Energy storage: Navigating challenges and opportunities

Energy storage is an issue at the heart of the transition towards a sustainable and decarbonised economy. One of the many challenges faced by renewable energy production (i.e., wind, solar, tidal) is how to ensure that the electricity produced from these intermittent sources is available to be used when needed – as is currently the case with energy produced from fossil fuel sources.

That challenge presents itself in many ways. Renewable energy production is subject to weather and seasonal interruption, which means supply does not align with the demand of end users. There are also national electricity grid limitations that can cause challenges when there are increased levels of renewable energy production in the energy mix, due to the supply of the generation being located far away from large demand sources. Energy storage is one means to resolve these challenges, and this relatively recent shift in demand for improved storage capability presents opportunities and challenges for market participants. This is leading to increased interest in the market from investors, developers, and businesses looking at how storage solutions could be integrated into their portfolios or operations.

In this first of a series of four articles, based on our experience with clients and through research, we present an overview of the current energy storage market, and outline both the opportunities and the complexities associated with investment and operational activity in that market. In later articles, we’ll focus on specific energy storage considerations, such as the current market development, the policy and regulatory landscape, the current and anticipated economic models for storing and supplying energy, and issues arising from the supply chain involved in energy storage.
 

Setting the scene

The world is moving from a more centralised fossil-fuel-based energy system to a decentralised model using energy from renewable sources. That shift is largely in pursuit of greener and more sustainable economies, but also addresses related issues such as energy security, brought sharply into focus with the Ukraine conflict.

The transition to using renewable energy sources – including the technologies required to scale up – is not linear, however, and the pace of change varies widely by market segment and geography. That variation can be put down to a number of factors, but includes:

• The economic or market dynamics of each segment 
• The extent to which national and regional policy mandates each aspect of the transition 
• The complications inherent to the change 

In the case of the energy storage segment in the Netherlands, all these factors are in play. Before looking at them in more detail, it helps to have a broad understanding of the technological necessity and available means for energy storage, and how those means present opportunities for entrepreneurs and investors alike.
 

Role for storage – Electricity networks

The aim of energy storage assets is to store energy at times when it can be produced in ample supply for later consumption when demand is higher, or generation levels are lower. How the use of electricity is deferred is key to understanding the economic, technical and political considerations associated with energy storage. Put simply, there are shorter-term and longer-term means of storing energy for later consumption. Examples of the different roles that storage assets can play are outlined below:

• Congestion – Congestion occurs when there is too much electricity being transported at a particular part of the grid. This results in the grid becoming overloaded and no additional electricity being able to be transported in this area. Storage assets can be used to take electricity off the system in these localised areas to provide relief to the electricity network by storing excess electricity which can then be used during periods of lower production or higher demand. This requirement often follows a shorter duration;
• Frequency and balancing services – The electricity networks are required to maintain a certain frequency (i.e.50Hz) to ensure that they are able to operate efficiently. The frequency in the grid can be impacted by factors such as the power generation mix and the imbalance between supply and demand across the network. Storage assets can be used to provide or off-take electricity to/from the grid to maintain the required frequency on the network. This requirement often follows a shorter duration;
• Back-up power – storage assets can provide a source of electricity to the grid network in instances when the grid is required to shut down;
• Load shifting – storage assets can be used to shift electricity demand or generation to another time period where it is more economically or efficient for the users of the grid (e.g., storing wind energy produced at 03:00 to be used during the day when demand is higher) and;
• Long-duration (seasonal) – storage assets can be used to store energy during a period of high production (i.e. solar in the summer) and utilize the electricity during a period of high demand (i.e. the winter). This approach can provide long-duration base load power to the electricity grid.

During our survey of market participants in Q1 2023, congestion management (93%) and frequency and balancing services (93%) were deemed to be the areas where storage assets were most essential at the current time. This emphasises the role that storage assets can play in ensuring the stability of the grid as it responds to the increased level of intermittent renewable generation assets.
 

Role for storage – Alternative uses

The above focuses on the role that storage can play within the electricity grid portfolio. This is where the major investments are expected to gravitate, but there is also scope for smaller-scale energy storage projects to play a part. This can be through providing local supply needs or flexible off-grid solutions.

Storage assets could satisfy both industrial and community consumer needs where access to the grid is problematic or uneconomic. An example of how this is being done is through the use of ‘behind the meter’ solutions where a storage asset is installed (potentially alongside co-located renewable generation assets) to enable more efficient use of the existing grid connection. This can enable expansion at a particular location without having to wait for upgrades to be made to the electricity grid.

Another role that storage assets can play is for companies operating in locations where it is not possible to access the grid and non-fixed storage solutions can be used. Examples of this include construction sites/festivals where transportable storage assets can be used instead of diesel generators. This can provide benefits to companies as a permit is not required for the storage asset and it can provide them with a lower-carbon source of energy compared to the alternative options.
 

Types of storage

There are different types of storage techniques that can be used to store electrical energy. These can be categorised in different groups as follows:

• Electrochemical – Examples include li-ion batteries, flow batteries and solid state batteries;
• Electrical – Examples include supercapacitors and superconducting magnetic;
• Mechanical – Examples include pumped hydro and compressed air storage;
• Chemical – Examples include power to gas (i.e. H2)
  
  

Each of the different techniques and underlying technologies have different levels of maturity and applicability for the electricity network at the current time.

The most dominant technology in use is the Lithium ion or Li-ion battery, which is particularly suited to shorter duration needs such as immediate or unforeseen surges in demand, or for frequency and balancing services as explored above. Globally and within the Netherlands, there are established large-scale battery energy storage systems (BESS) using Li-ion technology and operating at grid scale.

For longer-term storage needs, such as back-up power and load shifting, other technologies are more likely to be suitable, including other battery systems such as flow batteries, liquid air storage systems or compressed air storage systems. Alternatively, there’s the possibility to produce hydrogen via electrolysers, and to then store this in tanks or salt caverns before using it to produce electricity. These technologies are still in the pre-commercialisation phase globally, so are less well established compared to Li-ion assets.

Each of the storage mechanisms currently in use or envisaged soon to be deployed have different characteristics. Although Li-ion batteries are currently the most established, it is our view that a combination of storage technologies will be required to support the full integration of renewable energy assets into the electricity network in the coming years.