The transition to a renewable energy-dominated power system is gaining momentum across Europe as countries race to meet their ambitious climate targets. Energy storage has emerged as a crucial enabler of this shift, providing the flexibility and reliability needed to integrate high shares of variable renewable energy sources like wind and solar. Policymakers must now craft regulatory frameworks that align energy storage deployment with long-term decarbonization goals while also accounting for rapidly evolving market dynamics.
Alignment with Climate Goals
The European Union’s binding target of reducing net greenhouse gas emissions by at least 55% by 2030 has spurred member states to rapidly scale up renewable energy capacity. Wind and solar installations soared to new records in 2022, with over 39 GW of new renewable power coming online. However, the intermittent nature of these clean energy sources requires enabling technologies to ensure grid reliability and resilience.
Energy storage, in its various forms—from lithium-ion batteries to pumped hydroelectric storage—plays a pivotal role in this transition. By storing excess renewable generation and discharging it when needed, storage can smooth out supply-demand imbalances, reduce curtailment, and provide essential grid services. This, in turn, allows for higher penetration of wind and solar while maintaining a stable and reliable electricity system.
Policymakers must craft regulatory frameworks that incentivize the deployment of energy storage at the pace and scale required to meet Europe’s decarbonization objectives. This includes setting ambitious targets for storage capacity, providing financial incentives and tax credits, and establishing clear interconnection and siting guidelines. Crucially, these policies must be technology-neutral, enabling diverse storage solutions to compete on their merits and complement one another in the evolving energy mix.
Market Dynamics Considerations
The energy storage market is rapidly evolving, with technological advancements driving down costs and opening up new applications. Lithium-ion battery prices, for instance, have fallen by over 80% in the past decade, making grid-scale storage increasingly cost-competitive with conventional peaking power plants.
However, the deployment of energy storage is not without its challenges. Market design and pricing mechanisms must be adapted to properly value the multiple services that storage can provide, from energy arbitrage to frequency regulation. Outdated regulatory frameworks that were developed for a centralized, fossil-fuel-based power system often fail to recognize the unique characteristics of storage assets.
Policymakers must therefore work closely with grid operators, industry stakeholders, and academia to design new market structures that reward the full spectrum of storage’s capabilities. This could involve implementing capacity markets, ancillary service markets, and real-time pricing that accurately reflect the system value of storage resources.
Equally important is ensuring a level playing field for emerging storage technologies. While lithium-ion batteries have dominated the market thus far, other solutions like flow batteries, compressed air energy storage, and thermal storage are rapidly advancing. Regulatory frameworks should avoid technology lock-in and instead foster innovation and competition across the storage ecosystem.
Policy and Regulatory Approaches
To align energy storage deployment with climate goals and market dynamics, policymakers can draw upon a suite of policy instruments:
Targets and Mandates: Setting clear, long-term targets for storage capacity, either standalone or as part of broader renewable energy goals, provides a strong signal to investors and developers. Some European countries, such as Spain and Germany, have already introduced such targets.
Financial Incentives: Grants, tax credits, and other financial support mechanisms can help bridge the cost gap between storage and conventional technologies, particularly for emerging solutions. The EU’s Innovation Fund is one example of a program aimed at de-risking large-scale innovative projects, including energy storage.
Market Design Reforms: Adapting electricity market rules to properly value storage’s services, such as through capacity markets and ancillary service markets, can unlock the full economic potential of these assets. The European Commission’s proposed Electricity Market Design aims to achieve this.
Interconnection and Siting Guidelines: Clear and streamlined processes for interconnecting storage projects to the grid, as well as guidelines for siting and permitting, can accelerate deployment by reducing administrative barriers.
Research, Development, and Demonstration: Public funding for R&D in advanced storage technologies, coupled with demonstration projects, can drive technological breakthroughs and cost reductions, paving the way for wider commercial adoption.
Technological Advancements
The energy storage landscape is rapidly evolving, with a diverse range of technologies vying to play a role in the renewable energy transition. While lithium-ion batteries have emerged as the dominant solution for grid-scale and electric vehicle applications, other technologies are also gaining traction.
Flow batteries, for instance, offer longer duration storage and greater cycle life, making them well-suited for applications that require sustained energy discharge over several hours. Compressed air energy storage and pumped hydroelectric storage provide long-term, large-scale storage capacity, with the former also offering the potential for underground deployment.
Thermal storage technologies, such as molten salt and phase-change materials, are proving effective for capturing and releasing heat energy, which can then be used for industrial processes or building heating and cooling. These solutions can complement battery storage in providing a diverse and resilient energy storage portfolio.
Policymakers must ensure that regulatory frameworks remain technology-neutral, allowing the full spectrum of storage solutions to compete on their merits and find their optimal applications within the energy system. This will foster innovation, drive down costs, and deliver the flexibility and reliability required to achieve Europe’s clean energy goals.
By crafting comprehensive regulatory frameworks that align energy storage deployment with long-term climate objectives and evolving market dynamics, policymakers can unlock the full potential of this critical enabling technology. The European Future Energy Forum provides a valuable platform for industry experts, policymakers, and other stakeholders to collaborate on shaping the policies and regulations that will guide Europe’s energy storage revolution.
