Energy Destinies Part 3: Energy storage - Turning theory into practice

Irrespective of economics, it is unlikely that currently available energy storage options are likely to allow the shift to renewables on the scale proposed. Find out why.
Image used for representational purpose. (Photo | AP)
Image used for representational purpose. (Photo | AP)

Abundant and cheap power is one of the foundations of modern civilisation and economies. Current changes in energy markets are perhaps the most significant for a long time. It has implications for society in the broadest sense. Energy Destinies is a multi-part series examining the role of energy, demand and supply dynamics, the shift to renewables, the transition, its relationship to emissions and possible pathways. The first and second part looked at patterns of demand and supply over time and renewable energy sources. This part looks at the need for energy storage.

Given the problems of intermittency, renewable energy sources require infrastructure for storage. For electricity, where a significant proportion of the total grid demand is supplied by renewables, external storage becomes important. Storage needs to rise sharply where more renewable electricity must be integrated.

Energy storage refers to the capture of energy produced at one time for deferred use. It involves converting energy typically from non-storable instantaneous states to a storable form for future access. Stored energy allows supply to match demand as needed

Storage requirements can be short (covering a few hours or overnight) and long-duration (covering a period of day to months). Technologies differ in capacity and length of time of energy available. Energy storage is also differentiated by whether it is generic or specific. Batteries are useful for storing electricity and devices geared to using certain types of power. Ice tanks, used to store ice using cheaper electricity at night, can only meet peak daytime demand for cooling.

As is often not appreciated, fossil fuels, such as coal and hydro-carbons, are natural stores of energy from the sunlight. There are a number of potential alternative storage technologies but, in practice, the major forms of energy storage relevant are batteries, pumped hydro and hydrogen. Other potential alternative storage technologies, at various stage of development, include electrical or electromagnetic (capacitors and superconducting magnetic energy. storage), mechanical (compressed air energy storage or flywheel), biological (glycogen or starch), thermal (cryogenic energy storage, liquid air energy storage or molten salt storage) or phase-change material (heat sinks using a substance which absorbs and releases sufficient energy at phase transition to provide useful heat or cooling).


Batteries, generally rechargeable, store electricity using electro-chemical reactions based on different chemistries including lead-acid,  nickel-cadmium and lithium-ion.

The key issues include:

  • Efficiency - this measures the energy retrieved relative to the amount of energy stored. The best lithium-ion batteries have efficiency approaching 90 percent in optimal conditions. Performance degrades over time. For example, if the battery is fully charged for some (short) time at an ambient temperature of 40C, its capacity (the ability to store energy) will decrease by 35 percent in a year.
  • Size and weight – batteries needed for significant energy storage are large. EVs are far heavier than traditional cars due to their large, heavy battery packs – a battery-electric Ford F-150 Lightning is 900-1,350 kilograms (2,000-3,000 pounds) heavier than an equivalent petrol- or diesel-powered model.
  • Duration - battery life duration is an issue. Typically for grid level storage, they are designed to provide a few hours of power. After a total system outage in 2018, the Australian state of South Australia installed the world’s first 'big battery' (Hornsdale Power Reserve), rated at 150 Megawatts/194 Megawatts. It  can power around 50,000 homes for 3-4 hours. To keep South Australia (population 2.5 million) supplied for one half-day would require 80 such "world's biggest" Tesla battery farms. In fairness, the Power Reserve provides additional grid stability and system security.  The owner was been fined A$900,000 in 2022  after being sued by the Australian Energy Regulator failing to deliver promised capacity.
  • Battery life -  Typical lithium-ion battery lives are up to 10-15 years while some other battery technologies have longer lives. On average, after 8-10 years in industrial settings, the battery capacity decreases to 'economically disadvantageous' levels. Degradation creates problems of disposal of lithium-ion batteries.

Pumped Hydro

The concept of pumped hydro is that excess energy (usually electrical power within a grid during times of low demand) is used to pump water from a lower to a higher reservoir. Water can be released back to a lower reservoir, body of water or waterway through a turbine, generating electricity. The technique uses the height difference between two water bodies and gravitational force. Typically, reversible turbine-generator assemblies are used as both a pump and turbine.

There are two types of pumped hydro storage:

  • Pure pumped-storage plants create two customised reservoirs dedicated to storage and generation
  • Pump-back uses existing hydroelectric plants and their reservoirs, combination pumped storage and conventional generation using natural stream-flow.

Worldwide, pumped-storage hydroelectricity is the largest-capacity form of active grid energy storage used globally.

The availability of pumped-hydro storage is limited by terrain which requires elevation differences and often natural reservoirs which can be enhanced. It has low surface power density requiring large amounts of land. Unless pure with two custom madeseparate reservoirs at different elevations used exclusively for power storage, these schemes are typically multi-purpose dams generating electricity and supplying water to households, agriculture and industry. If large releases are required to cover grid shortages, then any water not stored for return to the upper storage reservoir such as amounts released into waterways may be unavailable to meet these other needs. Also once stored water is expended, no further electricity can be generated until surplus power becomes available to refill the relevant reservoir.

Excess energy, especially electricity, can be converted to a gaseous fuel such as hydrogen or, less commonly, methane.

The hydrogen manufactured can be burned as fuel with oxygen. As it does not occur naturally in sufficient quantities, electricity is used to generate hydrogen through chemical processes such as electrolysis of water. There are several types of hydrogen fuel:

  • Brown hydrogen - uses thermal coal and is cheap but highly polluting.
  • Grey hydrogen - uses natural gas via steam methane reformation without emissions capture and is the most common current form of production.
  • Blue hydrogen – similar to grey but carbon emissions are captured and stored or reused. The lack of capture availability means that it is not current extensively used.
  • Green hydrogen – uses renewable energy to electrolyse water separating the hydrogen atom from the oxygen which is currently expensive.

Unproven at scale, turquoise hydrogen uses a process called methane pyrolysis to produce hydrogen and solid carbon.

Efficiency is dependent on the energy losses involved in the hydrogen storage cycle from the electrolysis of water, liquification or compression of the hydrogen and conversion to electricity.

The interest in hydrogen derives from the potential to convert renewable energy into a zero-carbon fuel, that is, green hydrogen. 

Hydrogen fuel can theoretically be used to power generation plants or heating.  It can be used in fuel cells or internal combustion engines.  Using hydrogen as a fuel could be via fuel cells which are efficient, have low noise, and low maintenance requirements because of fewer moving parts. There is also potential to convert combustion engines in commercial vehicles to run on a hydrogen–diesel mix. Combustion engines using hydrogen would entail less radical change for the automotive industry, and potentially lower up-front vehicle cost compared to fully electric or fuel cell alternatives.

Hydrogen's use as a transportation fuel is of particular interest where electric power may not be optimal, such as heavy transport, aviation and heavy industries where there is the need for greater power, longer range and quicker refuelling time.  Clean hydrogen's is frequently presented as the 'magic bullet' in decarbonizing industries including aviation, fertilizer, long-haul trucking, maritime shipping, refining, and steel.

Hydrogen production currently uses fossil fuels. Scaling up green hydrogen production will require large investments to reduce production costs to make it competitive with other fuels and build infrastructure for transportation, storage and distribution. Even if sufficient green hydrogen were available at a competitive costs, there are several issues that would need to be overcome:

  • Hydrogen has a high energy content per unit mass. But at room temperature and atmospheric pressure, it has a very low energy content per unit volume compared to liquid fuels or natural gas. It must usually be compressed or liquefied by lowering its temperature to under 33 Kelvin. This requires high-pressure or cryogenic tanks that weigh much more than the hydrogen they can hold complicating its use in cars, trucks and airplanes.
  • Hydrogen fuel has low ignition energy, high combustion energy, and leaks easily from tanks making it hazardous. This would require careful control of the supply chain and storage.

Significant improvements in technology are needed before hydrogen fuel is a safe, viable and cost effective storage medium. Green hydrogen remains in short supply. Transport options such as pipelines are limited. Even electrolyser supply is constrained with mass-production only beginning to be ramped up. The much promoted hydrogen economy is not yet with us.

Energy storage economics

The economics of energy storage is difficult to quantify as it depends on context and the type of reserve storage required. Different methods are not technically suited to all needs. The economics are market and location sensitive. The standalone cost is less relevant than the overall cost in the context of an energy system.

Energy storage is difficult to evaluate using traditional valuation metrics such as discounted cash flow. Some have suggested using real option analysis, which can incorporate various uncertainties and externalities (meeting intermittency, avoidance of curtailment, grid congestion avoidance, price arbitrage and carbon-free energy delivery). However, such models are highly subjective and sensitive to small changes in parameters.

Irrespective of economics, it is unlikely that currently available energy storage options are likely to allow the shift to renewables on the scale proposed. Batteries are flexible, able to respond rapidly to changes in energy demand making them suitable for fine-tuning supplies. If they have to provide energy storage for more than several hours, then their capital cost is very high. Although growth in battery demand for EVs has significantly reduced the cost, they remain expensive especially when limited life, capacity and duration are considered. Currently, batteries remain a questionable source of dispatchable power being unable to cover for variable renewable power gaps lasting for longer than a few hours. The only viable option is pumped hydro which can store energy for several hours to months, depending on storage capacity and structure.

Building out the required battery energy storage would adversely affect the cost of power. Assuming lithium-ion battery costs fall by two-thirds, building the level of renewable generation and storage necessary to reach California's objective of deriving most of its power from renewables would drive up costs, based on one estimate, from $49 per megawatt-hour to as much as $1,612 at 100 percent renewables.

Relying only on renewables and energy storage may cost at least about 30-50 percent more than a comparable system that combines renewables with nuclear plants or fossil fuel plants with carbon capture and storage.

The efficiency of energy storage is also far from optimal. Similar to Energy Return on Energy Invested (EROEI), energy stored on energy invested (ESOEI) measures the amount of energy that can be stored by a technology, divided by the amount of energy required to build that technology. The higher the ESOEI, the more efficient the storage technology.

Batteries have much lower ESOEI than pumped hydroelectric storage. While scientific opinion varies, without extensive pumped storage, the combination of renewables paired with existing battery technology may not be workable.

Theory and practice

The need for large-scale energy storage greatly complicates a renewable-based energy system. It requires massive investment but also must overcome inherent inefficiencies. There is inordinate reliance on scientific breakthroughs to overcome challenges. For battery technology, baring a revolutionary change in its physics and chemistry, it is difficult to see the needed cost and storage efficiency improvements at least soon. Pumped hydro storage while simple is subject to other constraints.

Alongside the need for build-out of the grid and transmission capabilities, storage constraints place limits on the capacity of renewables to replace traditional fuels in modern energy systems.

Thomas Huxley observed that the great tragedy of science was the slaying of a beautiful hypothesis by an ugly fact. Alongside the need for build-out of the grid and transmission capabilities, storage constraints place limits on the capacity of renewables to replace traditional fuels in modern energy systems.

© 2023 Satyajit Das All Rights Reserved

Satyajit Das is a former banker and author of numerous works on derivatives and several general titles: Traders, Guns and Money: Knowns and Unknowns in the Dazzling World of Derivatives (2006 and 2010), Extreme Money: The Masters of the Universe and the Cult of Risk (2011), A Banquet of Consequences RELOADED (2021) and Fortune's Fool: Australia’s Choices (2022). His columns have appeared in the Financial TimesBloomberg,WSJ Marketwatch, The Guardian, the Independent,Nikkei Asia and other publications. This is part of the web-only series of columns on

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