To better support long-duration energy storage (LDES), market mechanisms require structural reforms to address current economic and technological challenges:
1. Capacity Market Reforms
Current capacity markets prioritize short-duration storage (≤4 hours) due to fossil fuel backups handling longer gaps. Reforms should:
- Incentivize duration-specific bids: Introduce compensation tiers for storage duration (e.g., 8-hour, 12-hour) to reflect their reliability value during extended renewable lulls.
- Enforce renewable-storage pairing: Mandate LDES procurement in grid-scale wind/solar tenders to mirror integration requirements in markets like California.
2. Carbon Pricing Integration
LDES’s decarbonization value remains uncaptured in most markets. Solutions include:
- Emissions-linked credits: Direct carbon pricing or tax credits proportional to stored renewable MWh, similar to production tax credits for wind.
- Capacity payments for emissions displacement: Compensate LDES for avoiding fossil peaker plants during multi-day generation droughts.
3. Revenue Stacking Enhancements
Existing arbitrage and ancillary services favor short-duration assets. New mechanisms could:
- Multi-day energy shifting premiums: Pay LDES for price differentials across 72+ hour periods, reflecting seasonal renewable variability.
- Reliability contracts: Allow utilities to pre-purchase LDES capacity for extreme events (e.g., winter storms), with penalties for unavailability.
4. R&D and Deployment Support
Technological immaturity persists due to high vanadium costs and unproven chemistries. Policy tools:
- Fed-backed procurement: Scale programs like the U.S. DOE’s $350M LDES demonstration initiative to de-risk novel technologies (e.g., iron-air batteries).
- Material supply chains: Subsidize alternative electrolytes (organic flow batteries) and recycling infrastructure to reduce dependency on critical minerals.
5. Market Structure Innovations
LDES faces a “chicken-and-egg” problem: insufficient demand discourages scale, while high costs deter adoption. Approaches:
- Hybrid auctions: Combine guaranteed offtake agreements (e.g., 15-year PPAs) with merchant exposure for excess capacity.
- Regional coordination: Harmonize LDES policies across grids (e.g., EU-wide storage mandates) to enable cross-border capacity sharing.
These changes would align market rewards with LDES’s decarbonization potential while addressing its unique operational and economic constraints.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/how-can-market-mechanisms-be-redesigned-to-better-support-long-duration-energy-storage/
