Transitioning to economically viable large-scale electricity storage: Implications for security of supply

Cost-efficient, large-scale electricity storage is pivotal for the move away from fossil fuel-based generation to renewables. However, no one can predict when such a technology will become available, nor the speed of its implementation. This paper is not concerned with which technology or technology mix will be chosen, nor with the timing of this innovation. Rather, the focus is on the unavoidable transition period between when such a technological development succeeds (proof-of-concept) and its large-scale implementation. We develop a stylised system dynamics simulation model to investigate security of supply during this transition period. This model is a minimalistic representation of the concepts necessary to illustrate the thesis of this paper. While such a high-level model has limitations, it does achieve the objective of enabling us to formalise a thought process concerning the issues raised by a transition towards large-scale electricity storage. We consider different investor attitudes and transition speeds. If investors are overly optimistic regarding when and how fast such a breakthrough will occur, they will tend to overestimate the efficiency of existing renewable generation and be reluctant to invest. This would result in capacity adequacy problems, leading to high prices for consumers. On the contrary, underestimating the speed of this evolution leads to costly over-capacity. Even with correct investor anticipations, the transition to large-scale efficient storage is bound to be problematic: initial shortages, followed by over-capacity, seem difficult to avoid. All scenarios exhibit periods of investment freeze, which would jeopardize the profitability of the VRES industry. We conclude that regulators will need to tread a fine line between two risks: (i) ensuring enough capacity at the start of the energy storage transition, thereby keeping prices at a reasonable level, and (ii) avoiding significant excess capacity during and after the transition, which could threaten the survival of certain generation companies. • Introducing large-scale, cost-efficient storage increases VRES's capacity factor. • A stylised system dynamics simulation model is used to analyse the transition. • Anticipating this evolution leads to an investment freeze and capacity shortages. • Spurning this change causes over-capacity, stranded assets and financial strain. • Regulatory intervention must trade off early shortages and later excess capacity.