🌏 The long and the short of energy storage tech

Scaling long-duration energy storage lithium-ion batteries will be essential to balancing a cleaner grid

The sun doesn’t always shine and the wind doesn’t always blow, and there’s certainly no way to ensure that the brightest or breeziest times coincide with periods of peak energy demand.

The more intermittent green electrons we produce, the more we need to control when and where those green electrons are distributed in order to keep our homes and businesses humming 24-7.

Generally, once grids reach a tipping point of ~60% penetration of wind and solar energy, the capability to shift those green electrons becomes critical. Essentially we can either 1) move electrons further distances or 2) create ways to store them longer.

While transmission line upgrades provide cost savings in the long term, initial costs are high and new build of transmission is prohibited by the familiar NIMBYism and permitting challenges. With limited transmission infrastructure, smoothing out the intermittency of renewables requires 12+ hour storage. Technologies able to store energy from ~8hrs up to multiple days or weeks are categorized as long duration energy storage (LDES).

Along with enabling a cleaner grid, LDES tech provides greater energy resilience and reliability. The increasing frequency and length of PG&E’s public safety power shutoffs during extreme heat and weather events in California, for example, creates a recurring need for multi-day energy storage—especially in the commercial and industrial sector, where not all customers are considered “essential” but may still have needs like manufacturing or cold storage that can no longer be met economically or sustainably with diesel generator backups.

An energy market overview

Source: TDK Ventures

The grid and energy markets have a fundamental responsibility: perfectly matching energy generation with demand in a 100% safe manner for all customers, every day, forever. The way that this system is regulated and managed is multi-layered (regulatory commissions, system operators, utilities, and more!) and complex enough for its own deep dive, but at the core are two ways of provisioning and compensating the folks who produce electrons in deregulated systems: capacity markets and energy markets.

Capacity markets operate based on long-term models of how much power the grid will need at any given instant under varying conditions in order to meet demand, and contracts are paid ahead of time to energy generators for their ability to deliver that power when needed—typically years in advance.

Energy markets are a real-time mechanism of compensating generators for delivering energy to the grid in sync with demand on a daily, hourly, and momentary basis. Since load-serving entities and grid operators have a pretty good idea of how much energy will be needed 24 hours ahead of time, the bulk of transactions pay for the next day’s energy production. More instantaneous energy transactions compensate for small variabilities in grid conditions, as well as “ancillary services,” like making sure that voltage and frequency stay stable at all times.

  • Spot markets are the most common type of power market, in which buyers and sellers agree on a price for electricity to be delivered, usually either for the next few hours or day-ahead.
  • Balancing markets are used by grid operators to ensure that supply and demand are balanced on a minute-by-minute basis and make up for any mismatch between supply and demand.
  • Futures markets are used to hedge against changes in electricity prices in the future, and agreements can be made weeks or months in advance.

The long-duration energy storage market

Storage assets even out imbalances and generate revenue by charging up with electrons when there’s an abundance of renewable energy, then selling it back to the grid when demand and prices are higher. They can also claim capacity market revenues and be compensated for providing ancillary services such as frequency regulation to the grid as well.

Depending on their duration, LDES technologies are best-suited for different problems. Lithium-ion batteries are typically most economical for between one and eight hours, while a collection of novel solutions are targeting the 12-24 hour range. Other technologies can store energy with minimal losses over weeks or even months, providing balance to the grid during storms or between seasons.

  • Intraday (<24 hours): provide energy storage services within a single day for peak-shifting and grid-stability services. The most common market for intraday flexibility is the spot market, with the balancing market used to fill in any gaps. Li-ion batteries are likely to dominate the market in this space, due to their pricing, but arbitrage and balancing opportunities for revenue generation are still available to LDES technologies with a relatively fast dispatch time.
  • Multi-day/week (24-100 hours): provide energy storage services over periods of 24-100 hours. This range is important for overnight power needs and periods of poor conditions for variable renewables, such as storms. Day-ahead spot markets are commonly used here, as are futures markets. Traditionally, conventional power plants and energy curtailment have been the main strategies for dealing with these periods, but LDES has the potential to plug in many of these gaps.
  • Seasonal (100+ hours): account for the natural variability of solar and wind between seasons and increasingly frequent extreme weather events. LDES can help push out some of the most expensive power on the grid: gas peakers. These plants might operate for just a few hundred hours a year and use up to 50% more natural gas than baseload combined cycle gas generators. (Sources: Leap & RMI)

LDES Legacy

LDES solutions have a long (and somewhat tumultuous) history:

  • Pumped hydropower has a long track record with ~100 years of steady performance (going back to the first US energy storage plant in 1930). There are more than 150 GW of installed pumped hydro capacity in China, the US, Italy, France, and Germany, but the specific geography required for pumped hydro makes it challenging to build more.
  • Compressed air for power generation first went online in 1978 and there are several commercial deployments, though some have either shut down or been canceled.
  • Advanced batteries have also struggled, with bankruptcies like A123, Aquion Energy, Sakti3, and Envia Systems. And as a category, li-ion beat vanadium for the 0-4hr market.
Case study: The rise and fall of flow batteries

Flow battery form factors and vanadium chemistries are well known and had a brief boost in popularity in the 2000s and 2010s during cleantech 1.0. Excitement about the technology resurfaced ~5 years ago and grew with the IPO of ESS, but the technology hasn’t quite reached its flow state for cost reductions—43% of flow battery companies founded between 2000 and 2010 are no longer in business.

While flow batteries promise the holy grail of decoupling of storage and power in battery systems—a major drawback of scaling li-ion batteries (see below), the technology hasn’t benefited from the growth of consumer EV production that has pushed li-ion chemistries down the cost curve.

Li-ion: at-scale, short-duration

Most energy storage solutions today rely on lower-cost li-ion batteries (typically LFP), which have high energy density, making them small enough to be placed just about anywhere. Scaling is a relatively simple process of adding more containerized units, and as li-ion supply chains are gearing up full-force for EVs, li-ion battery costs have plummeted. But li-ion batteries can’t solve all our energy storage problems.

While li-ion batteries are great for short-term balancing and peak shifting, they’re not so good at storage across days, weeks, or seasons.

Energy storage is driven by two key concepts: energy capacity and charge/ discharge power capacity. In climate, (almost) everything can be simplified into a good ol’ bathtub analogy:

  • Energy storage capacity = volume of the tub
  • Charge power capacity = size of the faucet filling the tub
  • Discharge power capacity = size of the drain

Traditional cell-based systems like lithium-ion batteries combine the components that store energy and produce power, and can only scale both at a fixed 1:1 ratio. In comparison, each attribute of an LDES system can be independently sized to prioritize energy storage capacity at a fixed power output. The result? A cheaper and simpler storage solution without unnecessary extra power production.

Current battery boom

Despite the trail of failed battery ventures, funding for LDES is ramping back up, with companies like Form Energy leading the charge.

Source: CTVC

Investor interest in novel LDES technologies has returned in force driven by $100M+ mega-rounds (e.g. Form Energy, EnergyVault). Total funding increased 36x from $0.1 to $2.3B in the last five years, and 2021 in particular put a stake in the ground for the return of LDES, with funding up ~300% compared to the prior year.

While deal activity has consistently grown, it’s still early in the game. With the exception of a few break-out megarounds, ~70% of deal activity were made up of grants, Seed or Series A rounds.

As investor interest picked up, so has company development. The concentration of new company formations track with the battery market’s two active cycles: 30% of companies founded during the 2009-2011 period and 45% founded post-2017 in today’s boom. Meanwhile, the quiet period during the early 2010s was a symptom of cleantech 1.0’s fallout, which left a wake of failed battery startups.

Long-duration energy storage pathways

Source: CTVC

LDES technologies generally fall into one of three categories: mechanical, electrochemical, or thermal. (There are also chemical LDES solutions, which mostly consist of hydrogen storage and aren't included in this analysis.)

Pathway: Mechanical

Energy stored as potential or kinetic energy

This generally involves either compressing gas in order to capture the energy released as it expands, or raising up a weight and capturing energy released as it is lowered. The technologies behind this pathway are generally well understood through prior applications—air compression and lifting weights aren’t new ideas—but many companies are working on new ways of using these technologies more efficiently.

Compressed Air: Energy is used to compress air into a large underground cavern (recharge). The air is later released into a recuperator and heated for re-expansion at a turbine for generation (discharge).
Liquid Air: Sometimes called cryo-storage, air is cooled to cryogenic temperatures (recharge) with compression and cooling, then allowed to expand (discharge), using hot and cold storage tanks.
Liquid CO2: Energy is used to compress CO2 to liquid form (recharge), and then the liquid is evaporated and heated in order to expand and spin a turbine (discharge).
Gravity-based: A piston or weight is lifted using energy (recharge). When dropped, the object’s gravitational energy is captured and used to spin a turbine (discharge).
Pumped Hydropower: Configuration of two water reservoirs at different elevations, that can generate power as water moves down from one to another (discharge), passing through a turbine. The systems then uses power to pump water back into the upper reservoir (recharge). There are also new takes on this concept, where water is pumped into the subsurface and stored at high pressure until a valve on the surface is released and the fluid comes out and spins a turboexpander to produce power—examples here are Quidnet, or even Fervo with it’s recent announcement.

Pathway: Electrochemical

Batteries of different chemistries used to store energy

Electrochemical cells consist of a cathode, an anode, and an electrolyte through which a charge can pass. Significant research has gone into finding alternatives to lithium-ion batteries in this space, with varying levels of success and progress.

Metal-Air: In these systems, the anode is made of pure metal (e.g. iron) and a reaction occurs with ambient air when the metal anode is oxidized (discharge). An electrical current is then used to convert the rust back to iron (recharge).
Novel Chemistries: Battery types with a traditional anode-cathode cell structure, but utilizing alternative materials in place of lithium.
Flow batteries: A flow battery is an electrochemical cell in which two chemical components are dissolved in liquids and pumped through the system on either side of a membrane.

Pathway: Thermal

Using thermal energy to store and release heat and electricity

Heat can be stored in a variety of materials, including water, molten salt, and minerals. Electricity is converted to heat and used to heat up the thermal medium (recharge). That heat is then either used directly or used to boil water for a turbine (discharge). Generally converting electricity into heat and back again faces significant losses, but when the input or output of the system is heat then these technologies are far more efficient.

Latent Heat: Energy is used for phase transition of a storage medium and then reverting it to release heat.
Sensible Heat: Energy is used to heat up a storage medium (recharge). That heat is then used directly, drawn through an exchanger, or used for the expansion of another working gas/fluid (discharge).

KPIs for LDES

With funding picking back up, investors can learn from the outcomes of past battery deals. These key factors will determine the success of LDES technologies.

  • Duration: Several LDES techs can be built at many 100MWhs to deliver their rated power over timelines way beyond four hours in a footprint that competes with li-ion.
  • Cost: The upfront capex will likely be more expensive than the ~$100 per kWh of Li-ion, but the marginal cost of adding an additional MWh of output is very low. LDES solutions also have to compete with existing fossil-fuel assets that have historically balanced the grid and are levelized cost winners, such as fully depreciated natural gas peaker plants that spin up and produce energy for a few cents per kWh.
  • Lifetime: Li-ion batteries will operate for 2-3,000 cycles, or about six years. The expectation is that most LDES assets will operate for 20-50 years.
  • Input/Output: Li-ion cells couple energy storage capacity with power output—you’re always building kWs and kWhs together. Other LDES solutions can decouple these attributes, meaning you can get additional energy capacity (bathtub volume) without having to pay for more power output (drain size) as well.
  • Scalability: Many LDES technologies do not require critical minerals or have geographic constraints, and the incremental cost of adding energy to the system is (sometimes literally) dirt cheap.
  • Safety: Li-ion battery fires are pervasive. While this risk is manageable, alternative LDES solutions can avoid the added infrastructure costs (monitoring, fire suppression) and operating costs (higher insurance premiums) that come with using li-ion batteries, especially for extremely long durations.
  • Secure supply chains: Critical infrastructure providers like utilities are allergic to volatility. With government oversight of electricity markets and support from IRA incentives, this is a moment when startups that steer clear from raw materials dependent on unstable geopolitics and high embodied emissions can succeed in this space
  • Productized, not projectized: Li-ion batteries are cheap because you can productize them and manufacture them at scale, while other LDES technologies are projects that have to be built one-by-one, with project development challenges for every new deployment. The best solutions should leverage known processes and components to build easily replicable storage products.
  • Reasonable LCOS assumptions: Evaluating LDES solutions on this metric depends on assumptions about the types of electricity you’re using and how much it costs, capacity factor, cost of capital, uptime and lifetime expectations, operations and maintenance cost. These complex and variable factors make it difficult for investors and customers to fully trust or fairly compare levelized cost of storage (LCOS) values proposed by LDES startups.

Key takeaways

To be bullish on LDES, you need to believe…

  • Renewable penetration will increase by a lot, particularly variable renewables such as wind and solar.
  • Energy price volatility will persist between different times of day and seasons, creating arbitrage opportunities.
  • Grid upgrades will not happen in time to reduce demand for storage and li-ion batteries won’t be enough to meet expanding storage needs.

As an outsider, you should watch for…

  • Greater deployment of low or no-carbon power sources that are less intermittent (eg, geothermal, nuclear, fusion) and adoption of alternative solutions to the load shifting problem, such as demand response and green fuels.
  • Challenges sourcing raw materials relevant to LDES technologies and competitors, such as lithium, cobalt, zinc, and vanadium.
  • Commercialization of cheaper and less supply chain-constrained battery chemistries, like sodium ion, which could scale similarly to li-ion batteries and compete with other LDES technologies.
  • Faster-than-expected transmission upgrades and improvements, which have support from IRA incentives and the DOE’s Grid Modernization Initiative in the US and would decrease the demand for storage.

LDES providers need to develop…

  • Technologies that can scale through unitized production to leverage learning curves and funding for manufacturing.
  • Better go-to-market strategies and customer education tools (LDES-driven grid modeling software, anyone?) to spur adoption.

Policy and market shifts…

  • Incentives for grid storage beyond 4hrs: Policies like California’s reimbursement and Resource Adequacy programs created an early advantage for li-ion batteries due to eligibility requirements targeted at four hours of storage capability. Incentivizing longer storage periods could help other LDES technologies to catch up in terms of bankability and deployment.
  • LDES-friendly energy capacity markets: Some LDES assets are too small to bid into power markets, like the 24hr spot market. Individual states and ISOs will have to decide how to allow smaller-scale LDES to participate, either on their own or by aggregating. These mechanisms could benefit both storage and distributed energy resources (DERs) as two-way power flows become more common for the modern grid.
  • Resilience-driven demand: As we grow into a world where 30-year weather events happen on a yearly basis, causing multi-day outages, keeping the decarbonized lights on requires new solutions. LDES might be the missing puzzle piece for example, when paired with local or regional microgrids that must become more resilient to long-outage, climate-driven events.
  • Lower barriers to deployment in remote or emerging markets: In more remote areas or regions with developing grids, there are fewer regulatory challenges when it comes to determining how new LDES will affect grid reliability. Some examples include microgrid projects in Puerto Rico and Nigeria and energy storage systems co-located with renewables in South Africa that may be leading indicators for LDES success.

Huge thank you to Marc Bouchet from TDK Ventures, Oliver Booth, and Francesca Gencarella for their help with research, writing, and graphics!

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