Market-based mechanisms can play a critical role in incentivizing long-duration energy storage (LDES) by providing appropriate revenue streams that reflect the unique value LDES offers for power grid reliability and decarbonization goals. Currently, economic incentives for investment in LDES are limited because existing markets primarily reward short-duration storage services like daily energy shifting or short-term ancillary services, which typically require storage durations of four hours or less.
Challenges with Current Market Structures
- Present capacity markets do not adequately remunerate storage resources that can discharge energy over multiple days, as fossil plants still backstop long intermittency gaps in wind and solar generation.
- Most renewable intermittency events are short and predictable, making short-duration storage dominant under existing market conditions.
- LDES assets are often only called to operate during rare, multi-day renewable shortfall events, complicating the valuation and compensation for such “insurance”-type services.
Potential Roles of Market-Based Mechanisms
- Market mechanisms designed to reward duration beyond four hours could incentivize investment in LDES by monetizing the ability to provide sustained grid reliability during extended renewable outages.
- These mechanisms may include capacity payments, availability or reliability credits specifically tailored to multi-day storage, or ancillary service products related to long-term grid balancing.
- Price arbitrage opportunities between peak and off-peak periods remain a fundamental source of revenue but are insufficient alone to justify LDES investments without complementary remuneration schemes.
Importance for Future Decarbonized Grids
- As power systems decarbonize and rely more heavily on intermittent renewables, the duration and scale of storage needed to maintain reliability will increase significantly.
- Properly designed market-based incentives will be crucial to unlock the deployment of various LDES technologies such as pumped hydro, compressed air energy storage, and gravitational storage, which offer scalable and durable solutions.
- Government policies and tenders are currently leading procurement, but developing robust, market-based remuneration frameworks is essential for long-term commercialization and integration of LDES.
In summary, market-based mechanisms can incentivize long-duration energy storage by developing new revenue streams that reflect the unique value proposition of multi-day energy availability, beyond the existing short-duration focus of current electricity markets. These mechanisms will be complex to design but are vital for enabling LDES to support grid reliability and the transition to a fully decarbonized energy system.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/what-role-can-market-based-mechanisms-play-in-incentivizing-long-duration-energy-storage/
