How does the marginal capacity of batteries impact the efficiency of long-duration energy storage

The marginal capacity of batteries significantly impacts the efficiency and economic value of long-duration energy storage systems in power grids.

Marginal Capacity Credit and Battery Duration

• Marginal capacity credit refers to the additional contribution of the next unit of storage capacity to reducing peak demand or meeting resource adequacy requirements. It quantifies how much value an incremental battery adds to the system’s reliability and peak load management.
• Batteries with short duration (e.g., 2 to 4 hours) tend to have high marginal capacity credit initially because they can discharge their full power capacity over the peak demand period. For example, a 2-hour 100 MW battery can reduce peak demand by 100 MW during one hour, yielding a 100% capacity credit for that period.
• However, as battery duration or size increases, or as more batteries are added, the marginal capacity credit decreases. This is because longer duration or additional batteries are required to cover longer peak periods, but the incremental batteries might not fully reduce peak demand during shorter critical hours unless they have sufficient duration. For instance, adding a third 2-hour battery beyond two existing batteries with the same power does not yield full capacity credit if peak demand lasts longer than 2 hours; the marginal credit could drop to 40% (2 hours / 5 hours needed).
• This declining marginal capacity credit with increased penetration or longer duration means that although longer-duration batteries can store and discharge more energy, their incremental ability to reduce peak load (and thus provide firm capacity value) is less efficient on the margin.

Impact on Long-Duration Energy Storage Efficiency

• Current utility-scale energy storage is dominated by 4-hour lithium-ion batteries, which align well with typical peak demand durations and receive full resource adequacy credit. This creates an economic incentive favoring 4-hour durations since batteries with durations beyond 4 hours do not receive proportionally greater capacity credit or economic benefit, limiting their marginal efficiency value.
• Shorter duration batteries are well-suited for energy arbitrage—charging low-cost energy and discharging during peak price hours—but they face limitations providing firm capacity for longer peak periods or grid needs beyond a few hours.
• For long-duration energy storage technologies (beyond 4 hours), lower marginal capacity credits imply that their system efficiency and economic justification come more from shifting energy over longer intervals and providing grid resilience and reliability rather than from peak capacity credit alone.
• Additionally, operational factors such as state-of-charge constraints, bidding strategies, and incomplete charging during peak periods reduce the practical availability and marginal capacity utilization of batteries, impacting their effective efficiency in grid services.

Summary

The marginal capacity of batteries—especially in the context of duration—directly influences how efficiently they can provide firm capacity and peak demand reduction. While short-duration batteries offer high marginal capacity credit and efficiency for typical peak periods, longer-duration batteries experience declining marginal capacity credit due to finite duration and peak demand patterns. This affects the overall efficiency and economic incentives for long-duration energy storage, highlighting the need to rethink value models and market designs to better incorporate and reward long-duration storage capabilities in future grid systems.

Thus, the marginal capacity of batteries impacts long-duration energy storage efficiency by:

• Limiting the incremental capacity value of longer-duration batteries
• Creating economic disincentives for durations beyond 4 hours under current capacity credit frameworks
• Necessitating new market approaches to capture benefits beyond peak capacity, such as grid resilience and energy shifting over extended periods.