净零能源：可再生电网的长期储能报告（英）-长时储能技术理事会VIP专享VIP免费

下载本文档

阅读 121
格式 pdf
大小 34.57 MB
约76页
2023-04-18
收藏
点赞(0)
海报
举报

Net-zero power

Long duration energy storage

for a renewable grid

Published in November 2021 by the LDES Council. Copies of this document are available

upon request or can be downloaded from our website: www.ldescouncil.com.

This report was authored by the LDES Council in collaboration with McKinsey & Company as

knowledge partner. This work is independent, reflects the views of the authors, and has not been

commissioned by any business, government, or other institution. The authors of the report confirm that:

1. There are no recommendations and/or any measures and/or trajectories within the report that

could be interpreted as standards or as any other form of (suggested) coordination between the

participants of the study referred to within the report that would infringe EU competition law; and

2. It is not their intention that any such form of coordination will be adopted.

Whilst the contents of the report and its abstract implications for the industry generally can be

discussed once they have been prepared, individual strategies remain proprietary, confidential and the

responsibility of each participant. Participants are reminded that, as part of the invariable practice of the

LDES Council and the EU competition law obligations to which membership activities are subject, such

strategic and confidential information must not be shared or coordinated – including

as part of this report.

Contents

Acronyms i

About the Long Duration Energy Storage (LDES) Council ii

Preface iii

Executive summary vi

Data collection and benchmarking xi

1. Introduction 1

2. LDES technologies characterization and current status 7

3. Modeling the flexibility needs of future power systems 15

4. Cost analysis 25

5. LDES business cases 35

6. Road to competitiveness and key market enablers 41

Conclusion 46

Appendix A: Methodology 47

Appendix B: Examples of business cases 51

/76

下载本文档

文本预览下载提示常见问题

Net-zeropowerLongdurationenergystorageforarenewablegridPublishedinNovember2021bytheLDESCouncil.Copiesofthisdocumentareavailableuponrequestorcanbedownloadedfromourwebsite:www.ldescouncil.com.ThisreportwasauthoredbytheLDESCouncilincollaborationwithMcKinsey&Companyasknowledgepartner.Thisworkisindependent,reflectstheviewsoftheauthors,andhasnotbeencommissionedbyanybusiness,government,orotherinstitution.Theauthorsofthereportconfirmthat:1.Therearenorecommendationsand/oranymeasuresand/ortrajectorieswithinthereportthatcouldbeinterpretedasstandardsorasanyotherformof(suggested)coordinationbetweentheparticipantsofthestudyreferredtowithinthereportthatwouldinfringeEUcompetitionlaw;and2.Itisnottheirintentionthatanysuchformofcoordinationwillbeadopted.Whilstthecontentsofthereportanditsabstractimplicationsfortheindustrygenerallycanbediscussedoncetheyhavebeenprepared,individualstrategiesremainproprietary,confidentialandtheresponsibilityofeachparticipant.Participantsareremindedthat,aspartoftheinvariablepracticeoftheLDESCouncilandtheEUcompetitionlawobligationstowhichmembershipactivitiesaresubject,suchstrategicandconfidentialinformationmustnotbesharedorcoordinated–includingaspartofthisreport.ContentsAcronymsiAbouttheLongDurationEnergyStorage(LDES)CounciliiPrefaceiiiExecutivesummaryviDatacollectionandbenchmarkingxi1.Introduction12.LDEStechnologiescharacterizationandcurrentstatus73.Modelingtheflexibilityneedsoffuturepowersystems154.Costanalysis255.LDESbusinesscases356.Roadtocompetitivenessandkeymarketenablers41Conclusion46AppendixA:Methodology47AppendixB:Examplesofbusinesscases51AcronymsBoPBalanceofplantCapexCapitalexpenditureCCSCarboncaptureandstorageCO2CarbondioxideCAESCompressedairenergystorageCSPConcentratedsolarpowerEVElectricvehicleGtCO2eqGigatonnesofcarbondioxideequivalentGWGigawattGWhGigawatt-hourGHGGreenhousegasIEAInternationalEnergyAgencyIRRInternalrateofreturnIPCCIntergovernmentalPanelonClimateChangekWKilowattkWhKilowatt-hourLCOELevelizedcostofelectricityLCOSLevelizedcostofstorageLi-ionLithium-ionLAESLiquidairenergystorageLDESLongdurationenergystorageMEDCMoreeconomicallydevelopedcountriesMPMMcKinseyPowerModelMWMegawattMWhMegawatt-hourNDCNationallydeterminedcontributionsNPVNetpresentvalueNMCNickel,ManganeseandCobaltO&MOperationandmaintenancePVPhotovoltaicPPAPowerpurchasingagreementsPSHPumpedstoragehydropowerRERenewableenergyR&DResearchanddevelopmentRTERound-tripefficiencyTWTerawattTWhTerawatt-hourTAMTotaladdressablemarketT&DTransmissionanddistributionWACCWeightedaveragecostofcapitaliNet-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&CompanyTheLDESCouncilisaglobal,CEO-ledorganizationthatstrivestoacceleratedecarbonizationoftheenergysystematlowestcosttosocietybydrivinginnovationanddeploymentoflongdurationenergystorage.LaunchedatCOP26,theLDESCouncilprovidesfact-basedguidancetogovernmentsandindustry,drawingfromtheexperienceofitsmembers,whichincludeleadingenergycompanies,technologyproviders,investors,andend-users.WiththisfirstreporttheCouncilhasfocusedontheroleofLDESsolutionsinelectricalpowersystems.Inthefuture,theLDESCouncilwillprovidefurtherinsightsintotheLDESassetclass,powerandenergysystemsandthebroaderenergytransition.TheCouncilwillalsoproactivelyengagewithotherpartiesonwaystoacceleratedecarbonizationofenergysystemsinlinewiththeParisagreement.ThefollowingorganizationshaveannouncedtheintentionofformingtheCouncilandareopentoreceiveexpressionsofinterestfromadditionalfoundingmembersaheadoftheofficiallaunchinearly2022(Exhibit1).ThereporthasbeenpreparedbythemembersoftheLDESCouncilincollaborationwithMcKinsey&Companyasknowledgepartner.Exhibit1LDEScouncilmembersEquipmentmanufacturersCapitalprovidersLow-carbonenergysystemintegrators&developersIndustryandservicescustomersAnchorsTechnologyprovidersAbouttheLongDurationEnergyStorage(LDES)CounciliiNet-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&CompanyPrefaceAstheworldconsidershowtoestablishapathtowardslimitingtheriseinglobaltemperaturesbycurbingemissionsofgreenhousegases(GHG),itiswidelyrecognisedthatthepowergenerationsectorhasacentralroletoplay.Responsibleforonethirdoftotalemissions,itisinfactdoublycrucial,sincedecarbonizingtherestoftheeconomydependsvitallyongrowingdemandforrenewableenergy,forexampleinelectricvehiclesandresidentialheating.Andthegoodnewsisthattheglobalpowerindustryismakinggiantstridestowardsreducingemissionsbyswitchingfromfossil-firedgenerationtowindandsolarpower.However,therisingshareofrenewablesinthepowermixbringswithitnewchallenges.Notleastofthesearethestructuralstrainsonexistingpowergenerationinfrastructurecreatedbynewflowsofelectricityandbytheinherentvariabilityofwindandsolarpower.ThisfirstreportfromtheLDESCouncilaimstoexploreoneofthekeysolutionstothischallenge:long-durationenergystorage(LDES).LDESisdefinedasanytechnologythatcanbedeployedcompetitivelytostoreenergyforprolongedperiodsandthatcanbescaledupeconomicallytosustainelectricityprovision,formultiplehours,days,orevenweeks,andhasthepotentialtosignificantlycontributetothedecarbonizationoftheeconomy.Energystoragecanbeachievedthroughverydifferentapproaches,includingmechanical,thermal,electrochemical,orchemicalstorage(seeBox1).Theprovisionofflexibility,definedastheabilitytoabsorbandmanagefluctuationsindemandandsupplybystoringenergyattimesofsurplusandreleasingitwhenneeded,isacriticalExhibit2LDESplayacentralroleinenergysystemflexibilityLDESusecasesCHPwithH2productionandusePower-to-heatHeat-to-powerPower-to-H2H2-to-powerH2-to-heatPowerHeatHydrogen•H2peakingplants•Transport(materialhandling,heavydutyvehicles)•H2householdboilers•Industrialheat(furnaces,boilers)•CHPfordistrictheating/cooling•Heatpumps/enginesDesalination•Solidoxidefuelcells/electrolyzers•H2turbinesScopeofthisfirstreportiiiNet-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&Companyenablingfactortodecarbonizetheeconomyinacost-efficientway.Acrosstheportfoliooftechnologies,LDEScanprovideflexibilityintheenergysystemasawhole,comprisingpower,heat,hydrogenandotherformsofenergy(Exhibit2).Forexample,someLDEStechnologiescandischargebothheatandpower(i.e.,power-to-heatorheat-to-power)thatcanbeusedtodecarbonizeindustries,orcanusepowertoproducehydrogenviaelectrolysis,whichcanbereconvertedbacktopoweratalatertime.Theabilitytointegratedifferentsectorsmakessomeofthetechnologiesunique,andstrengthensthebusinesscasesfortheiruseindecarbonizingindustrieswherethetransitionisachallenge.LDEStechnologiesareattractingunprecedentedinterestfromgovernments,utilities,andtransmissionoperators,andinvestmentinthesectorisrisingfast.ThisreportfocusesontheroleofnovelLDESsolutionsinelectricalpowersystems(pleaserefertoBox1formoredetailsontheLDEStechnologiescoveredinthisreport).Itfirstexaminesthecharacteristicsofthetechnologiesandhowtheymaybesuitedtohelpmanagestructuralissuesinthepowerindustry.ItthenconsidersLDEScosts,howtheymaydevelopastheindustrymatures,andhowtheycomparewiththoseofothertechnologiesthatcanbeusedtomanagesupplyanddemandsuchasLithium-ion(Li-ion)batteriesandhydrogen.Finally,itproposessomeactionspolicymakersandindustryplayerscanconsidertoenableLDEStofulfilitspotentialaspartoftheworld’snet-zerosolution.ivNet-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&CompanyWhatistheissue?PROPORTIONOFRENEWABLESNEEDFORFLEXIBILITYHowdoLDEStechnologieshelp?Wherearewetodayandwheredoweneedtogetto?ProjectedinstalledcapacityGlobaldealsintheLDESindustry,USDmillionHowcanwemakethishappen?Toavoidcatastrophicclimatechange,weneedtorapidlybuildanet-zeropowersectorpredominantlypoweredbyrenewableenergy.Astheproportionofrenewablesgrows,wearepresentedwith3challenges;balancingelectricitysupplyanddemand;achangeintransmissionowpatterns;andadecreaseinsystemstability.LDEScanhelpaddresstheseissuesbyincreasingtheexibilityofthepowersystem.LDESareahostofdifferenttechnologiesthatstoreandreleaseenergythroughmechanical,thermal,electrochemical,orchemicalmeans.AlongsideLi-ionbatterytechnologyandhydrogen,LDEStechnologiescanplayacriticalanddistinctiveroleindeliveringexibilityontimesrangingfromhourstoweeks.ManyLDEStechnologiescurrentlyexist,buttheyareatdifferentlevelsofmaturity.Somehavebeendeployedcommercially,somearestillatthepilotphase.OurprojectionsshowthatLDESneedtobescaledupdramaticallyoverthenext20yearstobuildacost-optimalnet-zeroenergysystem.ForLDEStobecostoptimal,costsmustdecreaseby60%.However,evengreatercostreductionshavealreadyoccurredinothercleantechnologieslikesolarandwind.Between2022–40,USD1.5tr–3.0troftotalinvestmentinLDESwillberequired.Thetotalinvestmentoverthisperiodiscomparabletowhatisinvestedintransmissionanddistributionnetworksevery2–4years.Thisinvestmenthasthepotentialtocreateeconomicandenvironmentalbeneﬁt.ThebusinesscasesforLDEScanoftenbepositiveifsufcientmechanismsareinplacetomonetizethevalue.By2040,LDESneedtohavescaledupto~400xpresentdaylevelsto1.5–2.5TW(85–140TWh).10%ofallelectricitygeneratedwouldbestoredinLDESatsomepoint.Present-dayLDESdeploymentislow,butmomentuminLDESisgrowingexponentially.ThevalueofLDEScanbeunlockedthroughregulationchange:•Long-termsystemplanning•Supportforrstdeploymentandscalingup•Marketcreation20300.1–0.4TW4–8TWh1.5–2.5TW85–140TWhToday2040~0TW~0TWhPre-20182018201920202021Total9801302603609102,640vNet-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&CompanyTheworldisnotontracktolimittheriseinglobaltemperatureto1.5°Celsius.ToachievethecommitmentsmadeintheParisAgreement,significanteffortsmustbemadetoreduceemissionsacrossallsectors.Thepowersector,whichaccountsforroughlyone-thirdofglobalemissions,willbecentraltoglobaldecarbonization,withmanysuggestingthatitwillneedtoachievenet-zeroemissionsby2040.Asaresult,innovativesolutionswillbeessentialtomeetthreecriticalchallengesforthepowersector:triplingtheamountofelectricityproducedtomeetrisingconsumption,transformingthepowersystemfromfossil-poweredgenerationtorenewables,andmeetingthesocialandeconomiccostofthetransition.Basedonmorethan10,000costandperformancedatapoints,thisstudyshowsthatLongDurationEnergyStoragetechnologies(LDES)canplayacrucialroleinhelpingcreatethesystemflexibilityandstabilityrequiredbyanincreasingrenewableshareinpowergeneration,alongsideothertechnologiessuchasLithium-ion(Li-ion)batteriesandhydrogenturbines.LDESencompassesarangeoftechnologiesthatcanstoreelectricalenergyinvariousformsforprolongedperiodsatacompetitivecostandatscale.Thesetechnologiescanthendischargeelectricalenergywhenneeded—overhours,days,orevenweeks—tofulfilllong-durationsystemflexibilityneedsbeyondshort-durationsolutionssuchasLi-ionbatteries.ThevariousLDEStechnologiesareatdifferentlevelsofmaturityandmarketreadiness.Thisreportfocusesontherelativelynascentmechanical,thermal,chemical,andelectrochemicalstoragetechnologies,insteadofLi-ionbatteries,dispatchablehydrogenassets,andlarge-scaleabovegroundpumpedstoragehydropower(PSH)(moredetailsaboutLDEStechnologiesareprovidedinBox1).TherapidintegrationoflargeREcapacitieswiththeirinherentvariabilitycreateslargechallengesforthepowersystem,includingpotentialimbalancesinsupplyanddemand,changesintransmissionflowpatterns,andthepotentialforgreatersysteminstabilityasthebuilt-ininertiaprovidedbyfossilgenerationisremoved.Allofthesecallfornewsolutionstocreateflexibilityinelectricitysupplyanddemandoverdifferentdurations—intraday,multiday/multiweek,andseasonal.LDESisoneofthesesolutions,sinceLDEStechnologiesentaillowmarginalcostsforstoringelectricity:theyenabledecouplingofthequantityofelectricitystoredandthespeedwithwhichitistakeninorreleased;theyarewidelydeployableandscalable;andtheyhaverelativelylowleadtimescomparedtoupgradingoftransmissionanddistribution(T&D)grids.Asaresult,thereisincreasinginvestmentinterestinthesetechnologies,withmorethan5gigawatts(GW)and65gigawatt-hours(GWh)ofLDESannouncedoralreadyoperational.Thisisonlyastart:modelingsuggeststhatLDEShasthepotentialtodeploy1.5to2.5terawatts(TW)powercapacity—or8to15timesthetotalstoragecapacitydeployedtoday—globallyby2040.Likewise,itcoulddeploy85to140terawatt-hours(TWh)ofenergycapacityby2040andstoreupto10percentofallelectricityconsumed.ThiscorrespondstoacumulativeinvestmentofUSD1.5trilliontoUSD3trillionandtopotentialvaluecreationofUSD1.3trillionby2040.ThescaleofthesenumbersreflectsthemultipleusecasesforLDEStechnologiesandthecentralroletheycanplayinbalancingthepowersystemandmakingitmoreefficient.Theseincludesupportforsystemstability,firmingcorporatepowerpurchaseagreements(PPAs)andoptimisationofenergyforindustrieswithremoteorunreliablegrids.Similarly,thereisalotofpotentialinusingLDESinoff-gridsystems,whichhavealowerlevelofflexibilityandcurrentlyrelyheavilyonfossilfuels.Butbyfarthelargestproportionofdeploymentisexpectedtoberelatedtothecentraltasksofenergyshifting,capacityprovision,andT&Doptimizationinbulkpowersystems.ExecutivesummaryviNet-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&CompanyInsum,LDESoffersalower-costflexibilitysolutioninmany—butnotall—situations.Adiversifiedsuiteofsolutionsislikelytobedeployedinordertoachieveacost-optimaldecarbonizationofthegridby2040.TheprizeofdeployingLDESatscale,however,isgreat.Itisestimatedthatby2040,LDESdeploymentcouldresultintheavoidanceof1.5to2.3gigatonnesofcarbondioxideequivalent(GtCO2eq)peryear,oraround10to15percentoftoday’spowersectoremissions.IntheUSalone,LDEScouldreducetheoverallcostofachievingafullydecarbonizedpowersystembyaroundUSD35billionannuallyby2040.AchievingthisorderofscalerequiressignificantreductionsinthecostofLDEStechnologies.ButprojectionsprovidedbyLDESCouncilmembercompaniesshowtheseareachievableandinlinewithlearningcurvesexperiencedinothernascentenergytechnologiesintherecentpast,includingsolarphotovoltaicandwindpower.Inturn,costreductionswillbedependentonimprovementsinresearchanddevelopment(R&D),volumes,andscaleefficienciesinmanufacturing.Similarly,totalLDESdeploymentiscloselytiedtotherateofdecarbonizationofthepowersectorandthedeploymentofvariablerenewableenergy(RE)generation.WhileLDEStechnologiesarestillnascent,deploymentcouldacceleraterapidlyinthenextfewyears.Modelingprojectsinstallationof30to40GWpowercapacityand1TWhenergycapacitybeinginstalledby2025underafastdecarbonizationscenario.AkeymilestoneforLDESisreachedwhenREreaches60to70percentmarketshareinbulkpowersystems,whichcountrieswithhighclimateambitionsaimtoreachbetween2025and2035.ThiscatalyzeswidespreaddeploymentofLDESasthelowest-costflexibilitysolution.Beforethesetargetsarereached,however,governmentactionwillberequiredtohelplowercosts,mobilizethenecessaryinvestmentandcreatemarketsignalsenablinginvestorstomakeanattractivereturnonLDES.Anenablinggovernmentalecosystemwouldincludetheimplementationof(i)long-termsystemplanning,(ii)earlycompensationmechanismsthatreduceuncertaintyforinvestorswhilethemarketisstillnascent,and(iii)supportivepolicies,regulations,andmarketdesigns.Long-termsystemplanning,includingclearREtargets,iscriticaltocreatinginvestorconfidence.Targetedsupportforearlydeploymentsandscale-upwouldhelpkick-startthemarketandtriggerthelearningcurveoncosts.Finally,supportivemarketdesignssuchascapacitymechanismsandpoliciesthatcapturethefullvalueofLDESwouldenableinvestorstomonetizetheiroutlays.Together,thesemeasureswillultimatelyhelpensurethattheenergytransitionisachievedatthelowestsocietalcost.viiNet-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&CompanyThetermLDESisusedtoencompassawidetechnologyfamilywithvariouslevelsoftechnologicalmaturityandmarketreadiness.WhilethisclassdoesnotexcludeLithium-ion(Li-ion),hydrogenturbines,orlarge-scale,abovegroundpumpedstoragehydropower(PSH),thisreportfocusesonnoveltechnologiesthatcanfulfilltheflexibilityspacebeyondLi-ionbatteriesandothershort-durationsolutions.Thesetechnologiesarehereinreferredtoas“LDES”,anddonotincludehydrogen,Li-ion,orlarge-scaleabovegroundPSH.NovelLDEScanbebroadlyclassifiedinto:mechanical,thermal,electrochemical,andchemicalstorage.(Exhibit3)A.MechanicalLDESThemostwidespreadandmaturestoragetechnologyisPSH,aformofmechanicalstoragethataccountsfor95percentofthetotalenergystoragecapacityworldwide.Newversionsofthisestablishedtechnologyareemergingtoreduceitsdependenceongeographicalconditions,forexample,geomechanicalpumpedhydro,whichusesthesameprinciplesasabovegroundPSHbutwithsubsurfacewaterreservoirs.OtheremergingmechanicalenergystoragesolutionsincludecompressedairenergyBox1.LDEStechnologyspaceofthisreportExhibit3OverviewofLDEScategoriesThereare4kindsofnovelLDESAllLDESallowenergytobestoredwhenthereisagenerationsurplusandreleasedwhenthereisashortage.ChemicalChemicalenergystoragesystemsstoreelectricitythroughthecreationofchemicalbonds.E.g.,usingpowertocreatesyngases,whichcansubsequentlybeusedtogeneratepower.•Power-to-gas-to-powerElectrochemicalElectrochemicalLDESreferstobatteriesofdifferentchemistriesthatstoreenergy.E.g.,air-metalbatteriesorelectrochemicalowbatteries.•Aqueousﬂowbatteries•Metalanodebatteries•HybridﬂowbatteriesThermalThermalenergystoragesystemsusethermalenergytostoreandreleaseelectricityandheat.E.g.,heatingasolidorliquidmediumandthenusingthisheattopowergeneratorsatalaterdate.•Sensibleheat•Latentheat•ThermochemicalheatMechanicalMechanicalLDESstorepotentialorkineticenergyinsystemsforfutureuse.E.g.,raisingaweightwithsurplusenergyandthendroppingitwhenenergyisneeded.•NovelPSH•Gravitybased•CAES•LAES•LiquidCO2viiiNet-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&Companystorage(CAES)andgravity-basedenergystorage.Thefirststoresenergyascompressedairinpressure-regulatedstructures(eitherundergroundoraboveground).Initsadiabaticform,CAESalsoincludesthermalstoragetostoretheheatthatisgeneratedduringcompressionandreuseitinthedischargecycle.Gravity-basedenergystorageisanotherpromisingformofmechanicalstorage,whichstoresenergybyliftingmassthatisreleasedwhenenergyisneeded.Thistechnologyisinanearlierstageofcommercialdevelopment.Lastly,mechanicalLDEScanalsotaketheformofliquidCO2,whichcanbestoredathighpressureandambienttemperatureandthenreleasedinaturbineinaclosedloopwithoutemissions.Liquidairenergystorage(LAES)workssimilarlytoCAESbycompressingairbutuseselectricitytocoolandliquifythemediumandstoreitincryogenicstoragetanksatlowpressure.Forthisreason,LAESissometimesclassifiedasmechanicalstorageandsometimesasthermalstorage.B.ThermalLDESThermalenergystoragetechnologiesstoreelectricityorheatintheformofthermalenergy.Inthedischargecycletheheatistransferredtoafluid,whichisthenusedtopoweraheatengineanddischargetheelectricitybacktothesystem.Dependingontheprincipleusedtostoretheheat,thermalenergystoragecanbeclassifiedintosensibleheat(increasingthetemperatureofasolidorliquidmedium),latentheat(changingthephaseofamaterial),orthermochemicalheat(underpinningendothermicandexothermicreactions).Thesetechnologiesusedifferentmediumstostoretheheatsuchasmoltensalts,concrete,aluminumalloy,orrockmaterialininsulatedcontainers.Likewise,thechargingequipmentoptionsarediverse,1“Renewables2020,”IEA,2020.includingresistanceheaters,heatengines,orhightemperatureheatpumpsamongothers.ThemostwidespreadthermalLDEStechnologyaremoltensaltscoupledwithconcentratedsolarpower(CSP)plants,however,thistechnologyisdifferentfromothernovelLDESasitpresentsdifferentcharacteristics(e.g.itcannotbewidelydeployedasitisnotmodular,theCSPplanthasalargefootprintandisonlyeffectiveinregionswithhighsolarradiation).Nonetheless,moltensaltscaneffectivelybeusedinnovelthermalLDEStostoreelectricityindependentlyofCSPplants.ThermalLDEStechnologiescandischargebothelectricityandheat,supportingthedecarbonizationoftheheatsector,whichaccountsforaround50percentoftheglobalfinalenergyconsumption(comparedto20percentbytheelectricitysectorin2019).Ofthetotalheatconsumption,itisestimatedthatonlyaround10percentissuppliedbyRE.1LDEScouldsupportthedecarbonizationofthissectorthroughtheprovisionofzero-emissionshigh-gradeheattoenergy-intensiveindustries—thatrelyonfossilfuelsandhavefewdecarbonizationalternatives—andotherheatapplications(suchasdistrictheatingnetworks).C.ChemicalLDESChemicalenergystoragesystemsstoreelectricitythroughthecreationofchemicalbonds.Thetwomostpopularemergingtechnologiesarebasedonpower-to-gasconcepts:power-to-hydrogen-to-power,andpower-to-syngas(syntheticgas)-to-power.Inthefirstcase,electricityisusedtopowerelectrolyzers,whichproducehydrogenmoleculesthatcanbestoredintanks,caverns,orpipelines.Theenergyisdischargedwhenthehydrogenissuppliedtoahydrogenturbineorfuelcell.IfthehydrogeniscombinedwithCO2inasecondsteptomakemethane,theresultingixNet-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&Companygas—knownassyngas—hassimilarpropertiestonaturalgasandcanbestoredandlaterburnedinconventionalpowerplants.Similarly,hydrogencanbeconvertedtoammoniafordirectcombustion.D.ElectrochemicalLDESDifferentbatteriesofvaryingchemistriesareemergingtoprovidelongdurationflexibility.Electrochemicalflowbatteriesstoreelectricityintwochemicalsolutionsthatarestoredinexternaltanksandpushedthroughastackofelectrochemicalcells,wherechargeanddischargeprocessestakeplacethankstoaselectivemembrane.Thesebatteriesaresuitedforlong-durationapplicationswherelowchemicalandequipmentcostsarepossible.Emergingmetalairbatteriesrelyonlow-cost,abundantearthmetals,water,andair–meaningtheyhavethepotentialforhighscalabilityandlowinstalledsystemcosts.Furthermore,manyofthesesolutionsdonotsufferfromthermalrunaway,makingthemsafetoinstallandoperate.2WhereahydrogentechnologydemonstratesverysimilarbehaviorsandcostprofilestootherLDESithasbeenincluded(suchassolidoxidefuelcells).Therearealsohybridflowbatterieswithliquidelectrolytesandametalanodewhichcombinesomeofthepropertiesofconventionalflowbatteriesandmetal-anodesystems.Li-ion,hydrogenturbines,andlarge-scaleabovegroundPSHThisreportdistinguishesbetweenLDESandLi-ionasthescalingupofcostsforalong-durationflexibilityrangemakesLi-ionuncompetitiveforalong-durationflexibilityrange.Hydrogen-basedstorageandreconversiontopowerviaturbines(andfuelcells)canservearoleforlong-durationstoragebutarecalledoutseparatelyinthereportduetodissimilarcostperformanceatlowerstoragedurations2andthespecificinterestthathasevolvedaroundhydrogenintheenergycommunity.Large-scaleabovegroundPSHarenotincludedintheconsideredtechnologyspaceasthedeploymentbenefitsandeconomicsofnovelLDEStechnologies,includingnovelPSH,areexpectedtooutcompetetheseplantsandLDEShavefewergeographicallimitations.xNet-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&CompanyThedatausedintheanalysisofthisreportwascollectedfromtheLDESCouncilmembers,whosubmittedatotalofmorethan10,000datapointsoutliningthecostandperformanceoftheirtechnology.Thedatawasaggregatedandprocessedbyanindependentthird-partycleanteam.Councilmembersprovidedcostandperformancedatafortwoprojectedtrajectoriesforhowthesemetricswouldchangefroma“progressive”toa“central”scenario:•Progressivescenario:councildatareflectingambitiouscost-reductiontrajectoriesandlearningrates•Centralscenario:councildatareflectingconservativecost-reductiontrajectoriesandlearningratesThedatawasgroupedintotwoarchetypesbasedontheirnominalduration:8to24hours3and24hoursormore,withsomemembersofferingproductsinbothranges.Foreveryarchetype,aggregateddatapointsforeachcost,design,orperformancemetriccreatedrepresentativenumberswhilepreservingthedataconfidentialityofeachindividualtechnology.Afterthedatapointaggregation,top-quartileand3The8-hourthresholddoesnotimplythatLDESisnotexpectedtoprovideservicesbelowthisduration.medianfigureswereprocessed,yieldingeightfinalizeddatasets:firstquartileandmedian,for8to24hoursand24hoursormoreincentralandprogressivescenarios.Thecreatedarchetypeswereusedasinputstomodelthetotaladdressablemarket(TAM)andtogenerateinsightsoncostcompetitivenesswithalternativetechnologiespresentedinthisreport.Futureiterationsoftheanalysisaimtoincorporatemoredatapointspertechnologytype,allowingforadisaggregateanalysisforeachLDEScategory(mechanical,thermal,electrochemical,andchemical)anddurationarchetype.ThetechnologybenchmarkinginthereportbuildsontheMcKinseyPowerModel(MPM),McKinseyBatteryCostModel,McKinseyEnergyInsightsmodelingofREcostsandcapacityfactors,otherproprietaryassets,andnumerousbenchmarksfromexternaldataprovidersanddatabases.TheanalyticsteamalsotestedthefindingsfromtheseanalyseswithexpertsoutsidetheCouncilandwithindividualCouncilmembers,whoprovidedindustryexpertise.DatacollectionandbenchmarkingxiNet-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&Company1.IntroductionChaptersummaryLDEScanhavearoletoplayinincreasingpowersystemflexibility,whichwillbecrucialtoachievenet-zeroThedecarbonizationofpowersystemsby2040willbeessentialtoachievenetzeroeconomiesandlimittheriseinglobaltemperaturesto1.5°CelsiusHighrenewablepenetrationwillhaveanimpactonthereliabilityandstabilityofthepowersystem.Tofullydecarbonizethepowersector,threekeychallengesneedtobeovercome:•Powersupplyanddemandimbalances•Changeintransmissionflowpatterns•DecreaseofsysteminertiaThesethreechallengesaresolvablebyintroducingflexibilityintothepowersectoracrossdifferenttimespans:4Assumessymmetricaldesignofthechargeanddischargedurations,whichisnotthecaseforallLDESsystems.TheoptimaldesignofLDESsystemsfortheprovisionofintradayflexibilitywouldbecase-specificandcancomprehenddurationsaboveandbelow12hours.•Intradayflexibility(<12continuoushours4)•Multidayandmultiweekflexibility(12hours3–weeks)•Seasonalflexibility•FlexibilitytorespondtoextremeweathereventsWhilstsolutionsexisttoday,theyareeithercarbonemitting(suchasgasplants),physicallyconstrained(suchaslarge-scaleabovegroundpumpedstoragehydropower,orPSH)orarenotcosteffectiveforaddressingallfutureneedsofthepowersystem(suchasLithium-ionbatteries).Toachieveacost-effectiveenergytransition,longdurationenergystorage(LDES)technologiesarerequired.1Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&CompanyThedecarbonizationofpowersystemsby2040willbeessentialtoachievenet-zeroeconomiesandlimittheriseinglobaltemperaturesto1.5°CelsiusAccountingforroughly80percentofglobalGDP,123countrieshavepledgedtoachievenet-zerogreenhousegas(GHG)emissionsand/orcarbonneutralityby2050.5However,currenteffortsareinsufficienttoachievesuchtargetsandmovetheworldontothe1.5°pathwaysetoutintheParisAgreement.Humanactivityhasalreadyledtoariseinglobaltemperatures.6Economiesarenotontracktoreducetheiremissionsrate,whichisrisingagainafterabriefdipcausedbytheCovid-19pandemicandisexpectedtorisefurtherinthecomingyears.Asaresultthereisagrowingriskofsevereclimatechangeinthecomingyearsanddecadeswithconvulsiveenvironmentalandsocioeconomicconsequences.Tomeetclimatetargetsandlimittheimpactofclimatechange,immediateactionisrequired.AnambitiouscombinationofsolutionsisneededtoachievethenecessaryGHGemissionreductions,includingaggressivedecarbonizationratesandsystemicchangesinenergysupplyacrossallsectors.7ThepowersectorisamongthelargestemittersofGHGs,anditsdecarbonizationiscrucialtoestablishingthepathwaytowardsanet-zeroeconomyby2050.Electricitygenerationworldwidewasresponsibleforemissionsof12.3gigatonnesofcarbondioxideequivalent(GtCO2eq)in2020,8aroundathirdoftotalemissions.Demandforelectricpowerisgrowing,drivenbyincreasedelectrificationacrossmultipleenduses,forexample,byelectricvehicles(EVs)andresidentialheating.Newsourcesofdemandarelinkedtotheintegrationofenergy-consumingandsupplysectors(whatisknownas“sectorcoupling”),increasedpopulation,andhigherlivingstandardsinemergingmarketsanddevelopingeconomies.Inadeepdecarbonizationscenario,widespreadelectrificationcouldcausepowerconsumptiontotripleby2050.95NetZerotracker,accessedon29October2021.6NASAGoddardInstituteforSpaceStudies.7“Climatechange2021:thephysicalsciencebasis,”IPCC,2021.8“Netzeroby2050,aroadmapfortheglobalenergysector,”IEA,2021.9“Climatemath:whata1.5-degreepathwaywouldtake,”McKinsey&Company,2020.10“Netzeroby2050,aroadmapfortheglobalenergysector,”IEA,2021.Toreacha1.5°Celsiusdecarbonizationpathway,thisstudyassumesthattheglobalpowersectorwillneedtoachievenet-zeroemissionsby2040(Exhibit4).Toachievesuchatarget,itisassumedthatmoreeconomicallydevelopedcountries(MEDCs)achievenet-zeroemissionsby2035andtherestoftheworldby2040.Thismilestoneisconsistentwiththemostrecentnet-zeroreportfromtheInternationalEnergyAgency(IEA).Theenablinglow-carbonpower-generationtechnologiesarealreadyavailableatscale.Inmanyinstances,theycanbedeployedatalowercostofgenerationthanthermalsources,allowingthepowersector—includinglarge,interconnectednetworks,isolatedgrids,andmini-grids—todecarbonizeaheadofothersectors.Powersystemswillhavetorapidlyaccommodatelargeamountsofrenewableenergy(RE),whichwillposenewsystemchallengesTolimitcarbonemissions,powergenerationwillhavetoaccelerateitstransitiontoRE.ThefallingLCOEs(levelizedcostofelectricity)ofREarealreadyacceleratingtheadoptionofwindandsolarasexistingplantsretire,andpowerdemandgrows—evenintheabsenceofpolicysupport.Ifgovernmentsadoptstrongpoliciesandcreateappropriatemarketdesigns,thetransitioncouldbeaccelerated.Whilenegativecarbonemissionssolutionswillbecriticaltoachievingfulldecarbonizationofeconomies,theirimpactby2040willbelimitedandlargelyinfluencedbytailwindssupportingtheirscale-up,includingtheavailabilityofappropriatecarbondioxide(CO2)transportationandstorageinfrastructureandsocialacceptability.TherapidintegrationoflargeREcapacitiesinthesystem—withestimatedannualwindandsolarphotovoltaic(PV)capacityadditionsofmorethan1terawatts(TW)by2030intheelectricitysectoralone10—entailssomechallengesforsystemplannersandmarketplayersalike,callingfornewsolutionsthathelpaccommodateincreased2Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&Companyamountsofrenewablepower.(Exhibit5)PowersupplyanddemandimbalancesBydefinition,theadditionofrenewablestotheelectricitymixcreatesimbalancesinsupplyanddemand,sincethenaturalfluctuationsinwindandsolarPVpowerdonotmatchfluctuationsinpowerdemand.Increasedsharesofgeographicallyconcentratedwindandsolarpowerinthegenerationmixwillthusleadtomorefrequentperiodsofpowersurplusandshortage.Inthecaseofprolongedperiodswithoutsufficientsunorwind,theseimbalanceperiodsmaylastdaysorevenweeks.Asaresult,andasREbecomesmorecommon,thegridwillneedtobecomemoreflexibletodevelopthecapacitytomaintainthesupply-and-demandbalancewhileincentivizingREdeployment.Compoundingthechallenge,thehigherfrequencyofextremeweathereventscausedbyclimatechange,suchasheatwavesandheavyprecipitation,willalsocreatemorestrainonagriddominatedbyREgeneration.Forinstance,accordingtothelatestAssessmentReportby11“Climatechange2021:thephysicalsciencebasis.ContributionofWorkingGroupItothesixthassessmentreportoftheintergovernmentalpanelonclimatechange,”IPCC,2021.theUnitedNationsIntergovernmentalPanelonClimateChange(IPCC),floodingandextremeprecipitationareprojectedtoincreaseatglobalwarminglevelsexceeding1.5°Celsiusinnearlyallregions.Similarly,thefrequency,duration,andintensityofhotextremesareverylikelytoincrease.11Inthiscontext,powersystemswillneedtoberesilienttoprolongedsupplydisruptionsandensuresufficientfirmcapacitytoguaranteethesecurityofsupplyinextremeweatherevents.ChangeintransmissionflowpatternsPowersystemswillalsoseeashiftinthegeographicalsupplypattern,andanalterationoftransmissionlinepowerflows.ThesechangesresultfromtheincreaseddeploymentofdecentralizedREgenerationdrivenbytechnologicaldevelopmentsandacceleratedcostimprovements(forexample,inresidentialPVandbehind-the-meterbatteries).TheywillalsoreflectthegeographicaldependencyofREcapacity,whichwilltendtobeconcentratedinareaswithabundantsuppliesofsunandwind.Exhibit4Powersectoremissionreductionpathways1990952000153100562512203093515402020450GtCO2eYears-55%-35%-75%Net-zero2040(Globalreferencecase)2HistoricalemissionsNet-zero2035(MEDCsreferencecase)1Keyassumptions1.InformedbyIEANetZero2050reportonmoreeconomicallydevelopedcountries(MEDCs)needstogettonetzeropowerby2035.ConsistentwithUSPresidentBidenclimateambition.2.InformedbyIEANetZero2050reportontheworld’spowersectorneedstogettonetzeroby2040.Requiredemissionabatementinthepowersectorwithrespectto2019levelsGlobalhistoricalemissionsofthepowersectorandassumedreductionpathways3Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&CompanyExhibit5Anet-zeropowersystemcannotbebuiltwithoutalsodevelopingdifferenttypesofsystemflexibilityShiftingtoapowersystemthatpredominantlyreliesonrenewableenergypresents3keychallenges……toresolvethesechallenges,flexibilityondifferenttimescalesisneededIntradayflexibilityFlexibilitythatallowsdailyvariationsinsupplyanddemandtobesmoothedout(suchaspeakenergydemandintheevening)MultidayandmultiweekflexibilityFlexibilitythatallowsdaytoweeklongfluctuationsinsupplyanddemandtobebalanced(suchastakingintoaccountweatheranomalies)Multi-monthflexibilityFlexibilitythatallowsseasonalmismatchesinsupplyanddemandtobemanaged(suchasenergydemandpeaksinwinter)PowersupplyanddemandimbalancesChangeintransmissionflowpatternsThesupplyofelectricityfromrenewablesdoesnotalwaysmatchthedemandChangesinthedistributionoftheenergysystemcanrequirecostlyandlengthydevelopmentstotransmissionlinesDecreaseinsysteminertiaRemovingconventionalgeneratorsfromthesystemalsoremovestheinertiafromrotatingmassesfromthesystemHigh-costLow-costIncreasingtheamountofenergystoredis…Increasingthepoweris…High-costLow-costShort-durationbatteries(includingLi-ion)typicallythemostcostcompetitivesolutionFullydispatchableassets(eg,hydrogenturbines,CCS)potentiallythemostcostcompetitivesolution1LDEStypicallythemostcostcompetitivesolutionforstoragedurationsbetween6-8and150hoursShortdurationstorageVerylongdurationstorage1.Technologiesnotmatureyet(stillincommercialdemonstration)requiringcostreductionsThisgivesLDEStechnologiesanadvantageprovidingelectricitysystemflexibilitybetween8and150hoursinlength4Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&CompanyChangesontheconsumersidewillswitchthetraditionalone-waydesignofelectricitylinestoatwo-waysystem,whereanincreasednumberofenduserswillgeneratetheirownelectricityandinjectitintothepowergrid.12Thiswillposechallengestotheconventionaldistributionsystemssuchasvoltagecontrolandstability.AnexampleofthistrendcanbeseeninCalifornia,wherepublicincentivesandgovernmentalsupporthaveledtothedeploymentofmorethan10gigawatts(GW)ofdistributedsolargeneration(representing10percentofitstotalgenerationcapacitymix)inthepasttenyears.13Similarly,regionswithhighREyieldpotentialwilllikelybecomenewgenerationcentersthatimpacthownetworksoperate.Forexample,onestudyshowedthathistoricaltransmissionflowpatternsinNewYorkStatearelikelytobereversedduetoincreasedsolarandoffshorewindpowerinjection.FlowdirectionswillalsovaryovertimeasREyieldfluctuatesthroughoutthedayandyear.14Longleadtimesandslowgridadaptationtothesesystemchangescouldresultinmorefrequentcongestion,reducingthestabilityofthepowersystemandjeopardizingitsabilitytomeetdecarbonizationtargets.DecreaseofsysteminertiaThestabilityofthesystemisalsochallengedasthebulkofpowergenerationtransitionsfromsynchronoustoasynchronoustechnologies.Conventionalgenerators(forexample,fossilfuelsandnuclear)haveplayedacrucialroleinsafeguardingthestabilityoftheelectricitysystemthroughtheirprovisionofinertia:inasystemdisturbance,therotatingmachinesconnectedtothegridhelpallgeneratorsremainsynchronizedbyresistingachangeinthefrequencyofthegrid.Ifunrectified,stabilityfaultscanresultinblackoutswithhigheconomicandsocietalcosts.Bycontrast,newertechnologieslikesolarPVandwindlackrotatingmassesdirectlyconnectedtothegridandthereforecannotprovideinherentsysteminertia.Asaresult,generationdisturbances,frequency,andvoltagedeviationsnecessitatetheinstallationofnewstabilitysources.Grid-forminginverters,12“Distributedenergyresourcesfornetzero:Anassetorahassletotheelectricitygrid?,”IEA,2021.13CaliforniaDistributedGenerationStatistics.14“TheglobalrelevanceofNewYorkState’sclean-powertargets,”McKinsey&Company,2019.15Assumessymmetricaldesignofthechargeanddischargedurations,whichisnotthecaseforallLDESsystems.TheoptimaldesignofLDESsystemsfortheprovisionofintradayflexibilitywouldbecase-specificandcancomprehenddurationsaboveandbelow12hours.whichusepowerelectronicstosetthecorrectfrequency(“artificialinertia”)andsynchronouscondensersarecurrenttechnologicalsolutions.Anet-zeropowersystemwillneedflexibilityresourcesatdifferentdurationlevels,wherelongdurationenergystorage(LDES)canplayacrucialroleAbroadrangeofflexibilityleversandenablersalreadyexisttohelpbalanceREgeneration.Existingsolutionsincludedispatchablecapacity(forexample,gaspeakers,orgenerationplantsthatcanbeactivatedattimesofpeakelectricityuse,andpumpedhydro),theexpansionoftransmissiongrids,includinginternalandcross-marketinterconnections,feed-inmanagementandREcurtailment,aswellasshort-durationbatteries.However,thesetraditionalapproachesarenotanadequateanswertotheevolvingneedsofthesystem.Themostwidespreadsolution—gaspeakers—emitscarbonandrequiresdeploymentofcarboncaptureandstorage(CCS).ThisincreasesitscapitalintensityandgenerallyrequiresittobeinstalledclosetoaCO2storageformation.Gridexpansioncanreducecongestionriskbutiscostly,haslongleadtimes,andisunsuitableinsomepopulationcenters.Furthermore,constructingphysicalinfrastructuretoaccommodatepeakdemandstendstohavealowreturnoninvestment.Feed-inmanagementandpowercurtailmentareinherentlyinefficient,astheyresultinlostsupply.Lastly,short-durationenergystoragehastechnicalandeconomiclimitationsthatmeanitcannotmeetthefullrangeofflexibilitydurationsrequired.Asaresult,newlow-carbonflexibilitysourcesarestartingtoemerge,includingdemand-sideresponsemechanisms,hydrogendispatchableplants,andLDEStechnologies.Adiversifiedsuiteofsolutionsislikelytobedeployedinordertoachieveacost-optimaldecarbonizationofthegridby2040(Exhibit6).IntradayflexibilityThiscoverstheneedforflexibilityfordurationsbelow12continuoushours15andgenerally5Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&Companyinvolvesprovidinggridstabilityservicesandpeak-shifting.Lithium-ion(Li-ion)batteriesarecurrentlythecheapestzero-emissionsoptionforprovidingbalancingservicesoflessthan4hours.Inthe4-to8-hourrange,othertechnologiescanalsoaccommodateloadcycles.ThesetechnologiesincludeLDES,demand-sideresponsemechanisms,powercurtailment,andpeakingassets.Inthisrange,thecostofLi-ionfour-hoursystemsisbelowUSD400perkilowatt-hour(kWh)today,andforecastedtodecreasetoaroundUSD200perkWhinthenext10years.WithincreasingREsharesinthepowermix,theneedfor8-to-12-hourflexibilityisprojectedtogrowandbecomeasignificantmarketforLDEStechnologies.MultidayandmultiweekflexibilityThisstretchesfrom12hours15toperiodslastingdaysorweeks.ItisneededtoaddressextendedperiodsofimbalancedREoutputorpotentialoutagescausedbytransmissionconstraints.Traditionally,thesystemhasreliedonconventionalpowerplants,electricitysupplycurtailment,andgradualtransmissiongridexpansion.LDEStechnologiesareapromisingzero-carbonsolutionfortheselong-durationflexibilityneeds,especiallythoselastingseveraldays.SeasonalflexibilityandextremeweathereventsTheneedforseasonalflexibilityarisesfromnaturalvariabilityofsolarirradiation,windspeed,temperature,andrainfalloverweeksandmonths,andalsofrompotentialexposuretoextremeweatherevents.Gridstrengthening,REoversizingandcurtailment,dispatchableassets,includinghydrogenandbiogaswithCCS,andnaturalgaswithCCS,couldfulfillthe/seneeds.LDEScanaswell,whilealsoprovidingresilienceinthefaceofextremeweatherconditions.Thesetofflexibilityneedsislikelytoevolvefollowingthetransitionofthepowermix.Intheshortterm,betweennowand2030,astheshareofREremainslimited,powersystemswillmainlyrequireintradayflexibility.Nevertheless,therewillbelocalspecificapplicationswithhighREsharesandtheconsequentneedforlongerdurations,evenintheshortterm.ModelingsuggesttheadoptioncurveoflongerflexibilitydurationsacceleratesatlevelsofREpenetrationof60to70percent,whichwilllikelybereachedinmanyplacesoverthenextdecade.Toachieveglobalnet-zeropowerby2040,seasonalflexibilitysolutionsarerequiredtoensuredecarbonizationinregionswithlimitedpotentialforabalancedREportfolioandwithlimitedregionaltransmissionlines.Exhibit6SummaryofexistingandemergingflexibilitysolutionsfordifferentflexibilitydurationneedsIntradayMultiday,multiweekSeasonaldurationFlexibilitydurationDispatchablegenerationGridrein-forcementCurtailmentorfeed-inmanagementLi-ionbatteriesLDESDemand-sideresponsePowersystemchallengeReducedgridstabilityMulti-dayimbalancesSeasonalunbalancesExtremeweathereventsGridcongestionIntermittentdailygenerationSolutionPartialsolution6Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&Company2.LDEStechnologiescharacterizationandcurrentstatusChaptersummaryLDEStechnologiescanplayacriticalanduniqueroledeliveringflexibilityontimesrangingfromhourstoweeksLDEStechnologies,likeotherformsofelectricitystorage,allowenergytobestoredattimeswhenenergysupplyexceedsdemandandreleasedattimeswhenenergydemandexceedssupplyNovelLDEStechnologieshavedistinctivefeaturesrelativetootherformsofelectricitystorage:•Themarginalcostsofstoringadditionalenergyarelow(i.e.,eachadditionalkWhofenergystoreddoesnotincreasecostsignificantly)•ThereisdecouplingofthequantityofenergyanLDEStechnologycanstoreandtherateatwhichanLDEScanuptakeandreleaseenergy(i.e.,LDEScancreateaverylargestoreofenergywithasmallstreamofenergy)•Theyarewidelydeployableandscalableastheyhavefewgeographicalrequirements,aremodularanddonotdependonrare-earth-elements•Theyhaverelativelylowlead-timescomparedtotransmissionanddistribution(T&D)gridupgradeandexpansionNovelLDEStechnologieshavebeendeployedtoday:•TotalinvestmentinmajorLDEScompanieshasreachedmorethanUSD2.5billionandhasacceleratedinthepastyears•Excludinglarge-scaleabovegroundPSH,morethan5GWand65gigawatt-hours(GWh)ofLDESisalreadyoperationalorhasbeenannounced.Nevertheless,themajorityofthesedeploymentsareassociatedwithtraditionalmoltensaltsforconcentratedsolarpower(CSP)andcompressedairenergystorage(CAES)technologies7Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&CompanyLDEScomprisesseveraltechnologies,eachoperatingondifferentstorageorphysicalprinciplesandwithdifferentarchitectures.Asaresult,itischallengingtoprovideaunifiedperspectiveofLDESperformancecharacteristics.However,somefeaturesareinherenttoLDEStechnologiesandarecrucialfortransitioningtoacleangrid.(Exhibit7)LDEStechnologiesarecharacterizedbyalowenergystoragecapacitycapexandbytheirabilitytodecouplepowerandenergycapacitiesLDESprovidesignificantbenefitsintermsofoptimalsystemsizingandscaling-upcosts,includinglowenergystoragecapacitycapitalexpenditure(capex)anddecouplingcapabilities.Bulkenergystoragecapacitycanbescaledupatalowincrementalcostwhilenotaffectingthecharginganddischargingcycledesign;inotherwords,systemscanbedesignedforlongdurationswithouttheneedforadditionalcostlypowercapacity.Asaresult,thesesystemscanprovidepowerforlongdurationsandgenerally16ThisisnotthecaseforsomeelectrochemicalLDESstoragetechnologies,whichhavesymmetricpowercharginganddischargingcapacities.donotneedtostackservicestorecovertheinvestment.Thisresultsinthelowdegradationoftheirstoragecapacity,andinthepotentialtoreachverylonglifespans,ofaround30years,beforerequiringsignificantupgrades.SomeLDEStechnologiesalsohaveverylowcapacitydegradationevenathighlevelsofoperation.Beingasamodularsolution,Li-ionbatteriesdeliverratedpowerandenergyasabundleprecludingtheoptimalindependentscalingofpowerandenergycapacities,andlimitingtheirabilitytoprovidelong-durationserviceseconomically.Thesetechnologiescanmaintainoutputforprolongedperiodsbyreducingdischargeratesandderatingdischargecapacity(i.e.,providinglessthantheratedpower),whichisasub-optimalsolutiontoachievinglongerstoragedurations.Importantly,thechargingpowerofsomeLDEStechnologiescanbedesignedindependentlyofthedischargingpower,whichhighlightstheirversatilityandadaptabilitytoecosystemswithdifferentsupplyandloadprofiles.16SomemechanicalLDES,forexample,arechargedExhibit7LDESkeyconceptsPowerandenergyarethekeyfeaturesofLDESPowercapacityofLDESThemaximumelectricityoutputthatcanbephysicallydischargedbyanLDESsysteminagiveninstant(aflow).Itismeasuredinwatts(W)EnergycapacityofLDESThemaximumamountofelectricitytheLDESsystemcanstore(anamount).Itismeasuredinwatts-hour(Wh)Unlikeotherformsofelectricitystorage,LDESenergycapacitycanbescaledwithoutscalinguppowercapacity……whichmakesitcheapertoincreasetheamountofelectricitystored……withoutsignificantlycompromisingthepowersupply.InLDEStechnologiespowerandenergycapacityisdecoupledInadditiontothis,LDEStechnologiesoftenalsohaveotherbeneficialfeaturesProjectstypicallyhaveshortleadtimesStoragesolutionsarenotgeographicallylimitedSolutionsdon’tdependonrare-earth-materials8Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&Companybyacompressoranddischargedbyaturbine,witheachprocessdesignedindependentlyandwithdifferentefficiencies.Moreover,theasymmetryopensupmorepossibilitiesforrevenueoptimization.Forexample,technologyownerscanoptimizeenergyarbitragebyslowlychargingovernightwhenpowerpricesarelowanddischargingenergyinashorteramountoftimewhenpricesarehigh.AdditionaloperationalanddeploymentbenefitsofsomeLDEStechnologiescanaddsignificantvaluetothesystemLDEScanofferadditionaloperationalanddeploymentadvantages,suchasshorterleadtimesthangridupgradesandexpansion,andfewerlarge-scaledeploymentconstraints.Theseadvantagesvarybytechnology,andsomemuststillbedemonstratedinpilotsandcommercialplants.Shorterleadtimesthantransmissionanddistribution(T&D)gridupgradesandexpansionHistorically,theconnectionofnewgenerationplantstoconstrainedgridshasbeenaddressedbyupgradingexistinglines.Gridcapacityexpansionreducescongestionrisk;however,itisacapital-intensiveprocessthatrequireslong-termplanning.Furthermore,itisbecomingincreasinglydifficultforoperatorsasdecentralizedgenerationplansproliferateandasprojectconnectionsbecomelesscertain.Moreover,thecomplexityandpermittingrequirementsoftransmissiongridprojectscausenearly20percentofallprojectstobedelayedorcanceled.LDESentailsacost-effectivesolutionfortransmissionoptimization,increasinggridutilizationandvirtualgridcapacitywhiledeferringgridupgrades.LDEStechnologieshaveaverageconstructiontimesofoneyearandlessonerouspermittingrequirementsthangridupgrades.Similarly,theycanbeappliedtolargecorridorswithmultiplesitesatcapacity,allowingfortheconstructionofnewREsites.WidelydeployableandscalableMostemergingLDEStechnologieshavefew17“Lithiumandcobalt–ataleoftwocommodities,”McKinsey&Company,2018.deploymentrestrictions(Exhibit8).Thesesystems,forexample,donothavespecificgeographicalrequirements,suchasdamsinthecaseoftraditionalPSH,andhavelowerfootprintsperinstalledcapacity.Dependingonthespecifictechnologies,somecanbebuiltundergroundorveryclosetopopulatedareasduetotheirlowsafetyrisks.Inaddition,manytechnologieshaveamodulararchitecturethatallowsinitialdeploymentofsystemsatshorterdurationsorsmallerpowercapacitiesthatcanbescaledupasthesystemevolves.LDEScanalsorepowerorupsizeexistingplants,whichwillbeincreasinglyrelevantasthepresenceofREsitesgrows.ThiswouldoptimizelanduseandallowREfacilitiestoleveragegridconnectionpermits.Additionally,someLDEStechnologiespresentopportunitiesforthereutilizationofpotentiallystrandedfossilassets.Forexample,gasstoragefieldscanbeusedforcompressedairenergystorage(CAES)systems,orcoalandgasplantscanbeconvertedintothermalstorageplants.ThermalLDESsolutionscanprovideadditionalflexibilitybycouplingtheheatandpowersectorsandsupportingthedecarbonizationofendusesthatrelyonfossil-basedheat.Intermsofpracticality,severalLDEStechnologiesrelyonexistingsupplychains,mostofwhichuseearth-abundantmaterialsavailableinlargequantitiesglobally,bothinthecoretechnologyandthebalanceofplant(BoP)system.ThissafeguardsagainstpotentialfuturesupplychainshortagesofcertainLi-iontechnologies,suchasnickel,manganeseandcobalt(NMC)batteries:morethan65percentofglobalcobaltproductionconcentratedintheDemocraticRepublicoftheCongo.17However,thisisnotthecaseforallLDESequipment,assomeusecertainscarcemetals(forexample,vanadium)andelectricmotorsorgeneratorswithrare-earthmagneticmaterials.Whiletheseproductsdonotfacesupplyconstraintsnow,thereispotentialforscarcityinthefuture.SpecificcharacteristicsofnovelLDEStechnologiescanbefoundinBox2.9Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&CompanyExhibit8LDESCounciltechnologiesbenchmarkingfordifferentdeploymentparametersYesNo2575500300350500CCGT1,140AverageLDES250,0007,500MedianLDESTopquartileLDESTraditionalPSHOnshorewindSolarPVNuclear10,000Unitfootprintm2/MWCompanieswithsiteconstraints%1.Useofvanadiumandmagneticmaterialsforelectricgenerators,notexperiencingsupplyconstraintsnow,butpresentingpotentialscarcityissues.595YesNoUnitfootprintm2/MWhLDEScompanieswithsomescarcematerialdependency1%2547TraditionalPSHMedianLDESAverageLDESSolarPVTopquartileLDESOnshorewindCCGT30Nuclear151050.10.110Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&CompanyInvestorinterestinLDEShasincreasedinrecentyears,withmorethanUSD2.5billioninvestedinLDEScompaniesThepotentialofLDEStechnologiestoincreasetheintegrationoflow-costwindandsolarresourceswhilereducingthecostofdecarbonizedpowersystemshaspromptedasurgeofnewcommercialinitiativesandresearchanddevelopment(R&D)efforts.CumulativeinvestmentinmajorLDEScompaniesexceededUSD2.5billionin2021,havingnearlytripledinthelastfouryears(Exhibit10).Morethan5GWand65GWhofLDESisalreadyoperationalorhasbeenannouncedOver260LDESprojectshavebeenannouncedworldwideatdifferentcommercialstagesExhibit9KeyLDESstoragetypesandparametersAverageRTE1%TechnologyMarketreadinessMaxdeploymentsize,MWMaxnominalduration,HoursEnergystorageform40–70Power-to-gas-(incl.hydrogen,syngas)-to-powerPilot(commercialannounced)10–100500–1,000Chemical50–8070–9040–7040–7070–80Novelpumpedhydro(PSH)Gravity-basedCompressedair(CAES)Liquidair(LAES)LiquidCO2CommercialPilotCommercialPilot(commercialannounced)Pilot10–10020–1,000200–50050–10010–5000–150–156–2410–254–24Mechanical55–9020–50naSensibleheat(eg,moltensalts,rockmaterial,concrete)Latentheat(eg,aluminumalloy)Thermochemicalheat(eg,zeolites,silicagel)R&D/pilotCommercialR&D10–50010–100na20025–100naThermal50–8040–7055–75AqueouselectrolyteflowbatteriesMetalanodebatteriesHybridflowbattery,withliquidelectrolyteandmetalanodePilot/commercialR&D/pilotCommercial10–10010–100>10025–10050–20025–50Electrochemical1.Power-to-poweronly.RTEsofsystemsdischargingotherformsofenergiessuchasheatcanbesignificantlyhigher.Box2.NovelLDEStechnologiespresentverydifferentcharacteristics,makingthemsuitablefordifferentapplications11Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&Company(Exhibit11).18Theseprojectstotal5GWand65GWh,withroughly230projectsand75percentofthecapacityalreadycontrac-ted,underconstruction,oroperational.Thiscapacitydoesnotincludelarge-scaleabovegroundPSHprojects,whichrepresentmorethan95percentofallLDEScapacityinstalledgloballytoday(formoreinformationonPSHrefertoBox3).However,themajorityofthecapacityisassociatedwithtraditionalmoltensaltsandCAEStechnologies,whichhavesomedeploymentlimitationscomparedtonovelLDES(suchastheirlargefootprintandlimitedmodularity).ThermalLDESaccountsforthelargestshareofthetotalannouncedcapacity(60percent),attributableprimarilytoanumberofmoltensaltstoragefacilitiesforconcentratedsolarpower(CSP)inthemegawatt(MW)scale.TraditionalCAESholdsthesecond-largestcapacityshare(around30percent)andthelargestaverageplantsize(80MW).Flow18DoEGlobalEnergyStorageDatabase.TheshownfiguresexcludePSHbatteriesaccountforthehighestnumberofprojects(over100),buttheiraverageannouncedcapacityissignificantlylowerataround4MW.Thismeansthat,whilethepotentialofotherLDEStechnologiesishigh,theirwidespreadadoptionisdependentontheircommercialdemonstrationandcostdevelopments.TheUS,Spain,andGermanyhavethelargestreportedcapacitiesandprojectsintermsofregions.ThecapacityintheUSisbalancedbetweenmechanical,thermal,andelectrochemicalprojects,accountingforroughly30percentofglobalcapacity.MostLDESprojectsinSpain,whichaccountfor20percentofglobalannouncements,arethermalLDES.GermanyalsohastwoCAESprojectswithmorethan200MW,accountingfor10percentofthetotalannouncedcapacityglobally.InAsia,JapanandChinahaveannouncedatleast30electrochemicalprojects,combiningbothflowandmetalanodebatteries.Exhibit10InvestmentactivityinLDEScompaniesGlobaldeals1intheLDESindustryUSDmillionsPre-201818192020Total13020219802603609102,640+90%p.a.10222142718183xxNumberofdeals1.Basedonpublicinvestments,VC,PE,corporate,anddebtinvestmentsof25majorLDEScompanies.12Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&CompanyPSHisatypeofhydroelectricenergystoragethatconsistsoftwodifferentelevationwaterreservoirsthatcangeneratepoweraswaterflowsdownfromonetotheother,passingthroughaturbine.Differentconfigurationsofthesesystemsexist,beingthemostimplementedabovegroundopen-loopPSHandclosed-loopPSH.Theformerareconnectedtoanaturallyflowingwaterstream(i.e.,on-stream),whereasthelatterarenotcontinuouslyconnectedtoariver(i.e.,off-stream).Large-scale,abovegroundPSHisthemostusedenergystoragesolutiongloballyduetoitsmaturetechnology,highefficiency,andlowcapital19InternationalHydropowerAssociation.costperunitofenergy.Currently,around160GWofpowercapacityisinstalledglobally,withanother130GWplannedorunderconstruction.FuturedeploymentsconcentrateinAsia,whereChinaaccountsforaround60percentofglobalcapacityannounced,plannedorunderconstruction,theUS,andIndia.Ofthetotalcapacity,morethan70percentisassociatedwithclosed-loopprojects(Exhibit12).ExistingandannouncedPSHprojectsgenerallyhavedurationsrangingfrom10to24hours(butinsomecasesreachingmultipledays),andprojectsizesupto3GW.19TotalestimatedinvestmentinPSHprojectsExhibit11LDESprojectpipeline(excludingPSH)TransparencydenotesprojectsthathavenotbeenbuiltyetRatedpower,MWCategoryChemicalElectrochemicalMechanicalThermal100–200>2001–1010–100≤1Source:DOEGlobalEnergyStorageDatabaseBox3.Large-scaleabovegroundPSH13Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&Companyoverthelast10yearsisestimatedinUSD100-150billion,withUSD230-320billionmoreinthepipelineuntil2030.Systemcostsvarygreatlydependingonlocation,whichmainlyinfluencesEPCcosts,andsystemdesign(includingdurationofthesystemandtechnology).GlobalaveragecapexcostsareaboveUSD2,000perkW.However,short-durationstandalonedesignsinregionswithverylowEPCcosts(likeIndia),valuesbelowUSD1,000perkWcanbereached.Large-scaleabovegroundPSHhashistoricallybeenusedforbaseloadapplications,asitprovideslow-cost,dispatchablegeneration,andasaprimarysolutionforgridstabilityduetoitsfastresponsetimes.Itsmajordevelopmentconstraintsarealackofavailablesites,longleadtimes,highconstructioncosts,andenvironmentalconcerns.Nevertheless,ithaspotentialtomeetincreasedelectrificationneedsanddemandforzero-carbonmolecules(suchashydrogen)todecarbonizehard-to-abateindustries,particularlyinemergingeconomiesthatholdthemajorityoftheuntappednaturalpotentialandwhoseelectricitydemandmaytripleinthecomingyears.Exhibit12AnnualPSHcapacityadditionsbyyear1.Includesupgradestoexistingplantsandconstructionofnewplants0355152510203090198085952000051015202530SouthAmericaEuropeNorthAmericaMiddleEastAsia150352510520302520958515902000051030Open-loopClosed-loopSource:DOE;InternationalHydropowerAssociationPSHcapacityadditionsbyyear1GW14Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&Company3.ModelingtheflexibilityneedsoffuturepowersystemsChaptersummaryLDEStechnologiesneedtobescaleddramaticallyoverthenext20yearstoenableanet-zeropowersystemModelingshowsthatinanet-zeroscenario,thetotaladdressablemarket(TAM)forLDEShasthepotentialtoreachbetween1.5and2.5TWscaleby2040.Energyshifting,capacityprovisionandoptimizationofT&Dapplicationswillaccountforthevastmajorityofdeployments.Thisistrueacrossmarkets.TheestimatedvalueofthismarketcouldreachoverUSD1trillionby2040.LDEScancreatevalueinarangedifferenton-gridandoff-gridapplicationsnotaccountedinthemodelingandwhichcouldincreasethecumulativevaluecreationtoaroundUSD1.3trillionby2040LDESplaysasignificantroleinallmodeledscenariosbutthepreciseuptakeissensitivetocost,theperformanceofalternativetechnologiesandtothepaceofdecarbonizationbroadly.Underalternativeassumptions,deploymentscouldbeupto40percentlower.15Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&CompanyLDESisexpectedtoplayasignificantroleinachievingcost-effectivedecarbonizationofbulkpowersystemsandotherspecializedpowerapplications.Anoverviewoftheprojectedtotaladdressablemarket(TAM)forLDESbasedonmodelingresultsishereinprovided.TheTAMvaluesoutlinedbelowareanoutcomeonthecost-optimalnet-zerotrajectoryforpowersystemsanddonotaccountforannouncedREgovernmenttargetsorpolicymeasures(moredetailsonthemodelingmethodologyareprovidedinAppendixA).Datarangesrefertothecentralandprogressivescenarios.20ThetotaladdressablemarketforLDEScanreacha1.5to2.5TWscaleby2040toachievetherequiredflexibilityinnet-zeropowersystemsBasedontheprojectedcosttrajectories,modelingresultssuggestthatLDESwillplayaleadingroleinprovidingflexibilityaspowersystemsapproachnetzero.LDESTAMcanseeinitialdeploymentatscalefrom2025(30-40GW,1TWh,or6to8timesthecurrentannouncedcapacity),withacceleratedgrowthtoward2030(150to400TWand5to10TWh)asREpenetrationoftheenergysystemcontinues.In2025,morethan95percentdeploymentwillbedrivenbynon-bulkgridapplicationssuchasislandgrids,20Centralscenario:assumesfirst-quartilecostsforLDES,conservativelearningrates,andnew-buildnuclearcappedatpreviouspeak,andretiredasplanned.Progressivescenario:assumesfirst-quartilecostsforLDES,aggressivelearningrates,nonew-buildnuclear,andretiredasplanned.remoteandunreliablegridapplications,andcorporateREpowerpurchaseagreements(PPAs).However,asbulkpowersystemsachievehighREpenetration(around60to70percentglobally)from2030onward,LDEScapacitycanacceleratetowardthetotalvalueof1.5to2.5TWin2040(Exhibit13).Thisrepresents8to15timesthetotalenergystoragecapacitydeployedtoday.Inthenextfiveyears,significantinvestmentwillberequiredtofacilitatethewidescaledeploymentofLDESandachievealower-costdecarbonizationpathway.Itisestimatedthatby2025,aroundUSD50billionwillhavetobedeployedtoinstallsufficientpilotsandcommercialplantsforearlydecarbonizationwhileenablingcost-reductiontrajectories.Thisfundingcouldcomefromprivatesourcescombinedwithalevelofpublicsupport.Overall,thecumulativeinvestmentneededtorealizedeploymentsthrough2040isexpectedtoreachUSD1.5trilliontoUSD3trillionglobally.Whilethisisstriking,thisfigureiscomparabletowhatisinvestedinT&Dnetworksevery2to4years.LDEScancreatevalueinarangeofdifferenton-gridandoff-gridapplicationsLDES’projectedtechnologicalandeconomicfeaturesallowthemtoserveawidevarietyofendExhibit13LDEStotaladdressablemarketandcumulativecapexinvestmentbyyear202520402030~30–402035~1,500–2,500~150–400~900–1,700GWCumulativeinstalledpowercapacity1~1~5–10~35–70~85–1401.RangeisLDEScentralscenarioandLDESprogressivescenario.TWhCumulativeinstalledenergycapacity1~50~200–500~1,100–1,800~1,500–3,000Cumulativecapexinvestment1,USDbn16Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&Companyuses.Fivemainvalue-creationsegmentshavebeenidentified(Exhibit14),including:•Energyshifting,capacityprovision,andT&Doptimization•Optimizationofenergyforindustrieswithremoteorunreliablegrids•Isolatedislandgridoptimization•FirmingforPPAs•StabilityservicesprovisionEnergyshifting,capacityprovision,andT&Doptimizationinbulkpowersystemsareprojectedtoresultinthelargestproportionofdeployment(80to90percentin2040);however,theotherapplicationscanalsoaddsignificantvaluewhileensuringfulldecarbonizationofthepowersystem(Exhibit15).Additionally,itisprojectedthatearlymarketdevelopmentin2025willbedrivenbysupplyoptimizationforindustrieswithremote/off-gridorunreliablegridgrids(50GW),firmingforPPAs(30GW),andisolatedislandgridoptimization(15GW).Thedifferentapplicationsarebrieflydescribedbelow,whilethefollowingsectionprovidesin-depthexplanationsofenergyshifting,capacityprovisionandT&Doptimization.OptimizationofenergyforindustrieswithremoteorunreliablegridsLDEScanbecomecrucialtoenablingonsiteREandensuringcontinuouspowersupplywhereitisarequisite(forexample,incontinuousmanufacturinglines).Relevantendusersthatmayneedaclean,reliable,andcost-effectivepowersupplyincludelargeoff-gridusers(likemines,agribusinessesandmilitarybases)andindustrialusersinlocationswithlowgridreliability(likechemicalandsteelplantsinlesseconomicallydevelopedcountries).Inthesecases,LDESwouldhaveadvantagesovergridexpansionintermsofshorterleadtimesandfewergeographicalconstraints.Intotal,cumulativeLDEScapacitydeployedfortherelevantapplicationscouldamountto60GWand1.5TWhby2030and110GWandaround4TWhby2040.ThevaluecreatedbyLDES—Exhibit14OverviewofLDESapplicationsEnergyshifting,capacityprovision,andT&DoptimizationPeakgenerationfromrenewablesdoesnotalignwithpeakdemandforelectricity.LDEScanplayaroleinshiftingelectricityfromtimesofhighsupplytotimesofhighdemand.Alongsidethis,LDESprovidesvalueinotherways,forexample…SupportingindustrieswithremoteorunreliablegridsLargepoweruserscanuseLDEStoensurereliablepowerinareaswheretheyareisolatedfromthegridorthegridisunreliable(e.g.,remoteheavyindustry).FirmingforREPPAsRenewablepower-purchaseagreementscanuseLDEStoensurethatbusinessescanprocure100%renewableelectricity.SupportingislandgridsPowersystemsthatarenotconnectedtoalargegridcanuseLDEStogeneratereliablepower(e.g.,apowergridonasmallisland).ProvidingstabilityservicesElectricitygridsrequirestability.LDEScanbeusedtocorrectinstabilities(e.g.,transmissionoutagescanberectiedbyLDES).PEAKSOLARGENERATIONMORNINGDEMANDENERGYSHIFTINGENERGYSHIFTINGEVENINGDEMANDMAINLAND17Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&Companyreducingfossilfuelconsumption,increasingoperationaluptime,andreplacingfossilgenerationbackupcapacity—couldtotalUSD20billiontoUSD30billionby2030andaroundUSD120billionby2040.21Theimpactofclimatechange,includingincreasedwildfireriskanditseffectongridreliabilityorcorporatetargets,couldfurtheraccelerateadoption.IsolatedislandgridoptimizationLDEScansupportthestabilizationandsecurityofthesupplyofoff-gridormicrogridfacilities,includingislandpowersystems.Forinstance,thesetechnologiescouldhelpdecarbonizeislandsandremotecommunitiesbyminimizingtheirdependencyondieselenginesandfossil-21ToestimatetheLDESmarketsize,differentoff-gridandbackupLDESvaluepropositionswereidentifiedwithspecificindustrialandgeographicscope,witheachpropositionsizedfollowingatailoredanalysis.Thedurationforeachapplicationdependsstronglyonthespecificusecaseandthegeographiccharacteristics.22Forthemarketsizing,themostrelevantislands(withapopulationof0.1millionto5million)wereidentifiedandtheirenergystorageneedsestimatedbasedonanin-depthanalysisofparticularcasegeographiestoassesstotalLDESdeployment.Thesizingassumesalowestcostpathwaytodecarbonizingislandgridsby2040,implyingamodularbuildoutofbothLi-ionbatteriesandLDEStofulfillstorageneeds.basedpower.Furthermore,communitiesconnectedtoweakpowersystemscouldalsobenefitfromLDESinertiaprovisionandotherservices.By2030,thecumulativeinstalledcapacityforisolatedislandscouldamountto15GWand150GWh;by2040,thiscouldincreaseto90to100GWandaround3TWhofinstalledcapacity.ThepotentialvaluecreationofLDESarisesfromcostsavingsonfossilfuelsandcarbonemissions,totalinguptoUSD30billionby2040.22IslandswithaccelerateddecarbonizationpathwaysorhighercarbonpricescouldincreasethedeploymentofLDESandcreatemorevalueforthesesystems.ThevalueofLDESininlandExhibit15Totaladdressablemarketandcumulativevaluecreationbyapplicationby2040~175–215ValuecreatedbyLDESInstalledpowercapacityGWInstalledenergycapacityTWhAnnualLDEScapexspendUSDbnCumulativevaluecreationUSDbn~190–230~950–1,300~4–5~120<1~5–10na4~5–103~10~30–35~4701~300–6502~1,300–2,300Energyshifting,capacityprovision,andT&Doptimization~40~110FirmingforPPAsIsolatedislandgridsStabilityservicesprovision(inertia)Optimizationofenergyforindustrywithremoteorunreliablegrids~90–1000~1,500–2,500Total20~80–13543~85–140xxValue/spendmeasuresxxT&DoptimizationvalueKeyassumptions1.Basedonreductionincumulativesystemcostvs.“NoLDESCase.”2.Valueoftransmissionanddistributionexpansiondeferralorsubstitution.Figuresonlyaccountforinfrastructureoptimizationanddonotquantifythevalueofreductioningenerationcurtailmentcostsandreductionofenergynotserved.3.OtherservicesarepotentialmaterialrevenuestreamsforLDES,butnotsizedinthisreport.4.Inertiaprovidedthroughassetsthataredeployedforenergygenerationandcapacityprovisions,notthroughadditionalbuild-out.CumulativeLDES204018Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&Companyoff-gridorisolatedcommunitiescouldhavegreatpotentialaswell,especiallyindevelopingnationswhereelectricityneedsarestilleitherpartiallyorfullyunmetordependondieselgeneration.FirmingforREpowerpurchaseagreementsLDESallowsforsecuringpremiumPPAswithaparticularbaseloadrequirement.BothprivateandpublicorganizationsareincreasinglyinterestedinusingREtosupplytheirelectricityasameanstoreduceoperationalcosts,hedgeagainstvolatilefossilfuelpricesandCO2costs,andachievecorporateenvironmentaltargets.BusinesseswithambitiouspledgestoreducecarbonemissionstypicallyrelyonREguaranteesoforigin(GOs)—commonlyintegratedintoPPAs—tosourcezero-emissionelectricity.However,REPPAsareofteninsufficienttodecarbonizetheirtotalconsumption;hencebusinessesfrequentlyoffsettheremainingemissionswithcarboncreditspurchasedinvoluntarycarbonmarkets.LDESenablescompaniestoincreasetheiractualREsupplytonear100percentwhileprovidingresiliencytooperations.Inthesameway,utilitiescanuseLDEStooffersuch100percentREPPAstotheircustomers.By2025,theglobalcumulativedeploymentofLDESforfirmingREPPAscouldtotal10GWand0.5TWh,risingtoaround40GWand2TWhby2040andgeneratinguptoUSD10billionincumulativevalueincostsavingsonREGOsandcarboncredits.Thisapplicationshouldbeprimarilyviewedasanear-termopportunity,asREpenetrationinbulkgridswillincreasesignificantlybeyond2030toprovide24/7REcoverage.Asaresult,companies’willingnesstopaypremiumsforstorageforfirmingREPPAswilllikelydecline.Toensurenear100percentREsupply,durationsneededforthisapplicationareexpectedtobeabove24hours.Nevertheless,requireddurationswillbedependentontheexistingcapacitymixofthegrid.Stabilityservicesprovision(inertiaorsyntheticinertia)LDEStechnologiescanprovideawiderangeofancillaryservicestomaintaingridstability(exactservicesvarybytechnology).Oneofthoseservicesisinertia,whichisgrowingindemandasREpenetrationgrows.AdifferentiatingfeatureofLDESforconventionalpowerplantsisthatLDEScanprovideinertiawhileensuring100percentREsupply.Furthermore,mechanicalandthermalLDEStechnologiescanalsoofferinertiawithoutgrid-forminginverters,whichwouldraisethesystem’stotalcost.SuitableLDEStechnologiescancapturevaluefrominertiaandstackitwithotherremuneratedservicessuchascapacityprovision.ThetotalvaluecreatedfrominertiaaccessibletoLDESisestimatedatUSD0.5billionby2030andUSD5billiontoUSD10billiongloballyby2040,consideringthecostsofthenextcheapestalternative(thatissynchronouscondenserscombinedwithflywheels).However,itisunlikelythattheinertiaandstabilityserviceswilleverjustifytheinstallationofLDESalone.Onafreestandingbasis,synchronouscondensersarethemorecost-effectiveinertiasolution.Gridsystemswithlimitedinterconnectionsareexpectedtobeofparticularinterestatthebeginningofthemarket,astheyhavefeweralternativesourcesofgridstability.Pilotsforthisservicehavealreadycommenced:forexample,intheUK,asix-yeartenderforinertiaprovisionwascontractedin2020.Deep-dive:Energyshifting,capacityprovision,andT&DoptimizationLDESareexpectedtoplayauniquedualroleinbulkpowersystems,avoidingtheneedtousehydrogenturbinesforpeakingcapacitywhilealsoservingintra-andmultidaycyclingneeds.Duringsummerandwinterdemandpeaks,LDEScandischargeenergyoverseveraldaystoprovidecriticalcleanenergyandcapacityreserve;duringshoulderseasons,LDEScouldprimarilyperformintradayandmultidayenergyshifting.Intheverylongdurationranges,atpresentlyprojectedsystemcosts,amixofhydrogenturbinesandLDESwilllikelybecostoptimal.Nevertheless,morerapidlyreducingcostsorslowerhydrogencostreductionswouldinfluencethecapacitymix.RegardingtheTAM,energyshiftingandfirmcapacityprovisioninRE-intensepowersystemswillbethelargestmarketforLDES,accountingfor80to90percentofdeployedvolumesin2040.T&DexpansionoptimizationcouldgenerateanadditionalcumulativevalueofbetweenUSD300billionandUSD650billionby19Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&Company2040,primarilythroughthecomplementation,deferral,orsubstitutionofthedistributionnetwork,whereinvestmentsarehigher.Reducingcurtailmentandenergynotservedcouldincreasethevaluepoolfurther.LDESalsohasthepotentialtoprovidedistributedcapacitytomeetlocalneedswhilealsoprovidingacost-effectivealternativetolengthyT&Dleadtimes.WhilenotcurrentlyaccountedintheTAM,distributedthermalLDESapplicationscouldbeespeciallyattractivewhereheatingneedsarealsopresentgiventhehighenergylossesofheattransport.Ifcostprojectionsunfoldasprojected,LDEScouldaccountforalargeshareofcountries’capacitymix.Forinstance,intheUS,LDEScouldstorearound10to15percentoftotalenergyconsumedby2040,displacingsomeLi-ionandhydrogenturbinecapacity23The8-hourthresholddoesnotimplythatLDESisnotexpectedtoprovideservicesbelowthisduration.andreachinghighersharesthanthesetwotechnologies(Exhibit16).AbalancedmixofflexibilitydurationsforLDESwillbenecessarythrough2040GiventhelowerREshareofthetotalgenerationmix,thelargestshareofflexibilityneedsbeforetheendofthisdecadearelikelytofallonshorterdurationsbelow24hours,providingintra-andinterdaycycling.Nevertheless,earlydeploymentinthe24-hourormorerangewillalsobedrivenbylocalconditionsandspecificapplications(suchasbackupinlowgridreliabilityregionsorhighavailabilitycorporatePPAs).Bothdurationarchetypesarelikelytoseecommercialdemandinthenearfuture.By2030,theprojecteddeployedcapacityofthe8-to-24-hourarchetype23couldaccountformorethan80percentoftotalLDESpowercapacityandmorethan60percentoftotalLDESExhibit16ProjectedcapacitymixintheUSunderanetzero2040trajectoryanddifferentcostdevelopmentscenariosKeyassumptions1.TwoLDESarchetypesweredesigned,onewith8–24hoursdurationandonewith24–150hoursduration.TheLDEScentralscenarioisbasedon1st-quartilecostdataandconservativelearningratetrajectories,whiletheLDESprogressivescenarioisbasedon1st-quartilecostdataandaggressivelearningratetrajectories.̶NewnuclearcapacityisonlyallowedtobebuiltintheNoLDESandLDEScentralscenarios,butcappedat50GWby2040.Existingcapacityisassumedtoberetiredaccordingtoschedule.̶GasturbinesareallowedtobebuiltintheNoLDESandLDEScentralscenarios,butnobiomethaneorH2co-firingisallowed.̶H2turbinesareallowedtobebuiltinallscenarios,includinggasturbineretrofitsandnew-buildH2capacity.3,0002,00002,5005001,0003,5001,5004,0004,5005,0002019251,130303520401,1401,8603,7604,380CapacitymixintheUSunderdifferentscenarios1GWNoLDESLDEScentralscenarioLDESprogressivescenario1,860353,630251,14020193020401,1304,23020402019SolarLDES8-2425Hydro3035LDES24+Li-ionbatteryWindoffshoreWindonshoreH2turbinesNuclear4,5101,1301,2501,8703,810440600OtherCoalGas20Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&Companyenergycapacity.LDEStechnologiesthatoffermorethan24-hourflexibilitycouldseesignificantgrowthafter2030,owingprimarilytoanincreaseinRE.LongerdurationLDEStechnologiescouldaccountforroughly80percentoftotalcumulativeenergycapacityby2040.Requiredinvestmentsfordifferentdurationinstallationsareexpectedtofollowasimilarpatterntopowercapacitydeploymentduetothegreaterweightofthiscomponentinthetotaloverallsystemcosts(Exhibit17).REgrowthandelectrificationcouldleadtoincreaseddemandforLDESsystemsacrossallmarketsLDEShasthepotentialtosupportthecost-optimaldecarbonizationofbulkpoweracrossallmarkets(Exhibit18).TheUSshowsthegreatestneedforLDESsystemsamongthemodeledlocations,mainlyduetolimitedtransmissionconnectionsacrossthecountry.Inthismarket,LDESwouldhelpinreducingcurtailmentandcongestion,whileincreasingtransmissionutilization.DemandinEuropeandJapancouldprimarilybedrivenbypeakingcapacityfrom2035to2040,withlongeraveragedurations(above50hours)beinginstalled.RegionswithabundantREresourcesandhighsolarpenetrationthroughouttheyear,suchasAustraliaandChile,couldmainlyrequireshorterdurationsforbulkpowerservices.LDESdemandinemergingmarketswillbedrivennotonlybythereplacementoffossil-basedassetswithRE,butalsobyincreasedelectricitydemand,whichisexpectedtorisesignificantlyinthecomingyears.LDES’sprojectedTAMinIndiais125GWto250GWand15TWhto25TWhby2040,withaverageinstalleddurationsinthe100-hourscale.However,systemswillbeprovidingthefullrangeofflexibilitydurations,includingintradayandmultiday,withshorterdurationsgreatlydemandedintheshort-termastheREcapacityramps-up.Policymeasuresandgovernmenttargetscouldinfluencedeploymentpaceandresultinanearlierrolloutthanprojected.Forexample,India’stargetofdeploying450GWofREby2030couldresultinahighdemandforenergystoragecapacitybeforetheendofthisdecade,acceleratingLDESdeployment.Similarly,theUS’newcommitmenttozero-emissionselectricityby2035,aswellasChina’stargetof1,200GWofREby2030,couldhaveapositiveimpactaswell.Exhibit17LDEStotaladdressablemarketforthedifferentarchetypes1.RangeisLDEScentralscenarioandLDESprogressivescenario.DurationofsystemGWCumulativeinstalledpowercapacity1TWhCumulativeinstalledenergycapacity1Cumulativecapexinvestment1,USDbn80%~900–1,70020%30%70%60%40%~150–400~1,500–2,5008–24hour24+hour35%65%20%40%60%~35–7080%~5–10~85–14065%20%80%203035%50%203550%2040~1,500–3,000~200–500~1,100–1,80021Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&CompanyTheTAMismostsensitivetocostandperformance,alternativetechnologies,anddecarbonizationdevelopmentsThefutureofpowermarketsisbydefinitionuncertain.Commitmentsandactionsbypublicandprivateplayers,newmarketdesigns,andtechnologicaldevelopments,areallhighlyinterconnectedandwillultimatelydeterminewhetherclimatetargetsaremet.SimilarunpredictabilitysurroundsLDES,whichinadditioncarriestechnologymaturityrisk.ProjectionsforLDESdeploymentarethushighlysensitivetodifferentassumptions,asshowninExhibit19(thefiguresarefortheUSmarket,butbehaviorsarerepresentativeoftherestoftheworld).TheprojectedTAMismostsensitivetoweakerthanprojectedLDEScostandperformancedevelopments.Ifcompaniesonlymeetaveragecapexcost-reductiontrajectories,thetake-upofLDEScouldbereducedbyfurtherLi-ionandhydrogendeployment(120to250GWintheUSby2040).Iftheround-tripefficiency(RTE)ofsystemsfallinginthe8-to-24-hourarchetypedonotexceed70percent,Li-ioncouldtakeapproximately65GWofLDESdeployed.Ontheotherhand,theimpactonlongerdurationswouldbeminimal,withonly15GWbeingdisplacedbyhydrogen.DeviationsinthecostprojectionsofalternativescouldsignificantlyimpactLDESadoption.Ifhydrogencostsdecrease(forexample,ifhydrogenstorageinsaltcavernsincreases),anadditional90TWhofhydrogen-basedenergycouldbegenerated,displacingmorethan170GWofLDEScapacity.Nevertheless,thisisexpectedtohaveitslimitations,giventhatlower-costhydrogenrequiresinfrastructureorgeographicalconditionsthatmaybehighlyconstrained.AmoreaggressiveLi-ioncostscenariowouldreplaceroughly40GWofshorterdurationLDESsystems(namelythe8-to-24-hourarchetype).Onthecontrary,slowerLi-ioncostExhibit18TotaladdressablemarketbymodeledmarketsCumulativeLDESinstalledpowercapacityGWCumulativeLDESinstalledenergycapacityTWhAverageinstalleddurationHoursExtrapolationtoRoWUSEuropeChileIndiaJapanAustralia1–23010–15Total490–8401,300–2,300440–600140–290125–25040–8020–40~80–13520–405–200–530–4015–251–50.5–10–0.5Before20302030-40Modeledregions70–7515–2050–6020–3095–1308–1035–90142515631464141810–152030204022Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&CompanyreductionswouldincreasethemarketsizeofLDESbelow24hoursbyroughly50GW(Exhibit20).24Lastly,LDESdeploymentiscloselytiedtotherateofdecarbonizationanddeploymentofvariableREgeneration.Aslowertransitiontonetzeroinpower,sayby2050,ora90percentreductioninemissionsby2040,couldseeonly25to40percentofthe1.5to2.5TWpowercapacityand85to140TWhenergycapacitydeployedin2040;althoughinthisscenarioinstallationwouldbelikelydeferredratherthaneliminatedaltogether.24Allcasesusecentralscenarioassumptions,andtestsensitivitytoonecostaxisatatime.Exhibit19SensitivitiestoUSbulkpowermarketsizetothevariationofdifferentparameters-250<5-250100-120-250115-17020-65-1520-245-150-5-420-4558–24hour24+hourxBulkpowertotaladdressablemarketvariancetocentralscenarioResultobservedChangesinmodelVariancetocentralscenariointheUS+50%-100%-65%+45%+1%-100%-90%-100%+10%-25%-10%+10%1.Projectcontingencyspendfortechnologiesthatareinearlystagesofcommercialization.Assumes30%increaseforallcapexcostsfortechnologieswithoutapilotplant,and15%increasefortechnologiescurrentlywithpilotplants(basedonRubinetal.2013).2040,GWWeakerRTEimprovementfor8–24hourarchetype(frozenat2025level,ie,70%)+67GWLi-ionstorage;Li-ionmorecompetitiveinshort-durationenergyshiftingAdditionalcontingencycostsforpre-commercialtechnology1+220GWofH2capacityand320GWofLi-ion;LDESnotcompetitiveatthiscost+50GWofH2turbines;LDESlesscompetitiveinfirmcapacityprovisionWeakercostandperformancefor24+hourarchetype(medianassumedinsteadof1stquartile)WeakerRTEimprovementfor24+hourarchetype(frozenat2025level,ie,50%)Minimalchange,asnoothercompetitivealternativeinlong-durationenergyshiftingWeakercostandperformanceforbotharchetypes(medianassumedinsteadof1stquartile)+260GWLi-ionstorageand+70GWH2turbines;LDES24+hourarchetypeenergycapacityhalvedWeakercostandperformancefor8–24hourarchetype(medianassumedinsteadof1stquartile)+210GWLi-ionstorage;replacing8–24hourarchetypeasLi-ionbecomesmorecompetitiveinshort-durations23Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&CompanyExhibit20Capacitymixbyflexibilitytechnologyunderdifferentcostsensitivities65%56%56%50%34%23%7%17%17%24%19%45%28%27%27%26%47%32%High-costH2Low-costLDES23%High-costLi-ion68%9%Central-costLDESLow-costLi-ionLow-costH2High-costLDESLi-ion2LDES1H2turbine3H2Keyassumptions1.LDES:lowcostrepresents1stquartilecostdataandfastlearningratecost-reductionscenario;centralcostrepresents1stquartilecostdataandslowlearningratecost-reductionscenario;highcostpresentsmediancostdataandslowlearningratecost-reductionscenario.2.Li-ion:highcostisbasedonMcKinseyBatteryCostModelReferenceCase;lowcostassumes10%decreaseincapexinallyearsfromMcKinseyBatteryCostModelAggressiveCase.3.Hydrogen:highcostassumes+$1/kgtoH2priceduetolowerthanexpectedinvestments;lowcostassumesH2storageinsaltcavernsratherthaninabovegroundsteeltanks.TotalinstalledamountofflexibilitycapacityintheUS2040,GW790745785785815870800H224Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&Company4.CostanalysisChaptersummaryAchievingthescalesoutlinedinthisreportrequireslearningratescomparabletootheremergingcleantechnologiestooccurNovelLDESarenascenttechnologiesthatwillreduceincostastheyarescaled.TheCouncilhaveidentifiedthatalargeportionofthecostswillhavelearningcurvesProjectedcapexlearningratesarebetween12to18percent,consistentwithothersimilarbreakthroughenergytechnologiessuchasoffshorewindandbatteries.TechnologydevelopmentsandgainingoperationalscalewillbethelargestdriversofcostimprovementsThecompetitivenessofLDESisdrivenlargelybyenergystoragecapacitycosts,whichareexpectedtodeclineby60percent.Theround-tripefficiency(RTE)ofthesetechnologiesisalsoprojectedtoimproveby10to15percentSometechnologiesarecompetitivetodayforalimitedbutgrowingnumberofapplications.Thelevelizedcostofstorage(LCOS)analysisshowsthatiftheselearningcurvesareachieved,LDESiscost-competitivefordurationsabove6hoursandbelow150hours•In2030,LDEScanbeLCOS-competitiveagainstLi-ionfordurationsabove6hours,withadistinctiveadvantageabove9hours•In2030,LDEScanbeLCOS-competitiveagainsthydrogenturbineswiththesameoperationalprofilesfordurationsbelow150hoursToovercomethecurrentcostgapandtechnologicaluncertaintiesofthisnascentmarket,therightecosystemthatacceleratesinvestmentsshouldbeinplace25Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&CompanyTechnologycostsroadmapAswithanynewtechnology,competitivecostsandperformancearecriticaltoensuringwidespreadadoptionandprovidingsocietalbenefitsversusalternatives.ForLDES,thekeyparameterstoconsiderareenergycapacitycost25(USDperkWh)orenergycapex,powercapacitycost26(USDperkW)orpowercapex,operationandmaintenance(O&M)cost(USDperkW-year),andround-tripefficiency(RTE).27Becausethecostbreakdownchangessignificantlywithduration,twoLDESarchetypes(8to24hours28and24hoursormore)havebeencreatedbasedonmorethan10,000datapointsfromtheLDESCouncil.Theanalysisshowstopperformers’projectionsforbotharchetypes.29OnlythemostcompetitiveLDEStechnologiesareexpectedtoreceivethecapitaltoscaleupoverthenextdecadeandthereforeconstitutethedominantportionofthemixby2030.Theenergycapexhasbeenchosenasthedefiningmetricoftopperformerssincethetotalcostofdecarbonization(likethesystemcost)isespeciallysensitivetothismetricindeeplydecarbonizedscenarios.25Capexassociatedwiththeenergystorageequipment,representingtheinvestmentrequiredtostoreenergy.26CapexassociatedwithchargeanddischargeequipmentandBoP.TheBoPincludesauxiliarycomponentssuchasinverters,circuitbreakers,ortransformers.27Theratioofthetotalenergydischargedoverthetotalenergycharged.Itiscalculatedasanaveragevalueinstandardtemperatureandpressureconditions.Itaccountsfortheelectricitylostintheinverterforthosestoragetechnologieswhichneedoneanddoesnotincludeancillaryconsumptions.28The8-hourthresholddoesnotimplythatLDESisnotexpectedtoprovideservicesbelowthisduration.29Basedontop-quartiledata.CurrentsystemcostsandperformancearecomparabletoothernascenttechnologiesonthevergeofcommercializationLDESshowpotentialforcostsavingsasaresultoftechnologicallearningrates.Botharchetypesaresensitivetolearningrates,with75to90percentoftheircapexbeinginfluencedtosomeextent(Exhibit21).Inthe8-to-24-hourarchetype,35percentofcapexissusceptibletolearningrates,risingtomorethan50percentinthe24-hourormorearchetypeastheimpactofprocurementcostsdecreases.Costreductionsarelikelytobedictatedbytwofactors:1)costimprovementsfromincreasedindustrywidedeployment,supplierdevelopment,andsupplychainlearnings;and2)improvedcostreductionslinkedtomanufacturingadvancesandincreasedproductionvolumes(namelylearningatamanufacturerlevel).TheLDEScost-reductionratecomparedtootherlow-carbonflexibilitysystems,suchasLi-ionandhydrogenturbines,willdeterminethelevelofuptakeofthesetechnologies.However,inspecificapplications,thedistinguishingfactorsExhibit21Capexbreakdownbysensitivitytolearningrates(2025)23%13%28%36%6%14%27%53%Eg,tailoredequipmentforstoragetechnology,projectstructureEg,engineering,commissioninglabor,civilworks,permittingcostsEg,logistics,commissioningmaterials,storagemediumEg,commercial&trainingcosts,consu-mables,materialcosts,standardequipmentLowsensitivityNosensitivityMediumsensitivityHighsensitivity8–24hourarchetype24+hourarchetypeSource:LDESCouncilmembertechnologybenchmarking26Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&CompanyofLDESsuchasmodularity,shorttimetomarket,andtheabilitytoprovideadiversesetofservices,willbecriticalinunlockingbusinesscasesintheshortterm.Energyandpowercapexcoulddeclineby60percentinthenext15years,whileRTEcouldgrowby10to15percentasthecommercializationofsystemsacceleratesIn2040,thepowercapexislikelytobebetweenUSD380andUSD960perkWandtheenergycapexbetweenUSD4andUSD17perkWh.ThiscomparestoUSD60to110perkWandUSD70to80perkWhforLi-ionbatteries,andtoUSD800to900perkWforsinglecyclegasturbinesin2040.Thepowercapex,whichincludescharginganddischargingequipmentandBoPcosts,isexpectedtoshowacomparableoveralldeclineofaround60percentacrossbotharchetypes,experiencingthesteepestdropinthenexttenyears.Power-only-relatedcostsarelikelytodecreasefasterthanBoPcostsastheymainlycomprisestandardequipment.Intermsoftheabsolutepowercapex,lowerdurationsystemspresentlowervalues,astheyareusuallyoptimizedtobecompetitiveatshorterdurationsandhighercyclingprofiles.Thisadvantagetendstobereducedforlongerstoragedurationsastheenergycapexbecomesthemaincostdriver.Theenergycapexdiffersmoresignificantlyacrossarchetypesandscenarios.Theenergycapexofthe24-hourormorearchetypecanreachconsiderablylowervaluesthanthe8-to-24-hourarchetype(aroundthreetimeslower),enablingthedesignofthesesystemsforlongerdurationsduetothelowercyclingrequirementstogenerateprofits(Exhibit22).FormoreinformationontheenergycapexofmedianperformerspleaserefertoBox4.TheO&Mcostscanexperienceasignificantdecreasebetween2025and2040,downtoUSD1.5toUSD10perkWannually,thankstothedeploymentoflargerfacilities.The24-hourormorearchetypeislikelytoachieveO&MperkWaroundtentimeslowerthanthe8-to-24-hourarchetype,abenefitmainlyduetoscaleeffects.LongerdurationsystemspresentalowerRTEofabout55percentcomparedtoabove75percentExhibit22LDESpowerandenergycapextrajectories204062025203520302481012141618202224202502030203540020408001,2001,6002,0002,4002,800PowerandBoPcapexUSD/kW25–40%35–50%EnergycapexUSD/kWh~60%8–24hourarchetype24+hourarchetypeProgressive(ambitiouslearningrate)Central(conservativelearningrate)~60%Source:LDESCouncilmembertechnologybenchmarking27Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&Companyforshorterdurationsystemsby2040(Exhibit23).MostoftheRTEincreasecouldbeachievedbefore2035andislargelyattributabletomaterialsciencebreakthroughsandadjustmentsinthesystemdesign.FormoreinformationontheRTEofmedianperformerspleaserefertoBox4.ProjectedcapexlearningratesforLDESsystemsareconsistentwithsimilarbreakthroughenergytechnologiessuchaswind,PV,andelectrolyzersThetotalequipmentcapexisofprimaryimportanceindrivingthetotalcostofownershiptocompetitiveness.Learningratesareameasureofhowcostsdecreaseasoutputincreases.Forexample,doublingtheinstalledcapacityofPVandwindtechnologyisassociatedwithan18to24percentcostreduction.EmergingLDEStechnologieshaveasignificantpotentialtoachieveeconomiesofscaleandfurtherdecreasecoststhroughR&D.Theindustryanticipateslearningratesof12to18percentforthebenchmarkedperiod,basedontechnologyproviders’forecastdeploymentscalculatedonaper-technologybasis.LDEStechnologies’learningratesalignwithsimilarenergytechnologies’historicaldata,asseeninExhibit25.However,theselearningratesareambiguous—asareanyforecastsofnascenttechnologies—astheyhavelittlehistoricalinformationtodrawon.ThepotentiallearningratesfordifferentLDEStechnologiesalsovaryastheyareinfluencedbytheequipmentused,billofmaterial,andsensitivitytocapeximprovements.Generally,morematuretechnologies,suchaselectrochemicalbatteries,havelower-than-averagelearningrates(fourtofivepercentagepointsbelowaverage),whilenovelLDEStechnologies,suchasmechanicalorthermalenergystorage,mayenjoyhigher-than-averagelearningrates(uptothreeandfivepercentagepointsrespectively).Exhibit23LDES’syearlyO&MandRTEbenchmarkcapexreduction203020252035204050558060657570412020252035203018204026820101422168–24hourarchetype24+hourarchetypeProgressive(ambitiouslearningrate)Central(conservativelearningrate)YearlyO&MUSD/kW~50–55%~40–45%~10%~15%RTE%Source:LDESCouncilmembertechnologybenchmarking28Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&CompanyBox4.TopperformancedatacomparedtomedianperformancedataToachievegreatersocietalbenefitsandbecompetitivewithotherlow-carbonstoragetechnologies,thebroaderLDESindustrymustachievetheobjectivessetbythemostcompetitivemarketplayers.Thegapbetweenmedianandtop-quartileperformancedatamustalsobecoveredfortheLDESindustrytoachievetheresultsofthisstudy.Thiswillrequiretheindustryasawholetooverachieveontoday’sprojections,whichhasalreadyprovenpossibleforotherenergytechnologieswhensupportedbypoliciesandindustrialobjectives.Exhibit24presentsthegapbetweenthemedianandtopquartile.Thecurrentaggregationmethodologydoesnotcreateartificialbest-in-classplayersasdemonstratedbythefactthattop-quartileplayersintermsofenergycapexalsopresentaslightlylowerRTEthanthemedian.Exhibit24LDES’sbenchmarkcapexreductionfortop-quartileandmedianperformancedata20302025203514102040242668321216182420222830204066540562025203020355052646068586270727476RTE%EnergycapexUSD/kWh8–24hourarchetype24+hourarchetypeProgressive(ambitiouslearningrate)Central(conservativelearningrate)10%5%8%20%33%70%40%45%Source:LDESCouncilmembertechnologybenchmarking29Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&CompanyProjectedcapexlearningratesforLDESsystemsareconsistentwithsimilarbreakthroughenergytechnologiessuchaswind,PV,andelectrolyzersThetotalequipmentcapexisofprimaryimportanceindrivingthetotalcostofownershiptocompetitiveness.Learningratesareameasureofhowcostsdecreaseasoutputincreases.Forexample,doublingtheinstalledcapacityofPVandwindtechnologyisassociatedwithan18to24percentcostreduction.EmergingLDEStechnologieshaveasignificantpotentialtoachieveeconomiesofscaleandfurtherdecreasecoststhroughR&D.Theindustryanticipateslearningratesof12to18percentforthebenchmarkedperiod,basedontechnologyproviders’forecastdeploymentscalculatedonaper-technologybasis.LDEStechnologies’learningratesalignwithsimilarenergytechnologies’historicaldata,asseeninExhibit25.However,theselearningratesareambiguous—asareanyforecastsofnascenttechnologies—astheyhavelittlehistoricalinformationtodrawon.ThepotentiallearningratesfordifferentLDEStechnologiesalsovaryastheyareinfluencedbytheequipmentused,billofmaterial,andsensitivitytocapeximprovements.Generally,morematuretechnologies,suchaselectrochemicalbatteries,havelower-than-averagelearningrates(fourtofivepercentagepointsbelowaverage),whilenovelLDEStechnologies,suchasmechanicalorthermalenergystorage,mayenjoyhigher-than-averagelearningrates(uptothreeandfivepercentagepointsrespectively).TechnologydevelopmentsandgainingoperationalscalewillbethelargestdriversofcostimprovementsR&Dandvolumewillbekeyleverstorealizeaspirationalcosttrajectoriesandwillrequireattentionfromtheindustrytobecompetitive.The45percentreductionforthe8-to-24-hourarchetypeandthe50percentreductionforthe24-hourormorearchetypeuntil2035willmainlybedrivenbyincreasedefficiencies—asaresultofR&D—andscale,dependingonthematuritylevelofeachtechnology.ManufacturingandsupplychainimprovementswillhaveaslightlyExhibit25HistoricallearningratesforselectedcleantechnologiesandLDEStechnologyfamiliesElectrolyzersSolar23WindGlobalLDESaverageEVLi-ionbatteries241412–1818Electro-chemicalThermalMechanical0–30–24–5LDESaverage%ptsHistoricallearningratesforselectedtechnologies%Source:LDESCouncilmembertechnologybenchmarking30Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&Companylowerimpactontheoverallcostprojections(Exhibit26).However,theywillstillplayafundamentalroleinreachingcost-competitiveness.TheexpectedLDEScost-reductiontrajectoryiscomparablewithLi-ionbatteryandhydrogenenergystoragecostprojectionsinthenext20yearsTheLDESsystemcapexreductionforecast(55to60percentby2040)iscomparabletocost-reductionexpectationsreportedforutility-scaleLi-ionsystems(around70percent)andLCOEforhydrogenturbines(around50percent).30Moreover,thepaceofreductionissimilaracrossthetechnologygroups,withthefastestlearningphaseoccurringinthenextdecade.Thisimpliesthattherelativecompetitivepositioningandeconomictrade-offsbetweenthetechnologieswilllikelyremainsimilaroverthisperiod.Li-ionandhydrogenfacealeveloffutureuncertaintycomparablewithLDESbutcanrelyonahigherpledgedlevelofcapitalinvestmentandattentionatthemoment.Therearemanydetailedperspectivesonthecost-reductiontrajectoryofLi-ionandhydrogen,31underlining30“Hydrogeneconomyoutlook,”BNEF,2020.31NREL;AEMOISP;BNEF;HydrogenCouncil.thateachtechnologyshowsdistinctcost-reductiondrivers.ThesedivergefromtheleversshownforLDES.Li-ion’sfuturetrajectorywillbesetbythedemandinEVs(morethan85percentoffuturetotaldemandfrom2021to2040),withstoragepotentiallyaccountingforupto10percentofthisdemand.Assuch,learningratesofLi-ionbatterieswillbelinkedmorecloselytotheEVsdemandthantheoutputofLi-ionstationarystorage.Similarchemistriesstillallowsimilarlearning-by-doingcostreductions,procurementscalebenefits,andcellassemblybenefitsfrommanufacturingscalethatapplyacrossEVsandstationarybatteries.ThelargestcostcomponentofLi-ionstationarysystemsisthebatterypack(50percentin2021),whichisoftencommontobothEVsandstationaryapplicationsandwillaccountfor32percentagepointsofthecostreductionduetogreatervaluechainintegration,manufacturingscale,andimprovementsinrawmaterialrefinement.Theremainingcapexwillbereducedbyrefiningandspecializationinotherhardwaresystems,engineering,procurementandconstructionfees,andsoftcosts.Thehydrogen-to-powercosttrajectoryismostsensitivetofuelcosts,whichcurrentlycontributeExhibit26ProjectedimpactofdifferentcostreductionleversontotalsystemcostBreakdownofcost-reductionlevers,2025–40%oftotalreductionR&Dimprovements35–60%TotalcapexreductionManufacturingandsupplychainimprovementsCostreductionduetoscaleproduction(volume)35–60%15–30%Increasedcostefficiency,eg,duetodesignoptimizationsofmajorcomponentsandefficiencyofmaterialsusedLearningsfromvolumes,eg,moreefficientprojectmanagementandscalingupoflogisticsIncreasedmanufacturingefficiency,eg,leanerproductionprocesses,cost-efficientsourcing,automatedassemblySource:LDESCouncilmembertechnologybenchmarking31Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&Companytoaround70to80percentoftheLCOE,withhydrogenturbine(orfuelcells)andtransportcostsbeingtheotherkeycomponents.Thecostofrenewablehydrogenisexpectedtodeclinebyanaverageofbetween67and74percentgloballyby2040,becomingwidelycompetitiveintheearly2030s.22Thishydrogenfuelcostwillbesetbythedevelopmentofhydrogenforindustrial,commercial,andtransportdecarbonizationapplications.Inturn,theextensiveuseofhydrogeninthesesectorswilldrivedevelopmentsinelectrolyzertechnologies,hydrogentransport(includinginfrastructure,pipelines,andshipping),andfuelcelltechnologyimprovementsthatunderpinthecostreductionofhydrogenforpower.Oneotheraspecttoconsiderwithhydrogen-to-powersystemsisthesynergywithhydrogenusedinotherenergysystems.Inafuturewithhighlevelsofhydrogenusedinnonpowerdecarbonizationandtransportedbypipeline,theinterplaycouldsignificantlyinfluencepowersystemeconomics.Forexample,intimesofreducedglobaleconomicgrowthorrecession,therecouldbeanoversupplyofhydrogenpowerascyclicalindustriessuchassteelandcementreducedemand.Levelizedcostofstorage(LCOS)competitivebenchmarkingAnalysisofLCOSinstaticconditionsandcomparableoperationshelpsdefinedurationswhereLDEScancompeteTheLCOSprovidesadiscountedunitvalueofalltechnicalandeconomicfactorsthatinfluencethelifetimecostofstoringelectricitybytakingatechnologycostperspectiveratherthanasystemone.However,whenconsideringthepotentialforLDEStoreplaceothertechnologies,suchasgasturbinesortransmission,oritscontributiontotheoverallsystemvalue,LCOSaloneisinsufficient.Inthesecases,itisalsocriticaltoconsidertheoperationalprofiles,durationrequirements,commodityprices,andothersystemconditions.Asidefromthecost,severalotherapplicationandinstance-specificpropertieswillinfluencethechoiceofatechnology(suchas,presenceandsafety32“Solvingthecleanenergyandclimatejusticepuzzle,”FormEnergy,2020.constraintsindenselypopulatedareasandtheavailabilityofwasteheatsupply).TheLCOScanbethefirsteffectiveproxytoevaluatethecostcompetitivenessofLDESsolutionsatdifferentstoragedurations.Withconsistentglobalassumptionsandutilizationrates,LDEScanbecomparedtoLi-ioninshorterdurationsandhydrogenturbinesinlongerdurationsthroughtheLCOSmetric.Acknowledgingthatstoragedurationisacontinuumandthatpartialchargeordischargeoftenplaysasignificantroleinachievingtheflexibilityrequirementsofaproject,thisstaticanalysisishelpfultounderstandtherangeofdurationswherethecostandperformanceparametersofLDEScouldallowforthemostcompetitiveapplications.FormoredetailsonthemethodologyandassumptionspleaserefertoAppendixA.LDEScanbeLCOS-competitivecomparedtoLi-ionbatteriesfordurationsabove6hours,withadistinctadvantageabove9hoursAssumingaconstantyearlyutilizationof45percent(averagerealstorageutilizationreflectedbythemodeling),by2030LDESwillhavealowerLCOSthanLi-ionbatteriesinapplicationsrequiringmorethan9hoursofstorage,withUSD80toUSD95permegawatt-hour(MWh)(Exhibit27).CompetitivenessagainstLi-ionbatteriesismorechallenginginapplicationswithstoragedurationsoflessthan6hours,asLi-ion’slowpowercapexcostsdrivelowpricesatshorterdurations.DuetocomparablelearningratesbetweenLi-ionandLDEStechnologies,therelativecostcompetitivenessofLDEStechnologiestoLi-ionisunlikelytochangesignificantlybefore2035.Inpeakingcapacityapplications,LDESarelikelytobeLCOS-competitiveagainsthydrogenturbinesforconsecutivedischargedurationsoflessthan150hoursSomeLDESalreadymatchtheoperationalprofileofgaspeakers32whenprovidinggridreliability.Forsimilarusecases,LDESisexpectedtoshowacost-competitiveadvantageagainsthydrogenturbinesindurationsbelow32Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&Company100hourswhenabletomatchtheturbines’operationalprofile(Exhibit28).Inthisanalysis,acapacityfactorof15percent,correspondingtothemaximumutilizationassociatedwithapeakingcapacityasset,isassumedforthehydrogenturbine.Astheassumedcapacityutilisationgrows,theextenttowhichanLDESsystemcanbeapotentialsubstituteforturbinesdecreases.Amulti-technologyportfolioapproach,includinghydrogenturbines,LDES,andotherlong-durationsolutions,islikelytobethemosteconomicpathtofulldecarbonization.Eventhoughdurationslongerthan6dayscovermostrenewablegeneration“dips”,newdispatchablegenerationwillstillneedtobepartofthecapacitymixtoensurereliabilityincaseoflongerextremeweatherevents(forexample,weekswithlittlesunshineandwind).AssetutilizationandlifetimeaveragechargingcostswillbemajoroperationalbreakevencomponentsTheLCOSishighlydependentonboundaryconditions—includingspecificmarketconditions,geographicallocation,andendapplications—thatwillshapethetechnology’scompetitiveness(Exhibit29).Combined,electricitypricesandstorageutilizationhavethemostsubstantialimpactontheLCOS.Forexample,achargingelectricitypriceofUSD30perMWhanda70percentutilizationrateresultsinanLCOSofUSD70perMWh.ThesameLCOSisobtainediftheLDEShasanutilizationrateof45percentandachargingelectricitypriceofUSD15perMWhinthe8to24hourarchetype(inlinewithRELCOEintheworld’smostcompetitiveregions)andUSD120perMWhinthe24hourormorearchetype..TheRTEisaninfluentialvariableintheLCOScalculation(withaone-on-onecorrelation)becauseitinfluencescharginganddischargingrequirements;however,itsimpactonLDEScompetitivenessandvalueislimitedwhencomparedtotheenergycapex.FromthestandpointofLCOSsensitivity,theenergycapexwillhaveadirectimpactonthedesignenergystoragecapacityofthesystemandonitsutilization.RTE’simprovementisfrequentlycompromisedbytechnologicallimitations.Exhibit27EnergystorageLCOScompetitivenessbydurationforLi-ionandLDES,2030USD/MWhHours8–24hourarchetypeLi-ionProgressive(ambitiouslearningrate)Central(conservativelearningrate)LDES:higherpowercapexbutlowenergycapex,makingdurationscalableLi-ion:lowerpowercapexbutenergycapexincreasinglinearlywithduration124120108616141820222408010014016018020022024033Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&CompanyExhibit28EnergystorageLCOScomparisonbydurationforhydrogenandLDES,2030HydrogenLDES24+hourarchetypeProgressive(ambitiouslearningrate)Central(conservativelearningrate)501001502001601802002202402600280USD/MWhHoursUSD2/kgofH2USD1/kgofH2USD/MWhLDES:higherpowercapexbutlowenergycapex,makingdurationscalableHydrogenturbines:highfuelcostbutfullydispatchableExhibit29ImpactsonLCOSbyrangingdifferentinputmetrics,203087138112921409097151257167268173152183362336422410LCOSimpact2030,USD/MWhRange90–40400–96070–208–255–2016–46LCOSimpact2030,USD/MWhRangeParameterPriortochangeRTE%Perpowercapex&BoPUSD/kWElectricitypriceUSD/MWhPerenergycapexUSD/kWhOpexUSD/kWhUtilization%8–24hourarchetype,16hoursduration24+hourarchetype,100hoursduration75–25690–1,51070–203–90.9–2.616–46Sensitivityto5%change%Sensitivityto5%change%71767181807011013011913515012334Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&Company5.LDESbusinesscasesChaptersummaryLDEScancreatesignificantlyeconomicandenvironmentalbenefitintheenergysystemifopportunitiesarecreatedtopursueitLDESassetsarebeingcommerciallyinstalledtoday,havingreturnsoninvestmentofmorethan10percentToenablewidercommercialdeployment,LDESmustachieveoptimalcost-decreaseandperformancetrajectories,aswellastechnicalmaturityLDESvaluecreationcouldbenefitabroadrangeofcustomerarchetypes.Fourcustomerbusinesscasesillustratethepotentialforvaluecreationinthenearfutureforsomeoftheapplications.IntegratedutilitieswithfuturetransmissionbottlenecksbenefitfromLDESbutfaceuncertaintyonmonetizationMarketsupportmechanismsandregulatoryincentivesarerequiredtointheshorttermtounlockthecompetitivenessofcertainbusinesscasesandattractthenecessaryprivatecapital35Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&CompanyLDESprojectswillhavecomparableinvestmentreturnstootherenergytechnologiesby2025,althoughmarketsupportwillbecriticalintheshorttermIn2025,allthemodeledLDESapplicationshaveinternalratesofreturn(IRRs)wellabovetheminimuminvestorattractivenessthresholdandcomparablewithbenchmarkedIRRsofcurrentmatureenergyprojects.Thehighprofitabilityismainlyattributabletothecosttrajectoryassumptions,whichwillrequireearlydeploymentsandinvestmentssupportedbyanappropriatemarketecosystem(exploredinChapter6).Forthemajorityofmodeledbusinesscases,theimplementationofmarketmechanismsisrequiredtobringtheIRRswellabove10percentbefore2025(Exhibit30).Heretheexampleofearlierrenewabledevelopmentisinstructive.IRRsofLDESprojectsdeployingin2025thatpurelyrelyonexistingregulationsandrevenuestreamsarecomparablewiththoseofPVandwindattheverybeginningoftheircommercialization.Theirgrowthwasassistedbydedicatedpublicpolicysupportschemes.Inasimilarfashion,LDEScompetitivenesscouldbeunlockedbypolicyactionsinlinewiththenet-zerogoalsthatcapturetheirvalue.Ingeneral,beyondthebusinesscasesstudiesinthisreport,Exhibit30UnleveredLDESIRRsfor2025comparedtoothertechnologiesReliabilityofisolatedgrids(US)Decarbonizingcoppermine(Chile7)20804161224Onshorewind(China8)LNGproject(global)UtilityscalePV(California)Offshorewind(Northsea)GreenH2forindustryofftaker9(EU)IntegratedREandH2(MiddleEast)TypicalprojectIRRsPotentialimprovement2IRRsensitivitytoCO2eprice2025IRRsofspecificmodelledLDESprojects2025IRRsofselectedenergyprojectsUnleveredIRRsof2025LDESapplicationsvsselectedenergyprojects1,%Nonrisk-adjustedexpectedIRRrangeKeyassumptions1.ProjectsIRRarebasedoncountrylevelorcompetitivelandscapebenchmarksandthusarenotexhaustiveoftheoverallmarketexpectedreturns2.PotentialimprovementinIRRenabledbymarketmechanismsandregulatoryimprovements3.CO2pricesmodelledforthreescenarios:basescenario(60USD/tCO2ein2030),mediumscenario(75USD/tCO2ein2030)andhighscenario(100USD/tCO2ein2030)4.Maximummodeledweightedaveragecapacitycostof16.7USD/kWpermonth(fromLABasin,California)5.Islandedgridfrom150USD/MWhto200USD/MWh,off-gridminefrom250USD/MWhto300USD/MWh6.IncludesthebroaderlistofLDESprojects,notexplicitlymodelledinthisreport(7.Particularlyfavorableprojectandnotnecessarilyrepresentativeofallminingapplications8.BenchmarkedwindonshoreprojectsIRRsinShandongandJiangsuregions9.Assumingsubsidiescommensuratewithtrackrecordincurrentlydeployedprojects,projectIRRisscale-dependent.REdeveloperprovidingPPAs(Australia)HighmaturitytechnologiesLowmaturitytechnologiesBroadersetofLDESapplications6(2025)Decarbonizinggrid(US)Capacityprovision4AncillaryservicesCO2price3Fuelcostincrease5CompetitivepressureeffectsloweringIRRsareaccountedonlyfortheselectedenergyprojectsSource:GrantThornton;Renewableenergydiscountratesurvey2018AvoidedREcurtailment36Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&CompanyLDESpresentsawiderspectrumofapplications,relatedIRRsandsensitivities,describedunderthe“broadersetofLDESapplications”category.LDESassetsarebeingcommerciallyinstalledtoday,buttherearekeychallengestobeovercomeforwidercommercialdeploymentDifferentusecasesofdeployingLDESinthenearterm(2025to2030)areexploredthroughfourcaseexamples.Theselectedcaseshaveapositivenetpresentvalue(NPV),drivenbyanIRRabove10percent;thisimprovesascommercialoperationdatesareshiftedto2030andbeyond,benefittingfromsystemcostreductionsandlowercapitalinvestmentrequirements.WhereLDESdeploymentisnotyeteconomical,severalpotentialmechanismscouldunlockfinancialviability(exploredinChapter6).ThedifferentLDESusecasescouldbenefitabroadrangeofcustomers,includingintegratedutilities,independentpowerproducers,T&Dsystemoperators,corporateswithenvironmental,social,andcorporategovernancecommitments,industrialswithhighuptimerequirements,isolatedislandcommunities,militarybases,andpublicandhealthcareserviceswithbackuprequirements.Whilethecommonthemeistheneedforpowerresilience,eachusecaseisdrivenbylocalregulation.Forexample,publicutilitieswithgrid-systemoperatingfunctionsarelikelycateredforbyLDESapplicationsforenergyshifting,capacityprovision,T&Doptimization,andstabilityserviceprovision.Whereascorporateplayers,suchasREdevelopersorownersorindustrialcustomers,aremorelikelytobeinterestedinLDES’abilitytofirmPPAsoroptimizeenergysourcingforofftakeinaremoteorunreliablegrid.ThebusinesscaseofanintegratedUS-basedutilityisdescribedbelow.TheothercaseexamplesaresummarizedinExhibit31anddescribedinAppendixB.Exhibit31AssessmentofLDES-drivenbusinesscasesApplicationCaseexampleCustomerexampleIRR(potentialimprovement)ValuedriversforLDESEnergyshifting,capacityprovision,andT&DoptimizationStabilityservicesprovision(eg,inertia)IncreasecertaintyforLDESdevelopersthroughlong-termcontractingFirmingforPPAsREdeveloperinAustraliaREdevelopersorownerslookingtoservecorporateREPPAswithfirmedcapacity~7%KeyunlocksMarketmechanismsenableremunerationofCO2ebene-fitsforLDESassetownersRegulatoryoptionsorincentivesensureWACCcommensuratewithREdevelopmentSustainedcarbonpriceinlinewithNDCs1US-basedutilityIntegratedutilitieswithsignificantREbuild-outandtransmissionbottlenecksbetweengenerationanddemand~3%(+11%)T&DoptimizationCapacityprovisionCO2ecostsavingsREcurtailmentreductionFirmedcapacityREPPApremiumsIsolatedislandgridoptimizationRegulatoryoptionsorincentivesensureWACCcommensuratewithRESdevelopmentIsolatedislandintegratedutilityintheUSIntegratedutilitiesservingisolatedislandpowersystemswithdecarbonizationambitionsbutlimitedinterconnectivity~7%(+5%)ProductioncostsavingsCO2ecostsavingsOptimizationofenergyforindustrieswithremote/unreliablegridsMarketmechanismsenableremunerationofCO2ebenefitsforLDESassetownersDiesel-poweredcoppermineinChileIndustrialcustomerslookingtoreducethecostsofenergysupplyandreducecarbonfootprintofproducts~15%(+4%)ProductioncostsavingsCO2ecostsavings1.Nationallydeterminedcontributions.On-demandREpeakpowerIncreasedelectricitypricingspreadandhigherneedforcleandispatchablepeakingpowerREdeveloperinIndiaREdeveloperinIndiaprovidingmorningandeveningpeaksupplyaswellasoff-peakgeneration~10%(+2%)Peakandoff-peakpowersupply37Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&CompanyAUScasestudyshowshowintegratedutilitiescanbenefitfrommultipleLDESapplicationsbutfaceuncertaintyonmonetizationIntheUS,severalintegratedutilitiesareresponsiblefortheirlocalgrid’senergygenerationandoperation.Theytypicallyrelyoncarbon-intensivegaspeakingplantstosupportlocalloadandreliability.Incaseswherethereisageographicdividebetweengenerationanddemand,transmissionbottlenecksarise.LimitedtransfercapabilitiesandchallengeswhenbuildingnewtransmissionsdrivetheneedtoimprovetheutilizationofT&Dnetworksandmaintainreliabilityinthelow-carbonfuture.GiventhevastamountsofREcapacitythatwillbeconnected,criticalchoicesaboutT&Dinvestmentsforthenextdecadesneedtobemade.Forthesecustomers,anLDESsystemcouldprovidemultiplesolutions.TheinstallationofanLDESsystemdisplacesashareofthedemandforelectricityfromgas-peakingpowerplantsandreducestheproductionandemissioncosts.Inaddition,LDESstoragecapacitycanabsorbalargevolumeofelectricitycurrentlybeingcurtailedduringpeakproductiontimes.LDESalsoprovidesreservecapacitytoreplacethegaspowerplantsthatcurrentlydeliverthisservice.AsLDESincreases,theutilizationoftheT&Dnetworkandcostlycapacityexpansioncanbeoptimized.(Exhibit32)Exhibit32IntegratedUSutilitycaseexampleIRR3–14%T&Doptimization34010–20CapacityprovisionProductioncostsavings~0210–220TotalvaluecreationStabilityservicesprovisionInvestedcapital70TotalfixedO&MREcurtailmentreductionCO2ecostsavingsNPV60–70290230300–830-110–420ValueNetvalueCostAccessiblevaluewithmarketmechanismsinplaceMainLDESapplication(s)IntegratedutilityintheUSthatdependsongas-peakingplantsforreliabilityGeographicdividebetweengenerationanddemandwithtransmissionbottlenecksChallengesbuildingnewtransmissionLDESassetstodisplacegas-peakerplantsandimproveREutilizationPotentialLDESsystem:200MW/2,000MWh(10hours);systemsoflongerdurationsarealsoseeingdemanddrivenbyutilities’long-termneedsNPVforanintegratedutilitycustomerUSDmillionsCustomerprofileAssumptions2025Basecase2023CommercialoperationdateCO2epricescenario6%WACCFinalinvestmentdecisiondateMarketmechanismsinplaceValuefromtransmissionsavingscurrentlyinaccessibletonon-gridowners38Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&CompanyThecaseshowsthattheNPVrangesbetween-USD110millionand+USD420million.Toaccessthehigherendofthisrange,marketmechanismswouldhavetobefullyinplacetoensurethebenefitscanbecaptured,especiallyifthecustomerisnotanintegratedutilitythatalsooperatesthegrid.Transmissionoptimization,capacityprovision,andCO2ecostsavings(USD230million,USD290million,andUSD210milliontoUSD220million,respectively)arethemostsignificantcontributorstotheoverallvaluecreationofUSD300milliontoUSD830million.Transmissionsavingscomparetransmissioncoststostoragebuildoutfordifferentscenariostodeterminetherelativestorageinvestmentrequiredtooffsettransmissionspend.CO2ecostsavingsoriginatefromtheopportunityofreplacingagaspeakingplantwithLDES.TheeconomicsofthiscasearesensitivetoCO2epricesandprojectstartdates.TheIRRincreasessignificantlytobetween9and25percentwhenthecommercialoperationdatemovesto2030,withtheconstructionofthesystemtakingplaceinthetwoyearsprior.Furthermore,acceleratedCO2epriceincreasescouldresultinIRRsofupto16and29percentwithoperationdatesby2025and2030,respectively.(Exhibit33)Exhibit33Integratedutilitycaseexample–US,IRRsensitivity<5%5–10%10–15%15–20%>20%BasecaseIRRsensitivitytocarbonpriceandprojectstartdate11.Lowerendofrangeforvaluecaptureinmarketswithappropriatemechanisms;higherendofrangeforfullvaluepotential.CO2epricescenario2030USD/tCO2eBase60High100Medium75Commercialoperationdate202520303–15%9–26%3–16%9–29%9–25%3–14%39Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&CompanyToensurethefinancialviabilityofLDESforintegratedutilities,severalkeyconditionshavebeenidentified.First,theLDESassetownerwouldbeabletomonetizethebenefitcreatedbyCO2eemissionreductionsthroughadequatemarketmechanisms.Second,regulatoryoptionsorincentiveswouldbeinplacetobringtheowner’scostofcapitalinlinewiththatofotherdecarbonizationefforts.Third,CO2epriceswouldberisinginlinewiththeincreasingambitionsofnationalemissionreductionplans,suchasnationallydeterminedcontributions(NDCs).Fourth,REownerswoulduseLDESchargingasmuchaspossible,especiallysincenet-zerogridsarenotfullydeployedyet;thiscouldbeensuredbyschemesthatfacilitatethetraceabilityofenergygenerationandcertifyitsorigin.40Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&Company6.RoadtocompetitivenessandkeymarketenablersChaptersummaryThreepotentialactionscouldhelpunlockLDESvaluebychangingthewaystorageisregulatedandremuneratedDrivingtheeconomicandtechnicalmaturityofLDEStechnologiesshouldbealignedwiththelarge-scaledeploymentofREtoachievemaximumsocietalcostreductionsAsupportiveecosystemwithconcreteactionswouldbebeneficialforthepromptdevelopmentofthemarket.Inparticular,3keyareasforactionhavebeenidentified:1.Long-termsystemplanningcouldhelpattractadequatelevelsofprivateinvestment:•Nationalupfrontplanningtooptimizethecapacitymix,gridinfrastructure,andstorage•ClearREtargetstocreatedemandforenergystorageandprovidevisibilitytoinvestors•Internationalcoordinationtoenhanceeffortsacrossmarketsandregions2.Supportforfirstdeploymentsandscaling-upcapabilitiestolowerinvestors’barrierofentryandrisk•Dedicatedsupportprogramstoreachcostcuttingpotentialandtestnewmarketmechanisms•TargetedsupportschemessuchasREandLDEStenderstoincentivizetake-upbysectorplayers•Supportformanufacturingandsupplychainimprovementtoincreasescaleandreducecapex3.Marketcreationtoensurefinancialreturnsduringthelifetimeoftheassets•Marketmechanismsanddesignstoensurecompensationforflexibilityprovision•EnablingregulationtofacilitateLDESuptake(e.g.safetystandards,marketrulesthatcaptureLDESvalue)AlackofsupportivemarketcouldsignificantlydelaythedeploymentofLDEStechnologies41Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&CompanyThetimelymaturityofLDEStechnologiesisessentialtoenabletheoptimalintegrationofREinpowersystemsLDEScanplayavitalroleindecarbonizingtheworld’spowersector.By2040,LDESdeploymentcouldresultintheavoidanceof1.5to2.3GtCO2eqperyear33(around10to15percentoftoday’spowersectoremissions)byenablingdispatchableREandthereplacementofemittingplants.Mostimportantly,theycandosoatnoadditionalsocietalcost.TheoverallcostofpowersystemscouldbereducedbyaroundUSD35billionannuallyby2040intheUSalone(Exhibit34)undera100percentdecarbonizationscenarioandtopquartileperformance,ofwhichUSD5billionwouldcomefromtheapplicationofLDESinT&Dexpansionprojects.Inordertorealizetheirfullpotential,LDEStechnologiesneedtoreachtechnicalandeconomicmaturityalongsidethewidespreaddeploymentofRE.WhetherLDESdevelopersachievethecost-reductiontrajectoriesoutlinedinthisstudyornotdependsonimprovedtechnologicaldesigns,thestreamliningandoptimizationofmanufacturingcapacities,andscalefactors.Furthermore,rapidtechnologicalprogresswillbeessentialtoensuretheiradoptionatafastpace.Onlythetechnologies33AssumingthatthetotalelectricitydischargedbyLDESgloballyin2040wouldbeemissions-freeandsubstitutetraditionalgaspeakingcapacity.thatmaturequicklyenoughtomeetmarketdemandsarelikelytomakeitintotheportfolioofsolutionsthatsupportthepowersystemtransition.PotentialacceleratorsfortheadoptionofLDESmayemerge.Theycouldincludeafastertrajectorytonet-zeropowersystemsthantheoneassumedinthisstudy,eitheratalocallevelorinregionsorcountrieswithhighdecarbonizationtargets.Thesewouldnaturallydemandsolutionstode-riskandbalancetheintegrationoflargeamountsofRE.Inaddition,sustainedandincrementalCO2pricingwillenhancethevalueofspecificbusinesscasesbycreatingnewrevenuestreamsandreinforcingexistingones.Lastbutnotleast,theevolutionofalternativesolutionsandtheirdeploymentconstraints(suchassupplychainshortagesforLi-ionandhighdemandintheEVssegment)couldheavilyinfluencethedemandforLDEStechnologies.AchievingtheoptimalLDEScapacitydeploymentthrough2040willrequiresignificantinvestmentsOverall,usingLDEStoupgradeelectricpowersystemsinthemostcost-effectivemannerwillnecessitatesignificantprivateinvestment.CumulativecapexinvestmentsofUSD50billionarelikelytoberequiredtodeploytheprojectedExhibit34Totalin-yearsocietalcostofbulkenergyshifting100%decarbonization46XXSocietalcostsperunitofgeneratedelectricityUSDbn44433490%decarbonization450NoLDESLDEScentralscenario460LDESprogressivescenario310490-7%T&DinvestmentCapacityinvestmentUSD/MWh42Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&Companycapacityuntil2025,withUSD1.5trilliontoUSD3trillionneededgloballyuntil2040torealizeprogressivecostprojections.LDEStechnologieswouldalsobenefitfromgovernmentsupporttokick-startthemarketasquicklyasthenet-zerotransitiondemands.Short-termfundingforthesetechnologiescanbeviewedasalong-terminvestmentthatwillpayoffintheformofalower-costpowersystemandade-riskedtransition.AsupportiveecosystemwithconcreteactionswouldbebeneficialforthepromptdevelopmentofthemarketToovercomethecurrentcostgapandtechnologicaluncertaintiesofthisnascentmarket,theLDESCouncilbelievesthatgovernmentsandbusinessleaderscancatalyzethedevelopmentofthemarketbycreatingtherightecosystemthatacceleratesinvestments.Threekeydimensionswheresupportactionswiththehighestimpacthavebeenidentified:4.Long-termsystemplanningtocreatetherightinvestmentsignals5.Supportingthefirstdeploymentsandscaling-upcapabilitiestokick-startthemarket6.CreatingthemarkettocaptureLDESvalueandallowmonetization1.Long-termsystemplanningtocreatetherightinvestmentsignalsClearcommitmentstonet-zeroemissionsandcomprehensivedecarbonizationroadmapsfromgovernmentsandindustryareessentialtomeetclimatetargets.Long-termsystemplanningcouldattractadequatelevelsofprivateinvestmentinbothtechnologicaladvancementsandearlysystemdeployment,ensuringthetimelydevelopmentofenablingsolutionssuchasLDES.LDEScansignificantlyimprovethereliabilityandresilienceofpowersystems.Net-zeropowersystemscouldbenefitfromupfrontplanning(similartoPubliclyOwnedUtilityIntegratedResourcePlansintheUS)tooptimizethecapacitymix,gridinfrastructure,andstoragedeployment.Upfrontplanningwouldminimizethenumberofemergencyprocurements,whichfrequentlyresultintheacquisitionofequipmentunsuitableforlong-termsystemneeds.Academicandindustryprogressinbuildingnewcapacityexpansionmodelshasledtoanemergingsetofbestpracticesabouthowtoplanlowcarbongridsthatrelysubstantiallyonrenewablesandstorage.Wherepossible,capacityexpansionmodelsandtheinvestmentdecisionstheyrequireshouldbebasedon:atleastonefullyearofgridoperationsathourlyresolution,includingweatherandloadvariabilitythatreflectsday-to-day,week-to-week,andseason-to-seasonfluctuations;multipleweatheryearsandkeyfuturesystemconditions,suchastechnologicalavailability,commodityprices,orothervariables.Thiswouldlowerconsumercostsaswellastheriskofunanticipatedpoweroutagesandsupplychainconstraints.PowersystemplanningthatincludesLDESisalreadytakingplaceinsomeadvancedregions.Forexample,CaliforniahasalreadyprocuredMW-scaleLDES,andNewSouthWales,Australia,announcedlastyeartheprocurementof2GWofLDESinitsElectricityInfrastructureRoadmap.ClearREtargetsandstrategiestoacceleratepermittingwouldalsocreateearlydemandforenergystoragetobalancethevariabilityinrenewablegeneration.REgeneration,T&Dgrids,andenergystoragearehighlyinterconnected.Assuch,clearstrategiesonREintegration,storage,andgridupgradeswouldprovidevisibilitytoinvestorsandincentivizeuptakebyREdevelopers.Lastly,internationalcoordinationisalsoessentialtoestablishingtheworld’spathtonet-zeropower.Coordinationofeffortsyieldsprinciplesandlessonsthatcanbereplicatedacrossmarkets.Applicationsorregionswithsimilarneedscouldjoinforcestomonitorthetechnologiesthatbestsupporttheenergytransition,establishingindustrialorregionalnetworkscapableofformulatingneedsandprovidingknowledge.AllplayersneedtocontinuetoexpandtheknowledgebaseonLDEStechnologycapabilities,value,anddevelopmenttrajectories.2.Supportingthefirstdeploymentsandscaling-upcapabilitiestokick-startthemarketThemajorityofnovelLDEStechnologieshave43Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&Companynotreachedfullcommercialmaturityyet,whichpresentsabarrierforraisinglargeamountsofprivatecapital.WithoutanestablishedmarketforLDESandatrack-recordoftheperformanceofthesesystems,investorperceptionsofhighriskswilllimitfundingandconstraintheabilityofdeveloperstocontinuetestingandimprovingtheirtechnologies.Asaresult,dedicatedsupportprogramsforlarge-scaledemonstrationplantswouldbeessentialtoensurethatthesetechnologiescanreachtheirfulltechnologicalandcost-reductionpotentialandthatnewmarketmechanismscanbetested.Suchsupportcouldtakemanyforms,someofwhicharelistedbelow,andshouldbeimplementedintheshorttermtoacceleratedeployment.Forexample,forthedeploymentofutility-scale,grid-connecteddemonstrationplants,government-fundedgrantsandfinancialinstrumentswouldbecritical.Grantswouldacceleratedesignimprovements(forexample,intheRTE),reducecoststhroughR&D,anddecreaseuncertaintiesaroundoperationalperformance,whichwouldde-risksuchprojectsforinvestors.InitiativesarealreadyunderwayincountriessuchastheUK,wheretheDepartmentforBusiness,Energy&IndustrialStrategylaunchedaUSD100millionLDESdemonstrationcompetitioninearly2021toaccelerateprojectcommercialization.Similarly,theUSDepartmentofEnergyhaslaunchedaprogramtoreducecostsofLDESofmorethan10hoursofdurationby90percentinonedecade.TheprogramhasrequestedabudgetofmorethanUSD1billion.IntheEU,theInnovationFundalsoprovidesgrantstoenergystorageprojectsbasedoninnovativetechnologies.Notonlygrants,butfinancialinstruments(suchasblendingfinancinginstruments,thematicgrowthinstruments,orcreditenhancementmechanisms)wouldhelptocatalyzeprivatefundingandde-riskearlyprojects.Societycouldalsolearnfromsuccessfulsupportschemesofferedtoothercleantechnologiessuchassolarorwind(e.g.tendersthatrewardbest-performingtechnologiesagainstdeterminedcriteria),andimplementsimilarmeasuresonatechnology-neutralbasis.Incentivizingsectorplayers’uptake(suchasREplayers,systemoperatorsoroff-takers)andcollaborationwithLDEStechnologyproviderscanalsoaccelerateearlyLDESdeployment.Earlymovers(likeminingcompaniesordatacenters)willingtocoverthegreenpremiumwillbeessentialtokick-startthemarketanddeveloplearningcurves.TendersforREco-locatedwithstoragewithaminimumdischargeduration,public-privatepartnershipsorearlymarketmechanismscouldaccelerateuptake.Inthisway,thematurityofthetechnologieswouldbenefitfromearlypositivecashflowsthatcouldbereinvestedinfurtherimprovementswhilerefiningmarketcreation.Similarly,manufacturingandsupplychainimprovementscouldreducethetotalcapexby15-30percent.Thissupportcouldincludeincreasingmanufacturingefficiency,automatedassembly,andcost-effectivesourcing.Toachievefulldecarbonization,cleantechsolutionswouldbeneededinharder-to-decarbonizeapplications.Theseincludetheprovisionofbackuppowerforcriticalloads,suchashospitalsortelecommunicationtowers,wheredecarbonizationbyanytechnologywillentailhighercoststhantheuseoffossil-fuel-basedinstallations.LDESaresuitableforthesebackupapplications;however,thelowutilizationimpliedwithbackupusagemayleadtounfavorableeconomics.3.CreatingthemarkettocaptureLDESvalueandallowmonetizationEvenatthecommercial-readinessstage,riskssurroundingthefuture-costtrajectoriesandtherevenuesassetscancaptureduringtheirlifetimeswillremain.CurrentmarketsgenerallydonotcapturethefullvalueofLDESsince:•Powermarketsaremostlyshort-term(suchasday-ahead,intradaymarkets)andgenerallydonotprovidelong-termagreementsthatcouldde-riskcapital;•Multidayandmultiweekmarketsignalsareweakcomparedtointraday,andthereforestoragetechnologiesareincentivizedtocyclemultipletimesperday;•Carbon-reductioncompensationschemeseitherdonotexistorareinsufficienttocompensateinvestorsfortheadditionalfunding.44Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&CompanyTherefore,intheshort-tomid-term,itisessentialtodevisemarketswhichallowthebenefitscreatedbyLDEStoresultinfinancialreturnsandattractiveIRRs.Severalmarketdesignandregulatoryactionscouldhelpminimizetheoperationalriskofcommercialplants,providingvisibilityonrevenuesduringthelifetimeoftheassets.Optimalmarketdesignsthatcreatetherightincentivesignalsforlong-durationserviceswillvarybylocationdependingonthelocalresourcesandinfrastructure.Forexample,itmaybecomeincreasinglydifficultforgeneratorsandstorageownerstogenerateanincomesolelyfromenergypaymentsinmarketswithlimitedpricevolatility.Thesemarketsmayneedtoberedesignedtocompensateforflexibility,whichcouldbeaccomplishedthroughlong-termcapacitypaymentsornewimbalancecompensationmarkets.Alternatively,othermarketsmayneedtoopentoLDESasfirmcapacityandbalancingproviders.Thiscouldcontributetovariousbenefits,includingincreasedcompetition,increasedinnovationintheelectricpowerindustry,andincreasedgridflexibilityandresilience.Lastly,asetofrequirementsanddriversforLDESuptakewouldbedesirablefromaregulatoryperspective.LDEStechnologiesvarywidely34“Facilitatingthedeploymentoflarge-scaleandlong-durationelectricitystorage:callforevidence,”UKDepartmentforBusiness,Energy&IndustrialStrategy,2021.inmaturity,safetyfeatures,andusecases,resultinginalackofsharedunderstandingandvaluation.Inaddition,theroleofstorageintheenergysystemiscomplex,bothwithinthepowersystemandinconjunctionwithindustrialenduses.Therefore,theappropriatevaluationofLDESthroughtheestablishmentofclearmarketrulesisnecessary.Inaddition,acleardefinitionofLDES,includingminimumtechnicalandsafetyrequirements,wouldfacilitateitsdevelopmentandimplementationinthemarketplace.Finally,carbonpricingmechanismswouldneedtobedesignedsothatlow-carbontechnologiesarenotoutcompetedforsimilarflexibilityservicesbyemittingassets.SomefrontrunnercountriesorregionshaveproducedexamplesoflegislationexplicitlydesignedtomeettheneedsofLDES.Forinstance,theCaliforniabillAB2255(2020)proposestheadoptionofanewregulatoryapproachasitaimstodevelopaprocesstoprocureanddeployGWsofLDESacrossthestate.Inaddition,Arizonahaslaunchedanincentiveprogramstructuredtoencouragelongerdurations,byofferingincentivesforstoragetechnologieswithmorethan5hoursofdischarge.IntheUK,thereareongoingconversationsondifferentroutestoincreaseprofitabilityforLDES,including15-yearcapacitymarketsorbalancingmechanisms34.45Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&CompanyThisreporthasshownthatLongDurationEnergyStoragecanplayacrucialroleinfullydecarbonizingthepowersectorandthusenablingapathwaytolimittheriseinglobaltemperaturesto1.5degreesassetoutintheParisagreement.Itcanprovidethepowersystemflexibilityandstabilityrequiredtointegrateanincreasingrenewableshareinpowergenerationwithitsinherentvariability,anditcandosoatamanageablecost.DatafromLDESprovidersshowsithassignificantpotentialtobecomethemostcost-competitivesolutionforenergystoragebeyondadurationofsixtoeighthours:thesocialbenefitsoflarge-scaledeploymentassolarPVandwindbecomethedominantsourcesofpowerareobvious.Theseprojections,however,comewithanimportantcaveat.TheywillonlycometopassifactionistakenintheshorttomediumtermtocreatetherightframeworkconditionsfordevelopmentofamarketinLDES,andstimulateearlyinvestment.Largedeploymentisrequiredinthenextfewyearsinordertobuildscaleandrealizethecostprojectionssetouthere.Governmentsneedtoestablishasupportiveecosystemincludinglong-termplanning,economicincentivesandappropriatemarketdesigns.Tobeclear,thisisnotaproposalforanongoingsubsidyregimeatthepublicexpense:theproposedrecommendationsaredesignedtokick-startafunctioningmarketthatcansupportsociety’sobjectiveofrapiddecarbonization.Alltheevidencesuggeststhatthiscouldbeahighlyattractivemarketforinvestors:asizeablenewindustryproviding1.5to2.5TWofstoragecapacity,requiringaninvestmentthatcouldreachUSD1to3trillionby2040withpotentialcompetitivereturns.Theprizeiswithinreach,andthetimetoseizeitisnow.Conclusion46Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&CompanyTotaladdressablemarket(TAM)modelingThisreportestimatestheLDESfuturedeploymentandTAMbyleveragingtheMcKinseyPowerModel(MPM),along-runcapacityexpansionmodelwhichincludeselementsofproductioncostmodeling,tosizedeploymentrequirementsinbulkgridapplications.Additionally,theanalysisaugmentsthebulkpotentialwithotherdifferenton-gridandoff-gridapplicationsforthatarenotcapturedbyalarge-scalecapacityexpansionmodel.TAMresultsaresensitivetoassumptionsonLDESandalternatives,hencemultiplesensitivityanalysishavebeencarriedout.McKinseyPowerModelTheMPMisatechno-economicoptimizationthatsimulateslarge-scalepowersystemsconcurrentlyonanhourlyandmulti-decadaltimeresolutions.Itwasusedtodeterminethecost-optimalpathwaytonet-zeroemissionsacrossasetofreal-worldsystems.Theresultisaportfoliooftechnologiesandfuelconsumptionthatminimizethesocietalcostofthetransitioninthemodelinghorizon.Awidesetoftechnologiesrangingfromtraditionalthermalgeneratorssuchasgasturbinesandnuclearpowerplantstotechnologieswithincreasingpotentialintheenergytransition,suchasrenewables,CCS,energystorage,andpower-to-fuelwereincludedinthemodel.ThemodelingeffortspecificallyfocusedontheroleofLDESinthenet-zeroemissionstransition.TheresultprovidesanoutlookfortheLDESmarketsizeandapossibleoperationalprofile.Varioussensitivitiesfortechnologiesweredefinedtostudytheimpactonthetechnologyportfolio,andspecifically,theLDESmarketsize.ThecapitalcostreductionsofLDEStechnologiesweredefinedbasedonthelearningrateandtechnologycommercialreadinessgatheredfromdatasubmissionsofLDEScouncilmembers.Differenttechnologybuilddecisionsandmarketsizerestrictions,suchasbiomethaneblending,nuclearnewbuildrestrictions,andtransmissionexpansionrestrictions,werealsomodeled.Themodelcontainsbulk-transmission-levelgridconnections(i.e.,nomid-voltagetransmissionordistributiongrid),andwithinthesmallestmodelingregion,transmissionisnotrepresented,i.e.,intra-regiontransmissioneffectsarenotincluded,correspondingtoa‘copperplate’.ThismodelinglimitationwillnecessarilyunderestimatethemarketsizeofLDESsincetransmissionconstraints,whichLDEScanprovideastrongvaluepropositiontomitigating,arenotfullyconsidered.Inaddition,themodelonlycoversthepowersectoraswellasfuelcreationrelatedtosupplypredefineddemandfromthepowersector,e.g.,suchashydrogenproduction.Noco-optimizationsonothersectorssuchasdualfuelboilers,spaceheatingco-optimizationorglobalcleanfuelsflowswereconsidered.TheseaspectscouldbeconsideredinfutureanalysistofurtherunderstandthepotentialofLDES.Non-MPMTAMestimatesAsaparalleleffort,additionalsizingoutsidetheMPMwasperformed,estimatingtheLDESmarketsizeinoff-gridapplications,andthevaluecreatedbyLDESinusecasesnotconsideredbyMPM.Fiveadditionalvaluestreamshavebeendefinedandassessed:optimizationoftransmissionanddistributioninvestment,stabilityservicesprovision,firmingforPPAs,isolatedislandgridoptimization,andenergyforindustrieswithremoteorunreliablegrid.Intheoptimizationoftransmissionanddistributioncase,thegenerationcapacitysupportofLDESisalreadyaccountedforintheMPMresultswhileoptimalgeospatialplacementofdeployedLDESwouldprovideadditionalvaluecreation,whichhasbeenseparatelysized.Thevaluereferstothesavingsintransmissionanddistributioninfrastructureinvestments,sizedbyassessingthepotentialofLDEStoincreasethegridutilization,thereforereducingbuildoutAppendixA:Methodology47Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&Companyrequirements,whilenotimpactingsystemreliability.Themethodologywasfollowedindetailfortwocountries,theUSandGermany,beforeextrapolatingthefigurestoaglobalvalue.SeveraldifferentapproacheswereusedtosizethedeploymentofLDESinremoteandunreliablegrids.ForremoteminesahybridmodelwasdeployedinamethodanalogoustoislandedpowergridsinaChileancoppermine,withtheMcKinseyMineSpansdatabaseusedtoidentifytheelectricalenergyrequirementsofsuitableminesglobally.Forunreliablegrids,sectoralenergydemandwithrequirementsforhighuptime(e.g.,chemicals,manufacturing,metalprocessing)wereidentifiedincountrieswithhighhistoricalrecordsofblackouts.ThetotalstoragerequirementtobridgeblackoutperiodswascalculatedandanLDESpenetrationwasassumedtoestimatethedeployedsystems.Avalueequivalentwasattributedtotheproductivityofavoideddowntime.Forcriticalon-gridassetsusingRE(e.g.,militarybasesandhospitals),onlytheLDESenergycapacitydeploymentwasincluded(theexpectationisthatLDESwillbeusedformorethanbackuppurposes);however,additionalvaluewasestimatedwiththeremovalofbackupdieselgeneration.LDESdeploymentandvalueofislandgridswasbasedonin-depthhybridenergysystemmodelingusingrealhourlysupply/demandloadprofilesoftheO’ahuislandsysteminHawaiitodeterminetheoptimumdecarbonizedenergysetupacrossREoptions,Li-ion,andLDESovertime.ThisproducedadeploymentofLDESperGWhconsumedannuallyandvaluesavingsbasedonreducedproductioncosts,stabilityservices,andCO2ereductions.Thisresultwasthenscaledtocoverglobalisolatedislandgrids.Thiswasdonebyidentifyingallislandswith0.1millionto5.0millioninhabitants,thenfilteringthosebasedonmainlandgridconnectionsandothercommon-sensechecks(e.g.,removinghighlypopulatedIndonesianislandsthatwouldbedoublecountedwiththemainMPMmodeling)beforeamoderationofstorageneedwasconductedbasedonREpotentialineachcounty.Finally,theresultwasscaledusingtheannualenergyconsumptionofeachisland.SizingofLDESrequirementsforcorporateREPPAswastakenusingforecastsforREPPAsgloballybasedonhistoricaltrends,understandingwhatproportionwouldrequirenear100percent24/7REcoverageandassumingalevelofLDESpenetration(versusLi-ionorotherfirmingoptions).Tocalculatethevalueofthesedeployments,thecostofcoveringanynon-REpowerconsumptionwiththepurchaseofREguaranteesoforiginandcarboncreditswascalculated.NewdeploymentsandvaluefromREPPAswereassumedtoreachapeakin2030beforebeingphasedoutasgeneralgridsreachhighproportionsoffirmedRE.Theopportunityforstabilityserviceswasalsomodeledfocusingoninertiaprovision(aslikelythemostsignificantservice).ItwasreasonedthatLDESwouldnotbeeconomicallyinstalledpurelyforinertiaprovision,somodelingfocusedonidentifyingtheadditionalvaluethatcouldbeachievedshouldtheseservicesbemonetized.Todothis,amethodforthenextlowest-costalternativewasimplementedusingthecostofinstallingsynchronouscondensersfromvariousrealquotations,andscalingfortheinstalledquantityofLDESinaregionfromtheMPMresults.LCOSmodelingTheLCOSrepresentsthediscountedtotalunitcostofownershipofstoragetechnologyovertheprojectlifetime.Thismetricaccountsforalltechnicalandeconomicparametersimpactingthelifetimecostofdischargingstoredelectricity.ItisdirectlycomparabletotheLCOEforgenerationtechnologiesandrepresentsanappropriatetoolforcostcomparisonofelectricitystoragetechnologies.However,LCOSforstorage,muchlikeLCOEfordispatchablegenerators,isnotanintrinsicpropertyoftheinstalledtechnology,butdependsheavilyontheoperationsofthesystem.Assuchitisextremelyusefulincomparingcosts,buttheusershouldunderstandinputparametersandlimitationsofthecomparison.Modelingdeeplydecarbonizedsystemsisacomplextask,andmetricssuchasLCOEandLCOSprovideabaselinetoorientmarketparticipantstotherelevanttechnologies.Exhibit35reportstheLCOSformula,showingitscomponents.TheLCOSmustbehandledcarefullytocreatemeaningfulresults.SuccessfulLCOSusecasesappearinwell-definedstoragedemandandwell-understoodtechnologybehavior,likedailyenergyarbitragemarkets.These48Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&CompanyfactorsimplyconsistentutilizationprofilesthatproducesensibleLCOScomparisons.Poorusecasesaredefinedbyoccasionalorsporadicstoragedemand,likeutilityreliabilitymarketsorintegratingmultiplerevenuestreamsandstorageuses.Forthesesporadicusecaseswithsparsecyclecounts,LDESsolutionsarebettercomparedtocapexorannuitizedcapacitycostsandnotLCOSsinceefficienciesandreplacementcostsarelessimportant.Themainassumptionsare:•AnnualLDESassetutilization:45percentinalldurations.Thisvaluerepresentstheportionoftimethestorageiseitherchargingordischarging.ItwasinferredasanoutcomeoftheMPMandchosenasthebasecase.•Averagelifetimechargingcost:30USD/MWh•Hydrogenturbinecosts:theyarebasedonfindingsfromtheHydrogenCouncil35andlatestacademicliteraturefigures.Assumptionsonthecostofhydrogenin2030arekeyindeterminingthetwodifferentscenarios(2USDperkginthecentralscenarioand1USDperkgintheprogressivescenario).Relyingontheacademicandindustryconsensusonpeakingplants35HydrogenInsights,2021utilizationvalues,acapacityfactorof15percentfortheturbinewasassumed.•LDESenergyandpowercapacity,andchargingrate:theenergyandpowercapacityvaluesaresystemnameplatecapacities.100MWwasthechosennameplatepowercapacityforthedifferentsystemscompared.Thechargeanddischargelimitationsareaccountedinthedepthofdischargemetric,whichisdefinedaseffectivedischargeableenergycapacityovernominalenergycapacity(consideringbothcharginganddischarginglimitations).Onlynominalchargingrateshavebeenconsidered(i.e.,1CchargingrateforLi-ion).•Li-ioncosts:theprogressiveandcentralscenariosarebasedontheMcKinseyBatteryCostModel.ThecentralscenarioimpliesacostimprovementlearningcurveprojectionswithoutconsideringdisruptiveLi-iontechnologybreakthroughs,whiletheprogressivescenarioanticipatesaggressivecomponentcostimprovements.TheassumedLi-Ionandhydrogencostandperformancetrajectoriesareamongstthemostprogressivefromtheirsources.•WACC:6percentExhibit35LCOSformulaComputationofthelevelizedcostofstorage(LCOS)DiscountrateNameplatecapacityDepthofdischargeDuration,unitenergycostsAnnualdegradationrateAnnualandlifetimecyclecountUsedthroughoutCapexofLDESsolution,construction,balanceofsystemInstallationcost+lifetimediscountedO&Mcost+lifetimediscountedchargingcostTotallifetimediscountedelectricitydischargedLCOS=O&McostsReplacementintervalsandcostsRound-tripefficiency(RTE)Ancillaryconsumption,self-dischargeCostofchargingenergy49Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&CompanyCarboncosttrajectoriesCO2costsdifferheavilybyregionandwillhavedifferentdevelopmenttrajectoriesinfluencedbypoliciesandregulationatnationalandinternationallevel.TheMPMsetsspecificemissionreductiontargetsratherthanassumedCO2costtrajectories.CO2costsoutlookshavebeenaccountedinthemodeledbusinesscases,wherethreescenarioshavebeendefined:base(60USD/tCO2ein2030),medium(75USD/tCO2ein2030)andhighscenario(100USD/tCO2ein2030).Allscenariosassumea8percentcompoundannualgrowthrateovertheperiodfrom2030to2040.CurrencyAllfinancialfiguresarein2020USdollars(USD)andrefertoglobalaveragesunlessotherwiseindicated.50Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&Company1.REdeveloperinAustraliaThebusinesscaseforREdevelopersorownerslookingtoincreasethefirmingofREPPAswithLDESsystemscouldbeattractiveintheshorttermAccordingtotheAustralianCleanEnergyCouncil,tendersforREcorporatePPAswithfirmedcapacityareexpectedtogrowinAustralia.Theyenablecustomerstoachieveenvironmental,social,andcorporategovernancetargetsandhedgemarketvolatilities.InadditiontoupcomingREneedsfromendconsumers,gridsystemsareexperiencingincreasingchallengesinbringingREcapacityonline.Forexample,onaverage,5percentofsolarandwindpowerwascurtailedinQueensland,Australia,since2019,puttingpressureonREdevelopers’financials.Thesecurtailmentlevelsarelikelytoincreasetodouble-digitpercentagesinthenextdecade,asseenincountrieswithhigherREpenetration.Inaddition,stabilityissueswillbecomemorepronouncedasconventionalgenerationplants(suchascoalandeventuallynaturalgas)arephasedout.Giventhiscontext,adeployedLDESsystemcanparticipateinmultiplevaluestreams.HerethecaseofaREdeveloperdeployingLDESforREPPAfirmingwithafront-of-the-metercontract,whilstprovidingservicestosystemoperatorsisexplored.(Exhibit36)AppendixB:ExamplesofbusinesscasesExhibit36Australiarenewablesdevelopercaseexample,netpresentvalueIRR6.5–8%~300–360Totalvaluecreation250FixedO&MCapitalinvested50NPV15–70REcurtailmentreduction280Stabilityservicesprovision•EnablingfirmcapacityREPPA25–4010-50NetvalueValueCostMainLDESapplication(s)REdeveloperinAustraliaprovidingREforcorporatePPAsIncreasingcorporatedemandfornear100%REtomeetdecarbonizationtargetsLDESassetenablesfirmingoftheREPPA;additionally,systemcanprovideancillaryservicesPotentialLDESsystem:150MW/1200MWh(8hours);systemsoflongerdurationswouldberequiredinlocationswithlowerannualREyieldNPVforanAustralianREdeveloperUSDmillionsCustomerprofileAssumptions2025Basecase2023CommercialoperationdateCO2epricescenario6%WACCFinalinvestmentdecisiondateValueofdiscountedpremiumsforREPPAfirming51Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&CompanyThecaseexampleshowsanIRRofapproximately6.5to8percent,indicatingshort-termfinancialattractiveness.Inthiscase,themostsignificantvaluestreamiscreatedbyenablingfirmcapacityforaREPPAandhasapresentvalueofaboutUSD280million,indicatingregionalPPApriceindexeshaveaconsiderableinfluenceonthecaseprofitability.ThereductionofREcurtailmentandprovisionofstabilityservicescontributetoalesserextent,withcurrentvaluesofapproximatelyUSD25millionandUSD10million,whichcouldpotentiallyincreasetoaroundUSD40millionandUSD50millionrespectivelyduetoincreasecurtailedREvolumesandregulationofstabilityservicessuchasinertiaprovision.(Exhibit37)Inadditiontotheprojectstartingdate,threesensitivitiesinfluencetheprojectIRRs.TheIRRincreasessignificantlytoapproximately14percentforthebasecasewhenthecommercialoperationdatemovesto2030,withtheconstructionofthesystemtakingplacetwoyearsprior.However,itismorecommontohaveshorterratherthanlongercontractdurations,withshorterREPPAcontracttermsresultingin1to2percentagepointlower,makingtheIRRfallbelowtheweightedaveragecostofcapital(WACC).Severalstepscouldhelpunlockadditionalvaluepotential—forexample,creatingmarketmechanismsthatenableREdeveloperstoaccessdifferentvaluestreamsoutsidethemarketforenergyshiftingsuchasinertiaprovision.Anotheroptionwouldbeincreasingcertaintyonaccessiblevaluethroughregulatoryschemesthatmakeitmoreattractiveforcorporatecustomerstoengageinlong-termcontracting.TheNPVcouldalsoincreaseiftheWACCisloweredthroughdifferentexistingandinnovativefinancialinstruments,includinginsuranceforenergystorageandpublic–privateregulatoryoptions.Exhibit37AustraliaREdevelopercaseexample,IRRsIRRsensitivitytocontractdurationsandprojectstartdate11.Lowerendofrangeforvaluecaptureinmarketswithappropriatemechanisms;higherendofrangeforfullvaluepotential.2.Aftercontractend,valueofservice~50%ofin-contractvalue.<5%5–10%10–15%15–20%>20%Basecase1020153.752.250.75201510Curtailmentvolumes%ofenergyoutputcurtailedAncillaryservicesrevenuesUSDmillionsannuallyPPAcontractduration2YearsCommercialoperationdate16%14%14.5%15%8%6.5%7.5%7%13.5%14%14%15%6%6.5%7.5%6.5%12.5%4.5%2025203052Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&Company2.IsolatedislandintegratedutilityintheUSThenear-termfinancialviabilityofLDESforintegratedutilitiesonisolatedpowersystemswithlimitedinterconnectivitydependsonlocalfuelcostsandREpotentialOffthemainland,theUShasmultipleislandsthathavenoconnectiontoneighboringislandsorthemainlandgrid.Hence,theyaremainlydependentoncoalandfuel-oil-generatedpower.TheelectricitycostforconsumersontheseislandsisamongthehighestintheUS.36Atthesametime,thereisconsiderablepotentialforlow-costREgeneration.Theseconditionshavealreadyledtoabuildoutofsolarandwindcapacity,increasingtheshareofREinthegenerationmix.Withthegrowingdecarbonizationoftheisland’spowersystem,thermalgenerationwillbedecommissionedandstabilityservicesreduced.Toachievefullpowerdecarbonizationonsuchanisland,theincumbentintegratedutility36“Electricpowerannual”,EnergyInformationAdministration,2019.couldinstallahybridofadditionalsolarandwindwithLi-ionbatteriesandLDES.Detailedmodelingofanisolatedislandsystemindicatesthatthelowestcostpathwayto100percentfulfillmentofenergydemandbyREemploysacombinationofLi-ionandLDES.TheLCOEofthisconfigurationis15percentlowerthanapureLi-ionbatterysystem—causedbythesignificantREoverbuild—and5percentlowerthanapureLDESsystem.(Exhibit38)ThedeploymentofsuchaREhybridstoragesystemcouldtakeplaceinamulti-phasebuildout.Itishereassumedthat40percentofenergydemandisfulfilledbytheexistingbuild-outofREwithoutstorage.Thecostsandbenefitsofthispre-deploymentphasearenotincludedintheassessmentofthebusinesscase.InthefirstphaseofthedeploymentadditionalREcapacityandLi-ionbatterycapacitytoachieve70percentREfulfilment.Inthesecondphase,additionalREcapacity,Li-ionbatterycapacity,andtheLDESsystemwouldbeconstructedtoachieve100percentREfulfilmentby2030.(Exhibit39)Exhibit38CostcomparisonofdifferentstorageoptionsfordecarbonizingelectricityonanisolatedislandandaremotemineLi-ion7.5LDES9.0Li-ion+LDES8.0Li-ion+LDESLi-ionLDES7.06.56.0100%REfulfilmentforanisolatedisland100%REfulfilmentforaremotemineKeyassumptions:Top-quartileLDES24+hourarchetypecostfigures,conservativelearningrates.LCOSin2040fordifferentstoragemixesinaREhybridsystemcentsofUSDperkWh53Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&CompanyTheresultingIRRofthiscaseexampleis7to12percent,withanNPVofUSD500milliontoUSD3.9billion.Theresultsimplythatforsomesituations,thebusinesscasewillbe“inthemoney”andpotentiallyattractiveforinvestors,stronglydrivenbyfuelcostsandREpotential.However,forotherinstanceswithagaptoviability,itisvitaltoensurethevaluecaptureofCO2ecostsavings.TheresultingIRRofthiscaseexampleis7to12percent,withanNPVofUSD500milliontoUSD3.9billion.Theresultsimplythatforsomesituations,thebusinesscasewillbe“inthemoney”andpotentiallyattractiveforinvestors,stronglydrivenbyfuelcostsandREpotential.However,forotherinstanceswithagaptoviability,itisvitaltoensurethevaluecaptureofCO2ecostsavings.ThemainvaluestreamsfromtheREhybridstoragesystemareproductioncostsavingsandCO2ecostsavings,whichhaveprojectedpresentvaluesofapproximatelyUSD6.6billionandUSD3.3billion,respectively.Multiplesensitivitiesmateriallyinfluencethefinancialviabilityofthiscase,namelyshiftedoperationdates,CO2eprice,fuelcosts,andREcapex.TheIRRincreasessignificantlytobetween11and17percentwhentheLDEScommercialoperationdatemovesto2035,withtheconstructionofthesystemtakingplaceinthetwoyearsprior.Furthermore,acceleratedCO2epriceincreasescouldresultinIRRsof15and20percent,withLDESoperationdatesby2030and2035,respectively.However,theIRRwouldsignificantlydropinislandswithlowerfuelcostsorlessadvantagedREpotential.AfuelcostUSD50perMWhlowerthanthebasewouldreduceExhibit39IntegratedutilityonanisolatedUSisland,netpresentvalueIRR7–12%FixedO&MStabilityservicesprovision6,6003,300700ProductioncostsavingsCO2ecostsavingsCapitalinvestedNPVTotalvaluecreation5,400~100~6,700–10,000~600–3,900ValueCostNetvalueAccessiblevaluewithmarketmechanismsinplaceMainLDESapplication(s)IntegratedutilityonaUSislandwithoutinterconnectiontothemainlandReliesoncarbon-intensiveelectricitygenerationsourcesStep-wisebuild-outofREandstorage,inclLi-ionandLDES,througharealisticlow-costscenarioPotentialLDESsystem:1.3GW/104GWh(80hours)NPVforanintegratedutilityonanisolatedUSislandUSDmillionsCustomerprofileAssumptions2025(REandLi-ion)2030(RE,Li-ionandLDES)Basecase2023(REandLi-ion)2028(RE,Li-ionandLDES)CommercialoperationdateCO2epricescenario6%WACCFinalinvestmentdecisiondateMarketmechanisminplace54Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&CompanytheIRRbyapproximately3percent.AsimilareffectoccurswhenREcapexincreasesby50percent.(Exhibit40)ToensurethefinancialviabilityofLDESforintegratedutilitiesonisolatedislands,multipleactionscouldbeconsidered.TheseactionsincludecreatingmarketmechanismsforCO2ebenefitremuneration,providingoptionstolowerWACC,ensuringCO2epricestability,andfacilitatingthetraceabilityofenergyforLDEScharging.Exhibit40IntegratedutilityonanisolatedUSisland,IRRsIRRsensitivitytocontractdurationsandprojectstartdate1<5%5–10%10–15%15–20%>20%BasecaseCO2epricescenario2030USD/tCO2eBase60High100Medium75200150100050100FossilfuelcostUSD/MWhREcapexsensitivity%increase17–22%11–17%11–19%11–20%11–16%7–12%7–15%7–13%8–14%11–17%5–13%11–17%5–10%7–12%7–12%3–9%6–11%4–9%20302035Commercialoperationdate1.Lowerendofrangeforvaluecaptureinmarketswithappropriatemechanisms;higherendofrangeforfullvaluepotential.55Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&Company3.RemotecoppermineinChileForanindustrialcustomerlookingtoreduceelectricityproductioncostsanddecreasetheircarbonfootprint,deployingLDEScouldbefinanciallyattractiveintheneartermAminingcompanyoperatingaremoteChileancopperminecurrentlyreliesononsitedieselgeneratorsforastableelectricitysupply.Theresultingelectricitycostsrepresent10percentofthetotalminingandprocessingcosts.Reliabilityoftheonsiteelectricitysystemisalsocriticalbecauseofthehighopportunitycostsofpoweroutages(12hoursofpoweroutagesayearwouldtranslateintoUSD1.5millioninlostrevenue).(Exhibit41)Increasingcostpressure,togetherwithdecarbonizationambitionsandreducingrenewableLCOEs,pushesthecompanytoconsiderswitchingtoREand,subsequently,storagetoensurefullyREgeneration.Liketheisolatedislandintegratedutility,theminingcompanycouldconsiderinstallingahybridofadditionalsolarandwindwithLi-ionbatteriesandLDES.Thishybridconfigurationallowstheminingcompanytoreduceproductioncosts—relativetotheironsitedieselgeneration—andrelatedCO2eemissioncosts.DetailedmodelingofaREhybridstoragesystemforthemineindicatesthatthelowestcostpathwayto100percentfulfillmentofenergydemandviaREemploysacombinationofLi-ionandLDES.TheLCOEofthisconfigurationis10to15percentlowerthanapureLi-ionbatterysystemand5percentlowerthanapureLDESsystem.ThedeploymentoftheREhybridstoragesystemcouldtakeplaceinamultiphasebuildout,similartotheisolatedislandsystem.TheresultingIRRofthisexampleis15to19percent,withanNPVofUSD1.5billionto2.7billion,indicatingthatthistypeofLDESapplicationaspartofREhybridstoragesystemscanbe“inthemoney”inthenearterm.Furtheraccelerationofinvestmentscouldbedrivenbyrisingambitionlevelsofcorporatedecarbonizationtargets.Exhibit41RemoteChileancopperminecaseexample,netpresentvalueIRR15–19%CO2ecostsavingsTotalvaluecreationProductioncostsavings1,200100–2002,300FixedO&MCapitalinvestedNPV3,9003,900–5,1001,400–2,700ValueNetvalueCostAccessiblevaluewithmarketmechanismsinplaceMainLDESapplication(s)MiningcompanyoperatingaremotecoppermineinChileHighelectricitycostswithcurrentpowersupplyfromdieselgeneratorsStep-wisebuild-outofREandstorage,inclLi-ionandLDES,througharealisticlow-costscenarioPotentialLDESsystem:0.7GW/56GWh(84hours)NPVforaremotecoppermineinChileUSDmillionsCustomerprofileAssumptions2025(REandLi-ion)2030(RE,Li-ionandLDES)Basecase6%2023(REandLi-ion)2028(RE,Li-ionandLDES)CommercialoperationdateCO2epricescenarioWACCFinalinvestmentdecisiondateMarketmechanisminplace56Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&CompanyThemainvaluestreamsfromtheREhybridstoragesystemareproductioncostsavingsandCO2ecostsavings,whichhaveprojectedvaluesofapproximatelyUSD3,900millionandUSD1,200million,respectively.Alsohere,monetizationofCO2ecostsavingsrequiresanadequatemarketmechanism.(Exhibit42)Liketheisolatedislandsituation,arangeofsensitivitiesonIRRshavebeenevaluated,particularlyashiftedoperationdate,CO2eprice,fuelcost,andREcapex.AshiftintheLDEScomponentcommercialoperationdateto2035considerablyincreasestheIRRbetween19and23percent.Inaddition,acceleratedCO2epriceincreasescouldresultinIRRsofupto21and26percent,withLDESoperationdatesby2030and2035,respectively.FormineswithsimplerfuellogisticsandlowerREpotential,theIRRcoulddropby3percent,forexample,duetoaUSD50perMWhlowerfuelcostthanthebasecaseoraREcapexincreaseof50percent.However,theIRRwouldstillbesignificantlyabovetheWACCof8percent,indicatingamorerobustbusinesscaseforthisapplication.Exhibit42RemoteChileancopperminecaseexample,IRRsIRRsensitivitytocontractdurationsandprojectstartdate1<5%5–10%10–15%15–20%>20%Basecase23–27%19–23%19–24%19–26%19–22%15–19%15–21%15–20%16–21%19–23%14–19%19–23%14–17%15–19%15–19%12–16%15–19%12–16%20302035CommercialoperationdateCO2epricescenario2030USD/tCO2eBase60High100Medium75300250200050100FossilfuelcostUSD/MWhREcapexsensitivity%increase1.Lowerendofrangeforvaluecaptureinmarketswithappropriatemechanisms;higherendofrangeforfullvaluepotential.57Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&Company4.On-demandREpeakpowerinIndiaThebusinesscaseforaREdeveloperinIndiaprovidingpeakandoff-peaksupplywithacombinationofREandPSHcouldshowattractiveIRRsandmorecompetitivePPAtariffsthanfossilgenerationprocurementDecarbonizingIndia’spowersupplyrequiresthewidespreaddeploymentofflexibilitysolutionssuchasLDES.Electricitydemandisexpectedtorisesharplyasmoreend-uses,suchasheatingandtransportation,electrify,renewablehydrogenproductionexpands,andlivingstandardsincrease.In2020,nearly70percentofIndia’spowergenerationmixwasthermal,withcoalaccountingfor85percent.Withmorethan75GWofinstalledcapacity,REaccountedfornearly20percentofthemix,withsolarseeingthefastestgrowth.AttheGlasgowclimatechangeconference,Indiacommittedtoreach500GWofnon-fossilgenerationcapacityby2030,representinganearly500percentincreaseovercurrentRElevels.Hence,meetingthistargetwhilesupplyingtheincreaseddemandandmanagingthegridstabilityisexpectedtorequirethedeploymentofinnovativesolutionsandflexibilityresourceslikeLDES.Giventhiscontext,adeployedLDESsystemcanprovidedifferentservices.ThiscaseexploresaREdeveloperdeployingLDEStoenabledispatchableREwithafront-of-the-metercontract.Specifically,abusinesscaseofLDEStoenabledispatchablepeakingcapacitywithinspecificcontractedhoursoftheday,ismodelled.A6-hoursystemisconsideredgivenitssuitabilitytoasolargenerationprofile(solarPVisexpectedtobeincreasinglydeployedinIndiainthenearterm).The300MWand1,800MWhnovelPSHsystemisassessedincombinationwith600MWofhybridsolarPVandwindcapacity.(Exhibit43)ThecaseexampleshowsanIRRofapproximately10to12percent,indicatingshort-termfinancialattractivenessforpotentialinfrastructureinvestors.PeakpowersupplyshowsapresentvalueofaboutUSD700–800Exhibit43IndiaREdevelopercaseexampleIRR10–12%•Stabilityservicesprovision2Peakpowersupply~250TotalvaluecreationOff-peakpowersupply~1,000Capitalinvested•FixedO&MNPV~700–800~650–750~20–40~1,300–1,500~100–300NetvalueValueCostMainLDESapplication(s)REdeveloperinIndiaprovidingmorningandeveningpeaksupplyaswellasoff-peakgenerationwithacombinationofREandPSHProvidinglowercostPPAtariffscomparedtothecaseofprocurementfromthermalpower1LDESasset(ie,PSH)enablesdispatchablepeakingcapacityModeledLDESconfiguration:300MW/1800MWh(6hours);incombinationwith600MWofcontractedhybridRE1(solarand/orwind)NPVforarenewabledeveloperUSDmillionsCustomerprofileAssumptions20232021CommercialoperationdateProgressive3REcostoutlook10%WACCFinalinvestmentdecisiondateDifferentpeakandoff-peaktariffsassumed20years4PPAcontractduration1.Correspondingto~870MWofDCinstalledcapacity2.InertiaprovidedbythePSH,remunerationbasedonNGESO’sStabilityPathfindermechanism3.CapexfigureforPSHtakesanindustryestimateforoff-streamclosed-loopsystemsinIndiaandNREL-ATBAdvancedcostsforRE4.Aftercontractend,valueofservice~50%ofin-contractvalueAccessiblevaluewithmarketmechanismsinplace58Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&CompanyExhibit44IndiaREdevelopercaseexample,IRRs<5%5–10%10–15%15–20%>20%BasecaseIRRsensitivitytocontractdurationandprojectstartdateLDESstorageCAPEX1ConservativeProgressiveCentralCommercialoperationdate202320279–11%13–15%10–12%14–16%9–11%6–8%20–22%22–25%13–15%20301.Indiaindustrycostsperspectivemillion,whileoff-peakpowergenerationcontributestoacomparableextent,withNPVvaluesapproximatelybetweenUSD650millionandUSD750million.TherevenuesstreamsaresimilarasthehigherPPAtariffduringpeakperiodsisbalancedbyasmalleryearlyenergysupply(aroundonethirdofthetotalgeneration).MarketremunerationofinertiaforpowersystemstabilityisnotacurrentlyexistingvaluestreaminIndia,butcouldbeworthaboutUSD20-40millionalonewithsimilarmechanismsunderimplementationinothercountries.(Exhibit44)BoththeprojectstartingdateandtheLDESstorageCAPEXinfluencetheprojectIRR.TheIRRincreasessignificantlytoapproximately22to25percentforthebasecasewhenthecommercialoperationdatemovesto2030,withtheconstructionofthesystemtakingplacetwoyearsprior.Thisbehaviorisexplainedbythehighvalueofstoragesolutioninthenextdecade,abletomitigatehigherpricepeaksandlargerelectricityspreadscausedbyahigherREpenetration.ThevalueofgreendispatchablePPAcontractswillincreaseinvalueintheupcomingdecade,heavilycontributingtotheprofitabilityofthisbusinesscase.Furthermore,novelPSHsystemscostsinIndiacouldseeamorerapidcostdowntrajectory,enablingsignificantlyhigherreturnsthaninotherregions.Severalfactorscouldhelpunlockadditionalvaluepotential—forexample,anincreasedspreadofelectricitypricesleadingtomorevaluablePPAcontracts,increaseddemandforcleanpeakingdispatchablepower,orsustainedlongcontractdurationsaspenetrationofrenewableincreases.59Net-zeropower:LongdurationenergystorageforarenewablegridLDESCouncil,McKinsey&Company

1、当您付费下载文档后，您只拥有了使用权限，并不意味着购买了版权，文档只能用于自身使用，不得用于其他商业用途（如 [转卖]进行直接盈利或[编辑后售卖]进行间接盈利）。
2、本站所有内容均由合作方或网友上传，本站不对文档的完整性、权威性及其观点立场正确性做任何保证或承诺！文档内容仅供研究参考，付费前请自行鉴别。
3、如文档内容存在违规，或者侵犯商业秘密、侵犯著作权等，请点击“违规举报”。

碎片内容

碳中和的最新文档