone battery storage, provide substantial upfront financial relief (a 30% tax credit on installation costs), reducing initial investment barriers.
- State-level programs often add equity provisions or bonus credits for projects that meet specific criteria (e.g., domestic content, serving low-income communities), further enhancing economic feasibility.
- Participation in broader utility programs—like demand response or capacity markets—alongside financial incentives, helps monetize otherwise non-monetizable services, which is critical for long-duration storage where the value stack is complex and still developing.
Summary
While performance incentives contribute significantly by creating ongoing revenue streams linked to actual system operation, they typically need to be combined with upfront incentives, tax credits, and supportive policy frameworks to effectively drive broad adoption of long-duration energy storage. The combination of lowering upfront costs and rewarding ongoing performance is currently the most successful model to increase deployment until markets mature and costs fall further.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/can-performance-incentives-alone-drive-the-adoption-of-long-duration-energy-storage/
