2024
Energy Storage Report
Key Trends and Drivers
Introducing Energy Storage and Flex-Gen
Globally, the long-term net-zero objectives necessitate flexibility in an increasingly complex power system. The pace of change in the power mix, driven by a rise in the share of renewable energy generation and energy transition objectives, has created demand for energy storage and flexible generation (flex-gen). Rising instances of grid curtailment demonstrate the need for grid operators to urgently increase their flexible delivery capacities. Energy storage systems, either integrated, co-located or standalone, are quickly emerging as an essential resource that can provide the power delivery flexibility needed.
The global transition to renewable energy sources has brought about a myriad of significant challenges in power-grid management. Infrastructure limitations and network instability due to voltage fluctuations are compounded by the phasing out of balancing assets in thermal power generation. The evolving grid-power mix is coupled with the proliferation of distributed energy sources and increased electrification. In this ever-developing and complex landscape, the role of energy storage and flexible generation assets is becoming crucial.
Energy storage systems, either integrated, co-located or standalone, are quickly emerging as an essential resource that can provide the power delivery flexibility needed.
Distinguishing Generating and Storage Capacities
In the energy transition discourse and literature, there’s often a tendency to conflate generating and storage capacities, potentially causing confusion. This section aims to outline the fundamental distinctions between these capacity types, emphasizing the convention of using megawatts (MW) for describing generating capacities and megawatt-hours (MWh) for storage capacities.
Supplying electrical power involves transmitting electrical current, carrying energy usable for various practical applications such as vehicle propulsion or water heating. Power involves the transfer of energy, either between objects or in converting energy between different forms. Electrical energy and power play crucial roles in the transition to sustainable energy, facilitating energy conversion into usable forms without carbon emissions. Additionally, electrical current serves as an efficient conduit for transporting energy to desired destinations.
However, storing electrical energy poses challenges due to its inherent characteristics. Capacitors or static charge storage devices are the primary means of “storing” electricity, achieved through charging. Nevertheless, this process emits powerful electrical fields from the storage apparatus. Interactions with nearby objects or the environment can result in energy losses, an undesirable outcome. Therefore, synchronization of electrical power generation with demand is necessary, as storing electrical energy remains problematic. As society shifts from energy sources with inherent storage mechanisms to those that are harder to store, new storage challenges emerge.
Energy originates from various sources, including fossil fuels (chemical) such as coal, gas, or nuclear, and renewable sources like wind (kinetic), hydro (potential), and solar (electromagnetic). Each energy form possesses distinct properties and natural availabilities. For instance, solar energy is essentially limitless, while the practical availability of fossil fuels is finite. Although all forms can be converted into electrical energy, fossil fuels yield undesirable byproducts during this process. However, fossil fuels offer a significant advantage: they serve as both an energy source and an integrated storage facility. For example, a piece of coal serves as a storage device for chemical energy, convertible into electricity as needed. In contrast, harnessing wind energy doesn’t involve directly “storing” wind energy itself, and wind energy availability remains beyond human control. If wind energy is captured and converted into electrical energy, it then requires further conversion if it is to be stored. This storage may be achieved through methods like pumped-hydro or battery energy storage, converting wind energy into potential or chemical energy, respectively.
This underscores the importance of distinguishing between the ability to generate electrical power and the ability to store energy. Power capacity is measured in watts, while storage assets are assessed based on their ability to deliver power and for how long, measured in watt-hours. Throughout this report, the difference will always be identifiable by the convention of units. For example, stand-alone wind and solar projects exclusively serve as generating assets, lacking storage capacity. Therefore, their generating capacity is described in watts, megawatts, or gigawatts. In contrast, a hydroelectric plant possesses both generating and storage capacities. These capacities can significantly differ; for instance, if a hydro-plant can generate 100MW of power for three days, it has a generating capacity of 100MW and a storage capacity of 7200MWh (100MW x 3 days x 24 hours) alternatively expressed as 7.2GWh.
Flex-Gen Assets Balance Supply-Demand Variation
Utilities are strategically deploying generating assets with capacities tailored to ensure the reliability and stability of the grid. These assets must be capable of swiftly adjusting their power output to accommodate fluctuations in demand. Traditionally, gas and hydro-based capacities have been favoured for their responsiveness to demand changes and their black start capability, meaning they can be activated without relying on external power sources. Gas peaker infrastructure, commonly found in existing power systems, is the primary flexible generation option used to manage contingencies in the grid. For addressing longer-term variations in demand, such as seasonal fluctuations, grid operators also rely on coal-fired power plants to supplement baseload power supply during peak periods.
In November 2023, TotalEnergies acquired 1.5GW of flexible generation capacity in the US power market of Texas (TotalEnergies, 2023). The capacity was across three gas-based power generation units for network requirements in the US cities of Dallas and Houston. In August 2023, French grid operator RTE planned an extension of coal-fired power plants to meet winter season demand (Euractiv, 2023).
Both hydropower and battery storage address the demand drivers for grid balancing against intermittent renewable energy sources and the phase-out of conventional baseload options. However, battery storage is faster to develop and can be located more flexibly, resulting in a wider range of potential applications across utilities, residential, and commercial sectors.
Hydropower plays a crucial role as a flexible generation asset due to its black start capability and rapid ramp-up, which aids in grid stabilization. Large-scale hydro facilities typically have elevated reservoirs that act as energy storage, and pumps can further enhance hydro-storage flexibility by moving water upstream during periods of surplus electricity. However, the growth of hydropower has been limited by geographical constraints and lengthy development periods. Additionally, pumped storage faces challenges such as environmental impact and high capital costs.
Batteries, a rapidly growing flexible supply subset, discharge previously generated electrical power instead of adding capacity. When coupled with assets like solar or wind farms, batteries act as flex-gen. However, grid-connected utility-scale batteries encounter limitations in discharge duration and capital expenditure, restricting their deployment to select markets. Despite these challenges, increasing recognition of storage’s role in carbon transition is driving policy and regulatory support, which in turn is fueling demand for battery storage solutions globally.
Centralized grid systems worldwide are grappling with challenges stemming from the rapid evolution of power networks. Increasing demand volumes, coupled with a rise in supply from smaller renewable energy producers, are straining traditional grids. However, advancements in information availability and computing capabilities are enabling more sophisticated power distribution solutions. Localized supply balancing and micro-grid solutions are gaining favour as they alleviate strain on centralized grids and improve efficiency.
The transition to decentralized power systems is essential for building future adaptability in power generation and grid networks.
The transition to decentralized power systems is essential for building future adaptability in power generation and grid networks. In this model, power transmission between regions addresses large-scale systemic imbalances, while local power dispatch is achieved at a localized level. Generating assets are strategically positioned close to core demand, while energy storage assets smooth out imbalances between supply and demand. Battery energy storage systems are expected to play a pivotal role in decentralized grid systems.
One notable emerging use case is the deployment of battery storage assets to optimize power transmission infrastructure, known as the Storage as a Transmission Asset (SATA) model. Pilot SATA projects in the US and Europe demonstrate how strategically placed energy storage assets can defer capital expenditure on transmission infrastructure. In Germany, battery-based storage units are being utilized to bolster the hosting capacity of transmission lines and address regulatory requirements regarding capacity redundancy, known as the ‘n-1’ criterion. The project, known as Netzbooster, was initiated by the transmission system operator TransnetBW GmbH and contracted to developer and supplier Fluence Energy for a 250MW battery unit. This initiative aims to enhance grid reliability and flexibility, with the battery unit scheduled for commissioning by 2025 Fluence, 2022). Further deployments are necessary to establish the commercial viability of the SATA model, and a rapid decline in the cost of grid-scale battery storage may act as a catalyst in this context.
Utilities primarily procure flex-gen assets through capacity market mechanisms and technology-neutral auctions. Capacity markets involve the system operator procuring generation capacity well in advance to prepare for contingencies. These capacities are required to be available to supply power when needed, regardless of whether they are actively producing electricity.
For example, in the US, PJM, a system operator, plans to conduct the next capacity market auction in June 2024 for delivery in 2026 and 2027 (Utility Dive, 2024). Similarly, European markets like Italy, the UK, and Poland have established capacity market mechanisms, offering revenue streams in addition to wholesale market transactions and providing long-term visibility through contracts. This trend has led to a gradual crowding out of thermal-based peaking power plants in these markets (Energy Storage News, 2023).
In addition to capacity markets, system operators are exploring incentives built into power generation contracts. For instance, in the Netherlands, the transmission system operator awarded ‘capacity limitation contracts’ to a solar PV plant in November 2023. These contracts serve as a form of congestion management, whereby the solar PV plant receives predetermined compensation in exchange for potentially reducing its output when needed for grid network stability (PV Magazine, 2023).