Unlocking opportunities in the long-duration energy storage market

As renewables continue to play an increasingly critical role in the UK energy system, attention is now turning towards the need for similarly increased investment in energy storage capacity as a solution for a more volatile generation market. The outlook for battery storage in particular is looking healthy, with data from LCP Delta suggesting that over 1.5GW of battery energy storage systems will be deployed in the UK in 2023, nearly double the figure achieved in 2022.

However, the conversation around long-duration energy storage (LDES) solutions and the role they will play within the wider energy system has been surprisingly absent. This is despite the recognition that this form of energy storage will be essential for energy grids to make up shortfalls in supply when renewable generation cannot meet demand.

Here are my key takeaways from the industry discussion on the future prospects of LDES in the UK:

1. LDES has a bigger role to play in the UK than other markets

By virtue of our geography, the most pressing issue faced by the UK is that it is more dependent on long-term energy storage than other European markets. This is because unlike our sunny southern European neighbours, the UK must prioritise wind power over solar to account for the majority of renewable generation. By 2030 there will be almost 100GW of intermittent renewable capacity on the GB system with available renewable and nuclear generation outstripping demand in almost half of the hours.

While the sun rises and sets every day, high or low wind patterns can last days or weeks. Our analysis suggests that given the importance of wind power in GB, most excess and shortfall power supply events will last more than 24 hours. In two-fifths of the cases, these events are expected to last longer than two days. On the other hand, if we operated a high solar PV energy system (such as a Spanish generation mix), nearly all our energy excess and shortfall periods would last less than 24 hours. This means that short duration storage would become the go-to solution.

2. LDES can play a variety of roles in a future energy system

The energy market is ripe for new opportunities and innovation, particularly in the dominant wholesale, balancing, and capacity markets. However, we also see other revenue streams for LDES include locational value from constraints and providing system services such as inertia, black start, and voltage support.

Each of these revenue streams carry unique opportunities and risks that will suit a diverse and flexible LDES market. For example, the wholesale market has depth and liquidity, but participants can expect fierce competition from short duration storage or hydrogen storage rivals for shorter events and system services. Meanwhile, the Capacity Market offers long term contracts which are valued by investors but the timescales between auction and delivery (4 years) means that it is very difficult for large LDES projects such as pumped hydro storage to commit.

3. Key hurdles remain for LDES deployment to be scaled up

Perhaps one of the most significant challenges currently hindering the potential of LDES is that projects such as pumped hydro storage, the oldest form of storage in the UK, require very specific site attributes, and therefore, will be limited in its availability. Alongside lengthy construction times of up to eight years, which can leave developers and investors exposed to market and policy uncertainty, pumped hydro projects are often perceived as too high-risk for many potential backers.   Furthermore, there is currently something of a drought in suitable alternatives – whilst other technologies for LDES use are being developed to challenge pumped hydro, they are still in their nascent stages, meaning higher and uncertain capital expenditure.

These challenges are not insurmountable, but they require committed and clear policy developments to encourage investors and assist developers.

4. The existing market frameworks do not support the deployment of LDES

Frustratingly for many, policy in the LDES field has been far from committed and clear. For example, the Capacity Market currently has a four-year lead time, while the Contracts for Difference scheme is currently not available to energy storage. It is also understood that at present there are no plans to develop new pumped hydro storage plants in the near future.

While there remain challenges in the LDES space, other competing technologies such as interconnectors, hydrogen and gas CCS already have, or are close to getting, policy support frameworks in place.

We remain optimistic however, as the government’s Review of Electricity Market Arrangements has outlined possible options to support technology such as LDES, including reform of the wholesale market, a revenue cap and floor, as well as reform of the Capacity Market to run auctions for flexibility.

5. Time to implement solutions

The UK government has already recognised that there is a need for revenue support in flexibility and storage, and while this a promising start, we are short on time. We already expect 100GW of intermittent generation on the system by 2030 – which is not far away and without action we are unlikely to build material levels of long duration storage. This means there will likely be increased levels of curtailment, wasting valuable low carbon power, and an increased risk to security of supply.

As it has with other technologies already, the Department for Energy Security and Net Zero should set out its ambitions for deploying LDES in the GB system that will provide investors with clear signals of the need to invest. Given the capital risk, suitable policy frameworks should be developed that attract a variety of investment opportunities.

If the government is serious about energy security, they must reflect this with action concerning a crucial but remarkably overlooked piece of our future energy system.