1. Limited policy certainty for LDES,
compounded by concurrent jurisdiction
While many regions note the strategic
importance of energy storage overall, there are
few concrete actions being taken to accelerate
the sector, let alone LDES within this broader
envelope. Moreover, in regions like the EU and
US, concurrent jurisdiction between different
levels of government (e.g., state vs. Federal in
the US, country vs. EU-level in Europe, and
state vs. central in India) can create additional
uncertainty and complexity to manage.
2. Limited awareness and definitions of the asset
class, leading to narrow technical taxonomy
for energy storage and lack of a defined
market and monetization opportunities
As an emergent class of technologies,
understanding of LDES solutions, their
attributes, and their value propositions to
customers and the power system is also
underdeveloped. The term energy storage tends
to be more narrowly defined to short duration
(commonly one to four hours of storage) and
conjures the traditional image of a containerized
lithium-ion or lead acid battery pack. Given
the high market share of lithium-ion systems in
today’s grid-scale stationary storage, most of the
technical requirements in power markets (e.g.,
roundtrip efficiency, safe operating parameters,
degradation, lifetime, cyclability) are defined
based on the performance characteristics of
these solutions and will need to be adapted
for LDES technologies that can deliver similar
services but with inherently different technical
and operating profiles. Similarly, in many markets
no distinction is made between conventional
pumped hydro and novel forms, such as
off-stream. This narrow definition of energy
storage also extends to customer technology
procurement, where existing Requests for
Proposals (RFPs) for energy storage projects
preclude novel solutions with different
characteristics. In some jurisdictions, LDES is
also considered as the same asset class as
electricity generation or transport, which can
lead to double taxation.
3. High initial project costs
8
due to limited
commercial scale and deployment history
Limited commercial deployment of LDES
solutions beyond first-of-a-kind (FOAK) projects
has resulted in high initial capex requirements
due to limited economics of scale in production
and procurement (refer to Exhibit 3 for high
level summary of LDES deployment status).
Elevated initial project costs in turn mean
lower economic competitiveness versus
other established forms of flexibility that have
achieved economies of scale.
4. Investor perception of increased project
risks leading to elevated rate of return
requirements
Project investors require a premium to cover
perceptions of higher risk associated with an
asset class with limited track record in the early
days of market formation. Although there are
applications (e.g., substitution of diesel power in
remote applications such as mining, or isolated
communities including islands) offering sufficient
Return on Investment (ROI) today, the majority of
LDES business cases cannot support elevated
capital cost requirements reflecting technology
risk. Additionally, some development banks find
it difficult to support LDES because few risk
assessments are available.
Barriers to LDES adoption
While there is considerable evidence to support the need for
LDES solutions as a part of the decarbonization equation,
there are several barriers to widespread deployment of LDES.
8 Costs of LDES systems are expected to decline significantly to 2040. Benchmarking by the LDES Council in 2021 suggested 60% and 25-50%
declines in power and balance of plant capex and energy capex from 2025 levels. Learning rates for LDES assets were estimated to be between
12-18%, comparable to those for other clean energy technologies.
15
The journey to net-zero | An action plan to unlock a secure, net-zero power system
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