To effectively establish energy storage targets in capacity markets, policymakers and market operators should focus on the following strategies:
Policy and Market Structural Reforms
- Set binding national/regional storage targets: Align capacity markets with storage deployment goals, as seen in SEIA’s 700 GWh U.S. target and BloombergNEF’s tracking of 13 U.S. states with specific storage targets.
- EU electricity market design reforms: Mandate member states to assess flexibility needs and establish storage targets, ensuring non-fossil technologies (like storage) are prioritized.
- Harmonize capacity market rules: Allow storage to compete on a level playing field with conventional generation (e.g., gas peakers), as demonstrated in Italy and Poland.
Financial Mechanisms and Risk Mitigation
- Transition to two-way contracts for difference: Replace direct grants with mechanisms that manage downside risks while avoiding over-subsidizing profitable projects.
- Long-term revenue certainty: Use capacity market auctions to offer multi-year contracts, as seen in Great Britain and Europe, where over 5 GW of storage has secured contracts.
- Incentivize technology innovation: Direct funding toward long-duration storage R&D, as emphasized in SEIA’s whitepaper.
Operational and Regulatory Adjustments
- Define technical requirements: Ensure storage eligibility in capacity markets by setting clear performance standards (e.g., discharge duration, response times).
- Streamline interconnection processes: Address bottlenecks in grid access, a key focus of SEIA’s state-level policy guide.
- Enhance market price signals: Reflect the value of storage in grid resilience and renewable integration, leveraging rising power price volatility in high-renewable markets.
Case Study Insights
- Italy and Poland: Achieved GW-scale storage deployment by allowing storage to compete in capacity markets without restrictions.
- U.S. states: California and Texas have pioneered storage mandates and market reforms, though SEIA notes current federal projections (450 GWh by 2030) remain inadequate.
By integrating these measures, capacity markets can evolve to meet storage targets while ensuring grid reliability and accelerating the energy transition.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/how-can-energy-storage-targets-be-effectively-established-in-capacity-markets/
