Grid-scale Storage
What is grid-scale storage?
Grid-scale storage refers to technologies connected to the power grid that can store energy and then supply it back to the grid at a more advantageous time – for example, at night, when no solar power is available, or during a weather event that disrupts electricity generation. The most widely-used technology is pumped-storage hydropower, where water is pumped into a reservoir and then released to generate electricity at a different time, but this can only be done in certain locations. Batteries are now playing a growing role as they can be installed anywhere in a wide range of capacities.
What is the role of energy storage in clean energy transitions?
The Net Zero Emissions by 2050 Scenario envisions both the massive deployment of variable renewables like solar PV and wind power and a large increase in overall electricity demand as more end uses are electrified. Grid-scale storage, particularly batteries, will be essential to manage the impact on the power grid and handle the hourly and seasonal variations in renewable electricity output while keeping grids stable and reliable in the face of growing demand.
What are the challenges?
Grid-scale battery storage needs to grow significantly to get on track with the Net Zero Scenario. While battery costs have fallen dramatically in recent years due to the scaling up of electric vehicle production, market disruptions and competition from electric vehicle makers have led to rising costs for key minerals used in battery production, notably lithium. It is now becoming evident that further cost reductions rely not just on technological innovation, but also on the prices of battery minerals.
Tracking Grid-scale Storage
Grid-scale storage plays an important role in the Net Zero Emissions by 2050 Scenario, providing important system services that range from short-term balancing and operating reserves, ancillary services for grid stability and deferment of investment in new transmission and distribution lines, to long-term energy storage and restoring grid operations following a blackout.
is the most widely used storage technology and it has significant additional potential in several regions. Batteries are the most scalable type of grid-scale storage and the market has seen strong growth in recent years. Other storage technologies include compressed air and gravity storage, but they play a comparatively small role in current power systems. Additionally, hydrogen – which is detailed separately – is an emerging technology that has potential for the seasonal storage of renewable energy.
While progress is being made, projected growth in grid-scale storage capacity is not currently on track with the Net Zero Scenario and requires greater efforts.
Major markets target greater deployment of storage additions through new funding and strengthened recommendations
Major markets target greater deployment of storage additions through new funding and strengthened recommendations
Countries and regions making notable progress to advance development include:
- China led the market in grid-scale battery storage additions in 2022, with annual installations approaching 5 GW.
- This was followed closely by the United States, which commissioned 4 GW over the course of the year. The Inflation Reduction Act, passed in August 2022, includes an investment tax credit for stand-alone storage, promising to further boost deployments in the future.
- In its draft national electricity plan, released in September 2022, India has included ambitious targets for the development of battery energy storage.
- In March 2023, the European Commission published a series of recommendations on policy actions to support greater deployment of electricity storage in the European Union.
Pumped-storage hydropower is still the most widely deployed storage technology, but grid-scale batteries are catching up
Pumped-storage hydropower is still the most widely deployed storage technology, but grid-scale batteries are catching up
The total installed capacity of pumped-storage hydropower stood at around 160 GW in 2021. Global capability was around 8 500 GWh in 2020, accounting for over 90% of total global electricity storage. The world’s largest capacity is found in the United States. The majority of plants in operation today are used to provide daily balancing.
Grid-scale batteries are catching up, however. Although currently far smaller than pumped-storage hydropower capacity, grid-scale batteries are projected to account for the majority of storage growth world wide. Batteries are typically employed for sub-hourly, hourly and daily balancing. Total installed grid-scale battery storage capacity stood at close to 28 GW at the end of 2022, most of which was added over the course of the previous 6 years. Compared with 2021, installations rose by more than 75% in 2022, as around 11 GW of storage capacity was added. The United States and China led the market, each registering gigawatt-scale additions.
The grid-scale battery technology mix in 2022 remained largely unchanged from 2021. Lithium-ion battery storage continued to be the most widely used, making up the majority of all new capacity installed.
Annual grid-scale battery storage additions, 2017-2022
OpenThe rapid scale-up of energy storage is critical to meet flexibility needs in a decarbonised electricity system
The rapid scaling up of energy storage systems will be critical to address the hour‐to‐hour variability of wind and solar PV electricity generation on the grid, especially as their share of generation increases rapidly in the Net Zero Scenario. Meeting rising flexibility needs while decarbonising electricity generation is a central challenge for the power sector, so all sources of flexibility need to be tapped, including grid reinforcements, demand‐side response, grid-scale batteries and pumped-storage hydropower.
Grid-scale battery storage in particular needs to grow significantly. In the Net Zero Scenario, installed grid-scale battery storage capacity expands 35-fold between 2022 and 2030 to nearly 970 GW. Around 170 GW of capacity is added in 2030 alone, up from 11 GW in 2022. To get on track with the Net Zero Scenario, annual additions must pick up significantly, to an average of close to 120 GW per year over the 2023-2030 period.
Global installed grid-scale battery storage capacity in the Net Zero Scenario, 2015-2030
OpenWhile innovation on lithium-ion batteries continues, further cost reductions depend on critical mineral prices
While innovation on lithium-ion batteries continues, further cost reductions depend on critical mineral prices
Based on cost and energy density considerations, lithium iron phosphate batteries, a subset of lithium-ion batteries, are still the preferred choice for grid-scale storage. More energy-dense chemistries for lithium-ion batteries, such as nickel cobalt aluminium (NCA) and nickel manganese cobalt (NMC), are popular for home energy storage and other applications where space is limited.
Besides lithium-ion batteries, flow batteries could emerge as a breakthrough technology for stationary storage as they do not show performance degradation for 25-30 years and are capable of being sized according to energy storage needs with limited investment. In July 2022 the world’s largest vanadium redox flow battery was commissioned in China, with a capacity of 100 MW and a storage volume of 400 MWh.
While the past decade has witnessed substantial reductions in the price of lithium-ion batteries, it is now becoming evident that further cost reductions rely not just on technological innovation, but also on the rate of increase of battery mineral prices. The leading source of lithium demand is the lithium-ion battery industry. Lithium is the backbone of lithium-ion batteries of all kinds, including lithium iron phosphate, NCA and NMC batteries. Supply of lithium therefore remains one of the most crucial elements in shaping the future decarbonisation of light passenger transport and energy storage.
Moreover, the impacts of Russia’s invasion of Ukraine are also apparent in the battery metals market. Both cathode (nickel and cobalt) and anode (graphite) materials are affected. Russia is the largest producer of battery-grade Class 1 nickel, accounting for 20% of the world’s mined supply. It is also the second and fourth largest producer of cobalt and graphite respectively.
Ranging from mined spodumene to high-purity lithium carbonate and hydroxide, the price of every component of the lithium value chain has been surging since the start of 2021. 2022 saw the first increase in the price of lithium-ion batteries since 2010, with prices rising by 7% compared to 2021. Some relief was observed only in the first quarter of 2023.
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A number of countries are supporting storage deployment through targets, subsidies, regulatory reforms and R&D support
A number of countries are supporting storage deployment through targets, subsidies, regulatory reforms and R&D support
- In July 2021 China announced plans to install over 30 GW of energy storage by 2025 (excluding pumped-storage hydropower), a more than three-fold increase on its installed capacity as of 2022.
- The United States’ Inflation Reduction Act, passed in August 2022, includes an investment tax credit for stand-alone storage, which is expected to boost the competitiveness of new grid-scale storage projects.
- In September 2022, India released its draft National Electricity Plan, setting out ambitious targets for the development of battery energy storage, with an estimated capacity of between 51 to 84 GW installed by 2031-32.
- In December 2022, the Australian Renewable Energy Agency (ARENA) announced funding support for a total of 2 GW/4.2 GWh of grid-scale storage capacity, equipped with grid-forming inverters to provide essential system services that are currently supplied by thermal power plants.
- In March 2023, the European Commission published a series of recommendations on energy storage, outlining policy actions that would help ensure greater deployment of electricity storage in the European Union.
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Grid-scale battery storage investment has picked up in advanced economies and China, while pumped-storage hydropower investment is taking place mostly in China
Grid-scale battery storage investment has picked up in advanced economies and China, while pumped-storage hydropower investment is taking place mostly in China
Global investment in battery energy storage exceeded USD 20 billion in 2022, predominantly in grid-scale deployment, which represented more than 65% of total spending in 2022. After solid growth in 2022, battery energy storage investment is expected to hit another record high and exceed USD 35 billion in 2023, based on the existing pipeline of projects and new capacity targets set by governments.
The most significant investment in new pumped-storage hydropower capacity is currently being undertaken in China: Since 2015, the vast majority of final investment decisions for new capacity have been take there, with additions far exceeding those in other regions.
Recommendations
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Governments should consider pumped-storage hydropower and grid-scale batteries as an integral part of their long-term strategic energy plans, aligned with wind and solar PV capacity as well as grid capacity expansion plans. Flexibility should be at the core of policy design: the first step needs to be a whole-system assessment of flexibility requirements that compares the case for different types of grid-scale storage with other options such as demand response, power plant retrofits, smart grid measures and other technologies that raise overall flexibility.
In liberalised electricity markets, long lead times, permitting risks and a lack of long-term revenue stability have stalled pumped-storage hydropower development, with most development occurring in vertically integrated markets, such as in China. Dedicated support mechanisms, such as capacity auctions for storage, could help promote deployment by providing long-term revenue stability for pumped-storage hydropower and battery storage plants.
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Regulatory frameworks should continue to be updated to level the playing field for different flexibility options, which would help to build a stronger economic case for energy storage in many markets. One example would be ending the double charging of taxes or certain grid fees.
Transmission and distribution investment deferral (using storage to improve the utilisation of, and manage bottlenecks in, the power grid) is another potential high-value application for storage, since it can reduce the need for costly grid upgrades. To capture the greatest benefit, storage should be considered in the transmission and distribution planning process, along with other non-wire alternatives. A key issue is ownership: in many markets, storage is considered a generation asset and system operators (transmission as well as distribution) are not allowed to own storage assets. One solution is to allow them to procure storage services from third parties. However, regulatory frameworks need to be updated carefully to minimise the risk of storage assets receiving regulated payments and undercutting the competitive power market.
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Business cases for grid-scale storage can be complex, and may not be viable under legacy market and regulatory conditions.
In liberalised electricity markets, measures to increase incentives for the deployment of flexibility that is able to rapidly respond to fluctuations in supply and demand could help improve the business case for grid-scale storage. These include decreasing the settlement period and bringing market gate closure closer to real time, as well as updating market rules and specifications to make it easier for storage to provide ancillary services. The business case for storage improves greatly with value stacking, i.e. allowing it to maximise revenue by bidding into different markets.
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The production of critical minerals used in the production of batteries is highly concentrated geographically, raising security of supply concerns. The Democratic Republic of Congo accounts for 70% of the world’s cobalt production, while Australia and Chile combined account for 75% of global lithium production. In the midstream segment, China dominates the announced refining capacity (95% for cobalt and around 60% for lithium and nickel).
Establishing secure, resilient and sustainable supply chains for critical minerals requires the development of a new, more diversified network of international producer-consumer relationships. These need to take into account not only mineral resource endowments, but also the environmental, social and governance standards for their production and processing. Co-ordination at the global level is key: bilateral and multilateral government-to-government agreements, including through institutions such as the OECD and World Bank, can support more sustainable mining and supply chain practices.
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A comprehensive suite of policies in support of minerals security needs to include recycling. Battery recycling has the potential to be a significant source of secondary supply of the critical minerals needed for future battery demand. Targeted policies, including minimum recycled content requirements, tradeable recycling credits and virgin material taxes all have the potential to incentivise recycling and drive growth of secondary supplies. International co-ordination will be crucial because of the global nature of the battery and critical minerals markets.
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Batteries that no longer meet the standards for usage in an electric vehicle (EV) typically maintain up to 80% of their total usable capacity. With EV numbers increasing rapidly, this amounts to terawatt hours of unused energy storage capacity. Repurposing used EV batteries could generate significant value and benefit the grid-scale energy storage market.
Initial trials with second-life batteries have already begun. However, a number of technological and regulatory challenges remain for second-life applications to grow at scale. Chief among them is their ability to compete on price given the rapidly falling cost of new systems, although recent surges in the cost of battery minerals could improve the viability of recycling and reuse. Retired batteries need to undergo costly refurbishing processes to be used in new applications, and a lack of standardisation and streamlining of measuring the state of health of used batteries (e.g. storage condition, remaining capacity) further complicates the economics. Clear guidance on repackaging, certification, standardisation and warranty liability of used EV batteries would be needed to overcome these challenges.
Programmes and partnerships
The Role of Critical Minerals in Clean Energy Transitions
Minerals are essential components in many of today’s rapidly growing clean energy technologies – from wind turbines and electricity networks to electric vehicles. Demand for these minerals will grow quickly as clean energy transitions gather pace. This new World Energy Outlook Special Report provides the most comprehensive analysis to date of the complex links between these minerals and the prospects for a secure, rapid transformation of the energy sector.
Lead authors
Max Schoenfisch
Amrita Dasgupta