On the economics of storage for electricity: Current state and future market design prospects

Abstract

Since the early beginnings of the electricity system, storage has been of high relevance for balancing supply and demand. Through expanded electricity production by variable renewable technologies such as wind and photovoltaics, the discussion about new options for storage technologies is emerging. In addition, the electricity markets were subject to remarkable alterations. Some developments which describe these changes are increasing electricity generation from variable renewables and the continuing decentralization. These developments have led, among other required transformations, to demands for additional capacities of storage technologies. However, their economics will play a crucial role in their effective market penetration in the following years. The core objective of this work is to conduct a review on the relevance of storage options for electricity and its costs, economics, welfare effects, and on issues of electricity market design. In addition, based on expected Technological Learning prospects for future economics are derived. The major result is that the perspectives of electricity storage systems from an economic viewpoint are highly dependent on the storage's operation time, the nature of the overall system, availability of other flexibility options, and sector coupling. All market‐based storage technologies have to prove their performance in the large electricity markets or if applied decentralized, the (battery) systems compete with the electricity prices at the final customers level when the battery costs are also taken into consideration. Yet, new storage capacities should only be added when it is clear that electricity generation from variable renewables will also be expanded in a way that excess generation is expected.