The economic challenges of long-duration energy storage (LDES)
The economic challenges of long-duration energy storage (LDES) stem primarily from the difficulty in generating sufficient and reliable revenue streams, as well as market and technological factors:
Revenue Generation and Market Incentives
- Limited revenue opportunities: Most current energy storage revenues come from short-term activities like intra-day energy shifting (price arbitrage) and ancillary grid services such as frequency regulation or firm capacity. These tend to favor short-duration storage (up to 4 hours), limiting financial incentives for LDES systems which provide value over much longer time frames.
- Existing capacity markets do not reward long durations: Regional capacity mechanisms often do not incentivize storage durations beyond about 4 hours because fossil fuel plants are still used to fill longer intermittent gaps in renewable supply. Thus, LDES owners struggle to monetize their capability to cover multi-day renewable shortfalls.
- Emerging need for new market structures: As renewables penetration grows and system reliability depends more heavily on longer-duration storage, new market mechanisms and remuneration frameworks will be needed to properly compensate LDES assets. Designing these market mechanisms is complex, especially as storage shifts from frequent daily cycling to rare, multi-day emergency use.
- Reliance on government tenders and policy support: So far, much LDES deployment has been driven by government procurement or subsidies, not market signals. This creates financial risk and uncertainty for investors and developers without long-term revenue guarantees.
Technological and Investment Challenges
- Uncertainty in capacity and duration requirements: Investment decisions for LDES must be made despite imperfect information about future grid needs and the evolving role of energy storage, complicating project planning and funding.
- Dominance of lithium-ion batteries and 4-hour standard: The prevailing focus on short-duration lithium-ion batteries means long-duration technologies face disadvantages in scale, familiarity, and economics, even as they may be better suited for extended storage needs.
- Lower marginal capacity with increased penetration: Batteries’ finite duration leads to reduced effective capacity as more is deployed, underscoring the necessity but also the difficulty of integrating LDES economically into the grid to maintain reliability and capacity value.
Scale and Economic Viability
- Massive scale gap: While global demand may reach 8 terawatts of LDES by 2040, current and planned projects only amount to about 240 gigawatts by 2035, highlighting the economic and development lag.
- Cost and complexity of multi-day storage: LDES systems capable of covering multi-day renewable droughts are inherently more expensive and complex, and they will be utilized less frequently, challenging their economic viability without appropriate market remuneration.
Summary Table of Key Economic Challenges for LDES
| Challenge | Description |
|---|---|
| Limited revenue from current markets | Existing short-term markets favor 4-hour durations; LDES lacks remuneration for multi-day use |
| Inadequate market mechanisms | Capacity markets don’t reward long-duration storage; new mechanisms needed but are complex |
| Investment risk and uncertainty | Imperfect knowledge of future grid needs complicates deployment and financing decisions |
| Technology lock-in | Lithium-ion dominance and 4-hour norms hinder LDES technology adoption and scaling |
| Lower marginal capacity value | Increased storage penetration reduces marginal capacity benefits for batteries |
| Scale gap | Large difference between projected need and current/planned capacity impacts economics |
| High cost and infrequent use | Multi-day storage is costly and used mostly in rare scenarios, limiting profitability |
| Policy and subsidy dependence | Current LDES growth driven mainly by government programs rather than stable market incentives |
These economic challenges must be addressed through innovative market designs, technology diversification, supportive policies, and clearer valuation of the reliability and decarbonization benefits that LDES provides to enable its necessary large-scale deployment in the clean energy transition.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/what-are-the-economic-challenges-of-long-duration-energy-storage/
