The United States power sector is rapidly evolving. Renewable electricity resources, particularly solar power, are being added to the U.S. power grid at record rates due to dramatic cost declines, favorable tax credits, and a strong desire to decarbonize. At the same time, the United States is entering a period of growing electricity demand, with current estimates projecting 15 to 20 percent growth in the next decade. This is due to a combination of a surge in demand from new data centers and a reshoring of manufacturing, as well as increasing electrification of the transportation, building, and industrial sectors, as part of economy-wide decarbonization. Climate change is exacerbating this supply-demand shift by increasing the number of grid stress events (i.e., the intensity, frequency and duration of extreme weather events). The combination of a growing percentage of variable renewables, evolving usage patterns, and the effects of a changing climate on grid resiliency and reliability have catalyzed the grid-scale energy storage market to grow.
The exponential growth of US energy storage capacity since 2020 has been dominated by lower cost and shorter duration lithium-ion batteries (typically 0 to 4 hours). There continues to be a major gap when it comes to long-duration energy storage, also known as LDES. LDES is defined by the U.S. Department of Energy (DOE) as any system that can store and discharge energy for ten or more hours. It is a diverse technology class with a range of potential system forms, including electrochemical, mechanical, thermal, and chemical energy storage. There is broad consensus that LDES will be critical to enabling widespread deployment of renewables and enhancing grid reliability and resilience.
Federal and state support for LDES has increased in recent years, primarily through the DOE’s Office of Clean Energy Demonstrations (OCED) LDES portfolio and a limited set of state research studies and pilot and demonstration projects. However, the economic and environmental benefits of LDES have yet to be captured in most grid planning, power market, and energy modeling activities in the United States. There are few, if any, LDES carveouts or policies in state electricity portfolio standards, state climate action plans, or utility integrated resource plans. These gaps, combined with first-of-a-kind deployment costs, make it difficult for utilities and Public Utility Commissions (PUCs) to make an economic case for LDES.
To meet this challenge, in November 2023, C2ES launched an LDES technology working group that convenes power sector stakeholders to discuss and identify policy solutions that can help address the current barriers to LDES deployment while simultaneously unlocking its long-term value. As one of four technology working groups focused on how to rapidly deploy and commercialize critical-path technologies, the LDES working group convenes leading voices across the power sector ecosystem, including utilities, inter-day and multi-day LDES providers, Independent System Operators/Regional Transmission Organizations (ISOs/RTOs), financiers, members of C2ES’s Business Environmental Leadership Council (BELC), and other key stakeholders. Informed by working group discussions, C2ES has identified a shortlist of priority federal and state-level policy recommendations that can remove barriers to deployment, unlock value drivers, and/or accelerate private sector demand for LDES technologies.
1. ISOs/RTOs and electric utilities should shift to a resource adequacy (RA) evaluation framework that focuses on year-round adequacy (“energy adequacy”) instead of peak-load targeted needs (“capacity adequacy”). Doing so necessitates adopting more comprehensive and nuanced RA modeling and accreditation approaches to better evaluate the evolving needs of a decarbonizing power system and the potential role for LDES in a changing climate. Resource adequacy measures whether a power system has enough capacity and reserves to balance supply and demand—even under challenging conditions of low supply or exceptionally high demand. Today’s power systems are characterized by greater variability in both supply (due to weather-dependent and inverter-based resource generation like wind and solar) and demand (due to flexible loads and distributed generation resources). Climate change is also increasing grid stress events, which diminish grid resiliency and lead to extended power outages.
New modeling approaches and metrics will need to be evaluated and developed to accurately determine how the unique attributes and capabilities of LDES technologies can contribute to RA and grid reliability. As a starting point, ISOs/RTOs and electric utilities should prioritize metrics that better express energy adequacy needs, including expected unserved energy (EUE) and informed by other metrics, such as loss of load hours (LOLH), and away from planning frameworks primarily based on loss of load expectation (LOLE). Doing so should better capture hourly, seasonal, and annual adequacy needs and help grid operators identify where LDES can be used to address gaps. For RA accreditation approaches, grid operators will need to make adjustments to ensure that their current accreditation methods better reflect and compensate for the reliability contributions of LDES and all other resource types. This will likely necessitate using new accreditation approaches altogether, or thoughtfully pairing existing methods like effective load carrying capability (ELCC), marginal reliability impact (MRI) derating, or supply tightness, with new approaches that are actively being researched and developed. Long term reforms of RA programs and near-term changes to accreditation approaches will help increase the accuracy of LDES contributions to reliability by better expressing system reliability needs and by better valuing LDES with respect to resource adequacy.
2. ISOs/RTOs should support and expand ongoing reforms to increase system flexibility through increased megawatt (MW) and megawatt hour (MWh) requirements for existing operating reserves in the short-term. ISOs/RTOs should also introduce new ancillary services and energy market reforms in the medium-term to address increasing uncertainty from variable renewable output, extreme weather, and other drivers. LDES technologies with their fast-responding and long-duration charge/discharge capabilities are well-suited to providing the services needed to manage increasing supply/demand imbalances. We further recommend that ISOs/RTOs revise market mechanisms to enable LDES technologies to participate in multiple markets (e.g, capacity, ancillary, energy markets) within an ISO/RTO or provide multiple services simultaneously within a state. The more markets LDES can participate in, or services it can provide without compromising its ability to fulfill RA obligations, the more valuable it will become and the more rapidly it will be deployed. A prerequisite to the success of these operational flexibility and market reforms is the more effective coordination of planning practices between individual states and regional entities such as ISOs/RTOs. Without first establishing consistency between the ISO/RTO market rules and what is happening in the states within that region, the impact of these reforms will be limited.
3. State legislators and regulators should set clear and distinct procurement targets for LDES deployment. As of October 2024, eleven states have established energy storage procurement mandates, targets, or goals, but only California and New York include clear and distinct targets for LDES. The policy design used by these two states can serve as a useful guide for how other states could approach an LDES procurement target or mandate. State LDES procurement targets should encourage utilities, developers, and other power system stakeholders to consider a range of durations (e.g., inter-day and multi-day) and LDES forms (e.g., electrochemical, mechanical, chemical, and thermal) so they can choose the LDES technology that will work best for their specific regions and needs. State LDES procurement targets should also align with the DOE’s definition of LDES, which is ten hours or longer. By setting a distinct LDES procurement target, states can provide LDES technologies with the long-term market certainty needed to catalyze public and private sector investment. This will be one of the most effective ways to accelerate uptake of LDES by utilities and level the playing field with other shorter duration storage technologies. We recommend that PUCs or other state agencies consider several design structures for LDES procurement programs to help share costs with utilities, enable price discovery, and manage costs to both taxpayers and ratepayers. These structures could include a price floor with procurement programs, reverse auctions, and clean transition tariffs (CTTs) or accelerating clean energy (ACE) tariffs.
4. The Department of Energy and the LDES National Consortium should collaborate with state government entities to review, assess, and fill gaps in the national suite of LDES pilot and demonstration projects. A coordinated national initiative can help produce the key insights and best practices necessary to enable effective demonstration, grid integration, and market compensation of LDES technologies. The effort should encompass diverse LDES technologies that range in duration, storage form, and use cases. Demonstration projects should also account for regional and market differences across the United States. Financial assistance may be offered directly to project developers by federal and state agencies through grants, low-cost debt financing or guarantees, investment tax breaks, or other funding mechanisms such as regulated clean energy revenue riders. Operating revenue could also be bolstered and assured through public procurement and innovative financing mechanisms like clean transition tariffs. Project developers that receive benefits from these public policies should be required to disclose and validate data that can be used by utility resource planners and project developers to enable follow-on investments.
5. The administration and Congress should examine options and work toward enacting an economy-wide market-based carbon pricing program that could contribute to the achievement of net-zero emissions by 2050. Setting a price on carbon—whether through a carbon tax or a cap-and-invest program—confers a clear market value to emissions reductions that is commensurate with the environmental, societal, and economic benefits that reducing global greenhouse gas pollution provides. This market signal will better align clean energy policy goals with costs of currently available technology and enable greater uptake of cleaner LDES technologies over heavier-emitting alternatives, like natural gas peaker plants. Revenue from the carbon pricing program could be used to foster technology innovation (e.g., supporting the development and deployment of nascent LDES technologies) or for other purposes such as lowering government deficits or reducing distortionary taxes.
By pursuing the recommendations offered in this brief, federal and state-level decision-makers can ensure that power markets and energy regulation will effectively enable widespread and coordinated deployment and commercialization of LDES.
To explore the full report Long-Duration Energy Storage Technology Working Group: Unlocking the Value of LDES, developed by C2ES in consultation with more than 25 companies across the LDES ecosystem, please click here.