5 steps to boost energy storage across Europe

13 October 2023

In an electricity system where renewables are set to become the highest source of power generation, the possibility to store electricity and release it in times of need becomes crucial for ensuring security of supply when the sun doesn’t shine and the wind doesn’t blow.

The Renewable Energy Directive (RED) sets a binding target of 42.5% of renewable energy in final energy consumption by 2030. As a result, around 70% of Europe’s electricity mix will be made up of renewable energy. This creates a massive need for higher for short-,medium-, and long-term storage capacity to fully harness the power of renewables and ensure security of supply at times of lower generation. Yet, several barriers hamper today the development of this much needed source of flexibility.

But what do we mean by flexibility and what can be done to unlock more energy storage? Let’s find out.

What does flexibility mean?

As referred to in Eurelectric-SolarPower Europe analysis, flexibility refers to the ability to respond and adapt to fluctuations in energy supply and demand.

As the share of renewable energy sources such as solar and wind increases in the energy mix, the variability of their output poses challenges to maintaining the stability and reliability of our electricity networks, especially at the low-voltage power distribution. Consequently, it is crucial for every country to map flexibility needs and capacity both at the national as well as local sphere to incentivise flexible sources both at the time of connection to the electricity grid and operation. Storage is one such sources.

What is energy storage and which benefits does it yield?

Energy storage is the ability to capture energy – either in a chemical, kinetic or thermal form – to then release it at a later time. Storage is key to fully harness renewables potential as it can save the excess energy they produce when demand is low to then dispatch it when demand is higher than generation.

Most storage technologies are connected to the electricity grid, therefore proving that flexibility needed to balance renewable generation and support grid management especially at the low-voltage level.

What types of energy storage exist today?

While there are several energy storage technologies available on the market, more innovation and investments are needed to boost clean storage capacity and bring new technologies up to scale.

Hydropower

Today over 90% of energy storage needs in Europe is provided by pumped storage hydropower. This hydroelectric technology is by far one the most efficient source of storage. When excess electricity is available, water is pumped from a lower to an upper reservoir, only to be re-directed into turbines and converted back into electricity during high demand. These plants work with much higher efficiency compared to other technologies such as hydrogen and on a larger scale than batteries. In addition, they can be designed and built in a sustainable way at affordable costs.

However, pumped storage is only available in certain areas, which creates the need for alternative sources of storage such as batteries both at the utility and prosumer-scale or even batteries installed in electric vehicles and smart charging stations.

Batteries

While being an attractive technology, battery storage needs to grow significantly to get on track with net zero – confirms the IEA – but several barriers are hampering this development. Since 2020, the price rise of minerals and metals have caused an increase in clean energy technology costs. The COVID-19 lockdowns and Russia’s invasion of Ukraine have triggered several supply chain bottlenecks, further contributing to this rise.

In addition, market disruptions triggered by Russia’s natural gas crunch, and growing demand for electric vehicles around the globe have caused prices for raw materials such as cobalt, nickel and lithium to rise. These minerals, and above all lithium, are key components of current batteries, yet their reserves are concentrated only in handful of countries world-wide.

The majority of raw materials used in clean technologies comes from outside the EU. China provides 98% of the EU’s supply of rare earth elements, while Turkey supplies 98% of EU borate imports. As much as 71% of platinum, 92% of iridium, 80% of rhodium and 93% of ruthenium supplies currently come from South Africa.

With the rising demand for raw-material-intensive low-carbon technologies, Europe’s lack of natural sources is becoming an issue. Just for electric vehicle batteries and energy storage, the EU will need up to 18 times more lithium and five times more cobalt by 2030 compared to the current supply. While the EU has taken steps to end its dependence on Russia’s oil and gas imports, we must be careful not to fall into other risky dependencies on a single country or region that might put at stake the very future of our transition to net-zero.

Hydrogen, compressed air storage & others

Additionally, Europe is exploring and investing in emerging energy storage technologies, such as advanced battery systems, compressed air energy storage, and hydrogen storage, to enhance the flexibility and reliability of its energy supply while reducing its reliance on oil and natural gas.

How much energy storage does Europe need?

Eurelectric’s Decarbonisation Speedways study estimates that storage will offer around 191 GW of flexible capacity by 2030 and up to 486 GW in 2050. This is huge increase from today’s 60 GW. In 2022, battery storage reached only 9 GWh. This represents 0,009% of the 108 TWh needed in 2040.

Meanwhile, the financing required to support a major step-up in energy storage systems leading up to 2050 is estimated at between €100 and 300 billion.

What happens if we don’t boost storage?

When renewable electricity cannot be efficiently transported to consumers, or when there is not enough demand to absorb electricity generation, production is taken offline. Ahead of 2030, renewables curtailments are forecasted to reach 30-36% in several regions in Europe, shows our latest position paper on storage, resulting in increased costs for consumers and often elevated carbon emissions.

What are key barriers to the development of energy storage?

The EU energy strategy relies on the availability of energy storage, but the specific framework for scaling it up is lacking. Investments are also lagging behind. Given the high upfront costs, clear political incentives are needed to attract the necessary investments and bring storage up to speed and scale.

How can we build up more energy storage?

Although the European Commission recommendations to Member States on how to exploit the potential of energy storage are a positive development, further action is needed. Here we present 5 key recommendations to boost storage and help integrate more renewables.

1. Consider storage as a flexibility option

The first step to enhancing storage capacity in Europe is to officially recognise its untapped potential as a provider of flexibility. European governments should therefore incorporate storage assets as flexible solutions into their long-term strategic energy plans. These projects should align with the development of homegrown wind and solar photovoltaic (PV) capacity and consider the country’s specific generation mix as well as the consumption profile of neighbouring countries.

Ensuring flexibility must also be at the heart of the electricity network planning. Market-based procurement of energy storage technologies can help power system operators to optimise infrastructure management by providing more flexibility services to balance variable generation. This is why the construction of energy storage should be complementary to electricity grid expansion and modernisation plans.

At the same time, grid capacities, including interconnectors between Member States, allow for a better distribution of storage capacities across European countries and should therefore be considered when accelerating permitting procedures.

To this end, Member States should carry out an economic assessment to understand the flexibility needs with their various storage capacities and ultimately meet them in the most cost-efficient way. This implies working with all relevant actors united to remove barriers and create incentives to support the uptake of flexibility solutions in a technology-neutral manner.

System operators should consider energy storage among the flexibility solutions available in their network assessments and clearly identify:

the flexibility issues that they are facing,
the locations where flexibility would be most valuable given the current power grid operation and considering the most optimised development plan
clearly define their flexibility needs on the basis of the above analysis

2. Provide Long-term visibility and predictability of revenues

A lack of visibility on long-term revenues has stalled energy storage investments. To make energy storage projects more appealing to investors, it is important to enhance the returns they can yield, by monetising positive externalities - such as better renewables integration and lower curtailment - while also minimising or redistributing the risks associated with such ventures. This can be achieved by:

Ensuring Regulatory certainty:
Stable regulations are crucial for capital-intensive investments in energy storage as they provide long-term visibility over investments returns and allow investors to make informed decisions. Recent market interventions, such as the revenue caps and other temporary emergency measures related to the energy price crisis in 2022, erode investor confidence and discourage storage investments. It is therefore crucial that these measures are not institutionalised in the electricity market design reform, as suggested by the Commission and agreed in the European Parliament’s amended reform.
Abolishing double taxation, charges and grid tariffs inconsistencies for storage:
In some Member States, energy storage is still exposed to double taxes and levies or inconsistent grid tariffs. As storage facilities do not consume energy, they should not be taxed twice, once when storing the energy and twice when reinjecting the power previously stored. Similarly, grid tariffs should also not be double charged and must always be cost-reflective and non-discriminatory, while taking into account the possibility of storage to balance the grid and reduce congestion. Regarding levies, while all service providers should be able to fully cover their costs and fairly sharing the cost burden, there should be no market distortion between storage and other flexibility options.
Adopting an electricity market design reform that incentivises storage:
EU countries should allow access to technology-neutral competitive markets to ensure a viable business case for energy storage while strengthening the flexibility of the electricity grid and reducing material demand. This can be achieved by taking several key actions including:
- Implementing the Clean Energy Package: European Member States should first and foremost fully implement the 2019 market design regulation and directive. This means adopting a definition for energy storage, removing price caps, reducing minimum bid sizes, developing new flexibility services where needed, and limiting as much as possible non-remunerated, non-frequency ancillary services – namely those functions that help grid operators keep a reliable electricity network by maintaining the proper flow and direction of electricity, addressing imbalances between supply and demand, and helping the system recover after a power system event. At the EU level, storage is recognised as an independent pillar of energy supply, as it constitutes neither generation nor consumption, and this shall also be the case at the national level.
- Facilitating technology-neutral capacity mechanisms: Going forward, capacity mechanisms could be crucial for the development of energy storage, while also pursuing an interconnected European electricity market. Many countries have already deemed it necessary to introduce capacity mechanisms to reach their desired level of security of supply and to support additional investments in storage. Although capacity mechanisms differ across Europe, most involve some form of long-term contracts. In some countries, targeted support schemes have also been considered or implemented on storage and demand-side response.
  Yet, current legislation defines capacity mechanisms as temporary additions to the energy market model and as a last-resort measure to address security of supply concerns, subject to the approval of the Commission’s directorate general (DG) for Competition. These mechanisms should instead be embedded in the market design as an integrated option with clear guidelines to simplify the ex-ante approval process and foster harmonisation across EU countries while keeping sufficient flexibility to address national adequacy needs and specificities. Energy storage contributions to security of supply should be recognised by allowing storage solutions to participate to capacity mechanisms.
Adequately remunerating energy storage:
These technologies may provide a wide range of products and services. Although each technology group has a dominant income stream, effectively remunerating its multi-service capacity utilisation can significantly enhance the business case for storage by diversifying revenue streams and increasing profitability. Some of those services that are currently not valued as storage options are ‘conventional’ non-frequency ancillary services such as voltage control and black start or synchronous inertia. In addition, recent analysis shows that in most countries which allow some level of value stacking, only certain combinations are Therefore, it is necessary to ensure that all services needed to fulfil the system operation’s objectives are appropriately valued and that any revenue combination restriction applied to any technology (including storage) is duly justified.
Enabling the development of the power purchase agreements (PPAs) market:
The multi-technology PPA market in Europe is still embryonic. As regulatory barriers are lifted and the market evolves, contractual arrangements that are more sophisticated than plain “pay-as-produce” will emerge, including those in which profile and volume risk sit more on the sellers’ side.

In the context of accelerated decarbonisation, such arrangements will trigger the demand for contracts with fossil-free flexibility providers, including storage operators, thus providing them with long-term clear investment signals and certainty over their returns. For this to happen, however, EU Member States shall lift all the regulatory barriers and enable the development of the PPA market – including avant-garde 24/7 Carbon-Free PPAs – as it offers consumers increased long-term hedging alternatives and incentivises decarbonisation, while promoting the development of non-fossil-based flexibility. In this sense, adopting the voluntary Granular Guarantee of Origin system, as recently established in the reviewed Renewables Energy Directive is a positive step.

3. Make use of existing funding opportunities for the transition

High upfront costs and uncertain revenue streams can make storage projects financially challenging. Investment aid - know as capital expenses or CapEX - and operational aid - known as operational expenses or OpEX - are thus crucial for electricity storage projects to become more bankable and attract investors, whenever market conditions are insufficient.

To this end, the EU and Member States should make use of existing EU and national public funding where energy storage is eligible such as: the State aid for Climate, Environmental Protection and Energy (CEEAG), the EU Innovation Fund, the Recovery and Resilience Plans (RRP) and Facility (RRF), the Connecting Europe Facility funding stream for energy, European Regional Development Funds, Cohesion Fund, Just Transition Fund, the EU Renewable Energy Financing Mechanism, or the Modernisation Fund.

Such funding schemes can take different forms, but their common goal is to reduce the investment risk in energy storage projects related to the uncertainty on future energy prices and ancillary services remuneration. Making use of these funds would reduce the cost of capital and increase bankability. In any case, it is important that the design of such mechanisms consider the essential balance between the need to secure a share of project revenues and increase visibility, and the need to preserve the incentive to dispatch the asset efficiently on spot markets maximising plant efficiency and availability.

Member States should therefore launch dedicated tenders for standalone storage and co-located storage for both existing and new capacity according to the storage needs identified in the flexibility analysis, when market incentives are not sufficient and in line with the EU Competition rules.

Special attention shall also be paid to Europe’s islands. Many exist in relative isolation, with no or limited interconnection to the mainland or to other islands. Consequently, it becomes significantly challenging to meet their energy security needs in a manner that is sustainable, affordable and reliable. Precisely because of their smaller size systems, they can serve as ideal use cases for implementing energy storage advanced solutions and other flexibility technologies to further decarbonise the electricity system. Therefore, backing energy storage for Europe's islands not only encourages the adoption of renewable energy integration in their power systems but also provides important case studies for the mainland's future power system.

4. Build up storage capacities

Accelerate permitting

Uncertain and lengthy permitting processes also represent a challenge to developing storage projects. Lack of clearly defined permitting as well as the many possibilities for legal claims against permit applications are delaying deployments, if not hampering deployment at all.

This is why EU countries should expedite the implementation of the Renewable Energy Directive’s framework for accelerated permitting for storage as well as the optional framework for the rest of storage technologies. In parallel, the possibility of legal claims against permit applications should be streamlined.

Streamline grid connections

Energy storage holds significant promise in mitigating congestion within power systems. Effective management of energy storage systems through well-planned charge and discharge scheduling can complement the upgrade or expansion of power network lines.

In many Member States, grid operators are mandated to facilitate the integration of energy storage systems into the electricity grid and allocate grid capacity for their complete charging and discharging cycles.

Nevertheless, it is important to acknowledge that, in certain scenarios, the intermittency inherent to energy storage systems can also introduce congestion challenges within the grid. To address this specific challenge and prioritise the overall efficiency and reliability of the electricity grid, it is helpful to promote connections for energy storage systems that avoid contributing or exacerbating grid congestion.

Another solution would be to offer the possibility for system operators and energy storage to contract Flexible Connection Agreements or to participate in congestion markets. These agreements and mechanisms allow storage to connect to the grid and reduce risks of congestion. In doing so, they enhance the overall stability and performance of the electricity supply. Market actors should actively participate in the drafting of the Network Development Plans led by system operators by providing a forward-looking (5 to 10 years ahead) storage connection and quantifications of the flexibility capacities in order to map overall flexibility solutions.

Ensure supply chain resilience

For battery storage specifically, costs have increased due to higher demand and logistical challenges, resulting in greater uncertainty and expenses. While lithium-ion battery prices have decreased in the past decade, further reductions depend on both technological advancements and the rate of increase in battery mineral prices, such as lithium and cobalt.

Europe should secure a sustainable supply of raw materials. The EU Sustainable Batteries Regulation and initiatives like the European Battery Alliance or the Critical Raw Materials Act already identified the need to address the risk of disruption in the supply chain for batteries. In parallel, the EU should remove unnecessary barriers to the use of recycled raw materials.

In addition, the Net Zero Industrial Act (NZIA) positively recognises battery and storage technologies as strategic net-zero technologies. Yet, the scope of the supply chain for different storage technologies should be expended to minimise any potential supply chain disruption. This is why all storage technologies should be included in the list of Strategic Net Zero Technologies, including pumped hydro storage. Companies, suppliers and subcontractors, must be given a clear signal to further develop and modernise their production sites in Europe.

5. Develop an EU-wide methodology to assess the nature of the stored electricity

Last but not least, there should be a united guidance on how to assess stored energy. Today there is no common European methodology to assess which part of stored electricity is renewable. In some countries like Germany, as soon as 1 kWh of non-renewable electricity is stored in a storage facility, the entire stored electricity is considered non-renewable. In this case, while renewable electricity released from storage is not regarded as generation, the electricity should not lose its renewable property.

The EU ought to establish an EU-wide methodology to assess if stored electricity is renewable or low carbon.

With these key enablers in place, storing power will be the new normal in Europe. Eurelectric will continue to foster broad consensus within the power industry, seek common ground with our consumers of all sizes and engage in structured dialogue with policymakers.