The energy storage market is poised for strong growth over the next decade and opportunities are likely to emerge for alternatives to lithium-ion that offer longer durations of storage, but three key challenges remain for those technologies.
Speaking at today’s second day of the Energy Storage Summit 2021, hosted by our publisher Solar Media, George Hilton, senior energy storage analyst at IHS Markit, said that scaling up, achieving cost reductions and proving bankability are the biggest hurdles facing technologies such as flow batteries and mechanical storage.
With the market research and analysis group predicting that more than 10GW of energy storage will be deployed during 2021 worldwide, more than doubling last years installations, Hilton said that it is obvious lithium-ion is clearly the dominant technology in the market. However, stationary energy storage represents a relatively small proportion of demand for batteries.
“The scale of the lithium-ion industry is huge compared to the scale of the energy storage industry,” Hilton said, adding that this presents both opportunities and challenges for stationary energy storage.
The scale and demand for lithium for transport applications has driven forward dramatic price reductions and helped develop a global supply chain. Meanwhile, from a technological perspective, “all developments in lithium-ion batteries will be dictated by the automotive sector,” with significant investment from that sector driving innovation in cell chemistry and manufacturing. This has benefits and drawbacks, with batteries suited for transport not necessarily meeting the needs of the stationary storage sector. Additionally, new technologies will need to meet a high precedent of bankability and scale set by the dominance of lithium-ion.
On the other hand, lithium-ion batteries are well-suited for higher power applications, while alternative and potentially disruptive technologies such as flow batteries, compressed air and thermal storage options are more like “conventional energy assets”, and the majority offer longer-duration energy storage.
Promising signs already but real opportunities will take some time to develop
For demand for these long-duration technologies to grow, they need to solve supply and demand mismatches at a bulk level on energy networks.
“If you're solving the supply and demand mismatch at a country scale, you really are looking at significant quantities of stored energy. And following on from that the costs clearly need to be very low. If this technology is to be deployed at scale then it needs to be deployed at scale, and low cost.”
Then, he said, “most importantly, investors will need to trust that the technology that they're investing in is effective and robust in order for it to be bankable. And this is a very tough hurdle for alternative technologies, which are often unproven and they haven't necessarily benefited from the scale that lithium-ion has in the automotive sector”.
The opportunity for alternative technologies is “tied to the value available in long-duration applications, and that’s because that’s where lithium-ion is least competitive,” Hilton said. For example, to add more duration of storage and discharge to a lithium battery system, you need to add more cells, whereas with flow batteries, you increase the size of the electrolyte tanks. The relationship between adding more lithium cells and increased cost is linear - for flow batteries, adding that extra capacity is therefore a “cheaper way of increasing capacity than building a whole new flow battery next door”. Hilton said IHS Markit believes that for 8-hour duration applications flow batteries can become broadly competitive with lithium-ion by 2030.
There had been “interesting and promising signs” for long-duration even in 2020 and Hilton brought up three relatively small but significant actions taken in different countries: a 500MW request for offers (RFO) by a group of Community Choice Aggregator (CCA) electricity suppliers in California for energy storage with a minimum eight-hour discharge duration, Israel’s recent solar-plus-storage tender which awarded 3GWh of government energy contracts to systems with four-hour duration and a South African government energy tender which is technology agnostic but requires 2GW of dispatchable generation capacity available between 5am and 9:30pm each day.
Going forwards, Europe’s wholesale electricity market could offer a route for bulk storage, but it will require some fairly big changes in market dynamics, from “sporadic peaks and troughs” in wholesale prices, with infrequent one to two hour peaks to much longer and more regular peaks of several hours. Long-duration batteries will cycle much less often, by definition, than high power lithium batteries so the revenue opportunities need to be much deeper per cycle too.
These factors will align, offering an opportunity for long-duration storage in the gigawatt-scale, he said, but what is required is a continued high growth in renewable energy penetration and corresponding reduction in the size of the thermal generation fleet: “We do see these changes happening in the coming years,” he said.
Over the next few years to 2025 however, the majority of opportunities are going to remain in the two to four-hour duration segment of the market and the opportunity for long-duration storage is most likely to come to fruition post-2030, according to the analyst.
The Energy Storage Summit 2021, hosted by our publisher Solar Media, will continue on 2-3 March while all previous sessions are available to watch on-demand. See the website for more details.
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