This report builds on the National Renewable Energy Laboratory’s Energy Storage Futures Study program, which explores the role and impact of energy storage systems in the development and operation of the U.S. power sector. The Laboratory investigated the potential impacts of advances in energy storage technology on the deployment and adoption of utility-scale and distributed energy storage systems, as well as the implications for future investment in and operation of power system infrastructure.
This study is a continuation of the Energy Storage Futures Study, which examined the factors driving the shift from energy storage systems with durations of four hours or less to long-duration energy storage systems with durations of four hours or more. The report builds on the first report in the Energy Storage Futures Study series, Four Stages of Energy Storage Deployment: A Framework for the Expanding Role of Energy Storage in the U.S. Electricity System, which established a framework for the roles and opportunities for cost-competitive energy storage systems in four stages of current and future energy storage deployment. The report provides an in-depth look at the stages of development of solar power facilities and energy storage systems, and shows that the co-location of solar power facilities and energy storage systems can add value to each other, while cost reductions and technological improvements make storage systems cost-competitive for serving applications with longer durations.
“The Future of Energy Storage Study provides data and analysis in support of the U.S. Department of Energy’s Grand Challenges in Energy Storage program, a comprehensive initiative to accelerate the development, commercial operation and deployment of next-generation energy storage technologies and to maintain US. leadership in the global energy storage market. The Challenge “The Grand Challenges for Energy Storage program uses a use case framework to ensure that energy storage technologies can cost-effectively meet specific needs and incorporates multiple categories of energy storage technologies: battery storage systems, mechanical energy storage systems, thermal energy storage, flow batteries, flexible power generation, and others.
From 2010 through the end of 2022, approximately 9 GW of battery storage systems have been added to the U.S. grid, and there are approximately 23 GW of installed capacity of pumped storage generating facilities in operation. more than 90% of the storage systems added have a duration of four hours or less, and lithium-ion battery storage systems account for approximately 99% of the storage systems deployed in the past few years.
Many are increasingly interested in deploying energy storage systems with durations greater than four hours and believe that long-duration energy storage systems will play an important role in helping to integrate renewable energy and enable a highly decarbonized grid. The report notes that even in the absence of new policies aimed at reducing carbon emissions, there is a market opportunity for hundreds of gigawatts (GW) of long-duration energy storage systems with durations of 6 to 10 hours. Given their role in decarbonizing and enabling renewable energy, the potential for long-duration energy storage systems is likely to be even greater.
Despite the significant development potential, there are still significant uncertainties regarding the role of LTES and LTES competing with lithium-ion battery storage systems.
Historically, 4-hour storage systems have been well suited to provide capacity service during the summer peak demand periods in many parts of the United States, which has led to the adoption of the “4-hour capacity rule” in some wholesale market areas. This rule allows energy storage systems that last longer than four hours to be compensated in the capacity market or other contracts that provide capacity (and do not provide additional revenue for longer durations.) The four-hour capacity rule, the limited additional value of energy arbitrage, and the declining cost of lithium-ion batteries have created disincentives to deploying long-duration energy storage systems with durations longer than four hours. Based on this rule, about 40 percent of the energy storage systems deployed in the U.S. in 2021 and 2022 will be 4-hour duration energy storage systems, and less than 6 percent will be longer than 4 hours in duration.
As solar generation grows, the installed capacity of 4-hour storage systems to meet summer peak power demand will grow further. However, growth in solar generation, changing weather, and the electrification of building heating may lead to a shift in winter peak power demand to periods of demand that are typically longer than the duration of 4-hour storage systems. In recent years, some regions of the U.S. (areas such as the Southeast and Texas) have experienced rapid growth in winter peak power demand. This may ultimately provide a greater incentive for the deployment of long duration energy storage systems in the coming years as some regions change their energy storage capacity rules. Long duration energy storage systems can provide additional services, such as relieving transmission congestion and improving grid resilience, and will therefore present opportunities for increased deployment.
There are a number of energy storage technologies that can achieve lower costs and longer durations. However, these energy storage systems must compete on cost with mature lithium-ion battery storage systems, which also have the potential for significant cost reductions and longer durations. Cost reductions for long-duration energy storage systems depend on large-scale deployment and the potential role of incentives, and only a combination of cost-optimized energy storage technologies can better support the evolving grid.
The installed capacity of grid-scale energy storage systems deployed in the United States has grown in recent years and is expected to accelerate in the future. Most of the energy storage systems deployed in the U.S. over the past few years have been lithium-ion battery energy storage systems, which typically last no more than four hours. However, there is growing interest in deploying energy storage systems with durations longer than four hours, and it is believed that long-duration energy storage systems will play an important role in helping to integrate large amounts of renewable energy sources and achieve a highly decarbonized grid.
Despite this interest, there is considerable uncertainty as to which energy storage technologies will enable cost-effective large-scale deployment and the real value of the services that may be provided, particularly when replacing battery storage systems. Currently, 4-hour energy storage systems are well suited to provide power during peak summer power demand, and their ability to provide a variety of services has been enhanced as solar generation has grown. However, weather variability, growth in solar generation, and heating electrification could result in winter peak power demand becoming a major driver of resource adequacy needs. Winter peak electricity demand periods are typically higher than four hours.
This study explores the opportunities and challenges that could lead to a shift in the duration of energy storage systems from four hours to longer. While this report is relevant to the global energy storage market, the first section of the report focuses on the U.S. energy storage market and the specific rules for evaluating and compensating for capacity in its wholesale electricity market.
Chapter 2 discusses the reasons why lithium-ion battery energy storage systems of four hours or shorter duration have dominated the energy storage market in the past. A framework for the deployment of energy storage systems is also outlined and a discussion is provided on how costs and benefits can be compared, especially in the context of increasing duration.
Section III discusses possible pathways for future transitions to energy storage systems longer than four hours, including the declining value of capacity provided by short-duration storage systems, especially as peak electricity demand shifts to the winter months. This study looks at shifts occurring in the near term rather than the long term, including deep decarbonization scenarios.
Section IV discusses energy storage technology transitions beyond lithium-ion battery storage systems and the importance of costs associated with installed capacity and storage capacity.
While different energy storage technology categories and options are briefly discussed in Section 4, the approach adopted by the National Renewable Energy Laboratory (NREL) is largely technology-neutral, with the primary characteristic of interest being duration, and the impact of other factors such as charging and discharging efficiencies are also discussed in Section 4. Duration is defined as the length of time an energy storage system can be at full output before it needs to be recharged. While there are various definitions of “long duration,” we do not discuss any particular duration here, but rather explore scenarios beyond the 4-hour duration, which represents the majority of current energy storage systems.
2.Duration of 4 hours or less: drivers of near-term energy storage deployments
In order to understand the deployment opportunities for long duration energy storage systems with durations longer than 4 hours, it is important to first explore the reasons why energy storage systems with durations of 4 hours or less have dominated the global energy storage market over the past decade. There are approximately 23 GW of pumped storage generation facilities currently operating in the United States, most of which were constructed prior to 2000 (most of which have durations of 8 hours or more. Table 1 shows the deployment of utility-scale battery energy storage systems in the United States from 2010 through 2020. The table excludes energy storage systems with less than 1 MW of installed capacity, but includes battery energy storage systems that are paired with solar or wind generation facilities. The table also excludes thermal energy storage systems or thermal energy storage systems used for heating and cooling. More than 99% of the energy storage systems of the identified technology types are lithium-ion battery energy storage systems.
The majority of these energy storage systems have a duration of 4 hours, with 2,850 MW of 4-hour energy storage systems deployed in the U.S. in 2021 and 2022. Less than 7% of the total installed capacity of energy storage systems with durations longer than 4 hours. This can be explained by understanding how the benefits and costs of energy storage systems vary over time.
2.1. building the value proposition of energy storage systems
The value of an energy storage system is often related to its ability to provide multiple services. Table 2 summarizes some of the potential value provided by energy storage systems.
It is important to note that specific applications of renewable energy are not explicitly listed in Table 2. These applications are already listed in Table 1. For example, energy transfer and value are reflected in electricity prices through demand charges and time-of-use rates.
From 2010 through 2019, the majority of energy storage system applications are focused on ancillary services, which are primarily provided by battery storage systems (or flywheels) for durations that are typically one hour or less. The installed capacity of energy storage systems currently deployed in some areas of the United States exceeds local ancillary service requirements. The installed capacity of energy storage systems listed in Table 1 now exceeds the U.S. ancillary services requirement of approximately 9 GW. In addition, Table 1 does not include other resources that provide regulating reserves and reduce opportunities for energy storage deployment, including pumped storage electric facilities and demand response. As a result, the ancillary services market is likely to be saturated, and the focus of deploying energy storage systems has now shifted to capacity services, as indicated by the growth in duration in 2022.