MITEI Authors
David M. Hart
George Mason University
William Bonvillian
MIT
Nathaniel Austin
Johns Hopkins University
Executive Summary
The electric power sector must be transformed in the twenty-first century. The threat of climate change, and the difficulty of reducing carbon emissions from other sources, means that power sector emissions must fall to near zero. Grid-scale energy storage has the potential to make this challenging transformation easier, quicker, and cheaper than it would be otherwise.
A wide array of possibilities that could realize this potential have been put forward by the science and technology community. Grid-scale storage has become a major focus for public research and development (R&D) investment around the world. The public sector has also played a crucial role in moving some of these ideas from the laboratory into practice. In the United States, federal investments pushed storage technologies forward in the early 2010s, and state and regional initiatives provided a pull as the federal push slackened in the last few years.
The shift from federal push policies to regional and state pull policies coincided with the consolidation of the grid-scale energy storage market around lithium-ion (Li-ion) batteries. This technology now accounts for more than 90% of the global and domestic markets. It is relatively mature, compared to the battery alternatives, and benefits from large-scale use in electronics and, more recently, electric vehicles (EVs). These qualities have enabled rapid price-cutting for gridscale applications. Most projections suggest that Li-ion batteries will dominate the grid-scale market as that market grows rapidly in the coming years.
This emerging situation runs the risk of technology “lock-in,” a characteristic pattern in the history of technology in which one “dominant design” drives out alternatives that would perform the same function. Lock-in may be beneficial because it accelerates process innovation and drives down costs for the dominant technology, which in turn expands adoption. In the case of energy storage, Li-ion batteries have begun to break through an older “legacy sector” paradigm that has hindered innovation in the electric power sector. What is needed now, in this interpretation, is to focus innovative effort on the dominant design and use it to transform the entire sector.
An alternative interpretation is that the risks of technology lock-in in grid-scale energy storage outweigh the benefits. One risk is excessive market concentration, which commonly follows the establishment of a dominant design. East Asian producers, notably recent Chinese entrants backed by government policies, are the most likely to consolidate control, especially if supply runs ahead of demand for an extended period.
An even more worrisome risk is that innovations that could improve on the dominant design become “stranded” and never fully mature. Li-ion batteries are well-suited to transportation applications, but not necessarily ideal for the grid. Lock-in on Li-ion batteries is already making it difficult for producers of alternative storage technologies to survive, much less continue to innovate and scale up.
Public policy-makers should take action to build on the opportunities and mitigate the risks identified by these two interpretations of the near future of grid-scale energy storage. The objectives of such action should include growing the grid-scale energy storage market overall, creating niches within the market in which a range of technologies have opportunities to establish their cost and value characteristics, and ensuring that R&D continues in order to expand the portfolio of technology options.
The evolving roles of the states, regions, and federal government create new opportunities to realize these objectives, but also complicate policy development and implementation. We argue that the federal government should expand funding for R&D, create tax incentives that focus on emerging technologies, support national and international processes that will lead to open standards, and counter unfair international trade practices. Policies that make sense for the states as well as the federal government include expanding support for demonstration projects and early deployment and providing financial assistance to help grid-scale energy storage hardware innovators overcome barriers to scaling up.
Important state policy options to accelerate grid-scale energy storage innovation include setting smart and ambitious overall targets for deployment while also setting subtargets that are reserved for alternatives to Li-ion batteries. States along with regional organizations, including regional transmission organizations (RTOs) as well as groupings of states, should revise their rules so that storage assets can participate fully in electricity markets, implement regulations that allow storage asset owners to receive compensation through multiple value streams, explore the development of market signals that reward the unique performance characteristics of alternatives to Li-ion batteries, oversee integrated resource plans and approve rate designs that encourage storage innovation and deployment, establish regional storage innovation and purchasing consortia, and form expert advisory systems to stay informed about storage technology options.