Editing Energy storage (section)

== Economics{{anchor|Economic and technical evaluations}} ==
The economics of energy storage strictly depends on the reserve service requested, and several uncertainty factors affect the profitability of energy storage. Therefore, not every storage method is technically and economically suitable for the storage of several MWh, and the optimal size of the energy storage is market and location dependent.<ref>{{Cite journal|last1=Locatelli|first1=Giorgio |last2=Palerma|first2=Emanuele |last3=Mancini|first3=Mauro |date=April 1, 2015|title=Assessing the economics of large Energy Storage Plants with an optimisation methodology|journal=Energy|volume=83|pages=15–28 |doi=10.1016/j.energy.2015.01.050|doi-access=free|bibcode=2015Ene....83...15L |hdl=11311/965814|hdl-access=free}}</ref>

Moreover, ESS are affected by several risks, e.g.:<ref name="Locatelli 114–131">{{Cite journal|last1=Locatelli|first1=Giorgio|last2=Invernizzi|first2=Diletta Colette|last3=Mancini|first3=Mauro|date=June 1, 2016|title=Investment and risk appraisal in energy storage systems: A real options approach|journal=Energy|volume=104|pages=114–131|doi=10.1016/j.energy.2016.03.098|bibcode=2016Ene...104..114L |s2cid=62779581 |url=http://eprints.whiterose.ac.uk/97158/1/Paper_Final_Review%20V07.pdf|access-date=July 5, 2019|archive-date=July 19, 2018|archive-url=https://web.archive.org/web/20180719033048/http://eprints.whiterose.ac.uk/97158/1/Paper_Final_Review%20V07.pdf|url-status=live}}</ref>

* Techno-economic risks, which are related to the specific technology;
* Market risks, which are the factors that affect the electricity supply system;
* Regulation and policy risks.

Therefore, traditional techniques based on deterministic [[Discounted cash flow|Discounted Cash Flow]] (DCF) for the investment appraisal are not fully adequate to evaluate these risks and uncertainties and the investor's flexibility to deal with them. Hence, the literature recommends to assess the value of risks and uncertainties through the Real Option Analysis (ROA), which is a valuable method in uncertain contexts.<ref name="Locatelli 114–131"/>

The economic valuation of large-scale applications (including pumped hydro storage and compressed air) considers benefits including: [[Curtailment (electricity)|curtailment]] avoidance, grid congestion avoidance, price arbitrage and carbon-free energy delivery.<ref name="NYTimes-2014.04.21" /><ref name="Loisel et al" /><ref name="NYTimes-2012.01.03" /> In one technical assessment by the [[Carnegie Mellon University|Carnegie Mellon Electricity Industry Centre]], economic goals could be met using batteries if their capital cost was $30 to $50 per kilowatt-hour.<ref name="NYTimes-2014.04.21" />

A metric of energy efficiency of storage is energy storage on energy invested (ESOI), which is 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 ESOI, the better the storage technology is energetically. For lithium-ion batteries this is around 10, and for lead acid batteries it is about 2. Other forms of storage such as pumped hydroelectric storage generally have higher ESOI, such as 210.<ref>{{cite web|url=http://news.stanford.edu/news/2013/march/store-electric-grid-030513.html|title=Stanford scientists calculate the carbon footprint of grid-scale battery technologies|publisher=Stanford University|date=March 5, 2013|access-date=November 13, 2015|archive-date=December 2, 2015|archive-url=https://web.archive.org/web/20151202225009/http://news.stanford.edu/news/2013/march/store-electric-grid-030513.html|url-status=live}}</ref>

[[Pumped-storage hydroelectricity]] is by far the largest storage technology used globally.<ref>{{Cite web|last=Perishable|title=Global Energy Storage Database {{!}} Energy Storage Systems|url=https://www.sandia.gov/ess-ssl/global-energy-storage-database-home/|access-date=2021-07-09|language=en-US|archive-date=July 9, 2021|archive-url=https://web.archive.org/web/20210709184735/https://www.sandia.gov/ess-ssl/global-energy-storage-database-home/|url-status=live}}</ref> However, the usage of conventional pumped-hydro storage is limited because it requires terrain with elevation differences and also has a very [[Surface power density|high land use for relatively small power]].<ref>{{Cite web|title=Hydropower Special Market Report – Analysis|url=https://www.iea.org/reports/hydropower-special-market-report|access-date=2021-07-09|website=IEA|date=June 30, 2021 |language=en-GB|archive-date=July 9, 2021|archive-url=https://web.archive.org/web/20210709190936/https://www.iea.org/reports/hydropower-special-market-report|url-status=live}}</ref> In locations without suitable natural geography, underground pumped-hydro storage could also be used.<ref>{{Cite journal|last1=Vilanova|first1=Mateus Ricardo Nogueira|last2=Flores|first2=Alessandro Thiessen|last3=Balestieri|first3=José Antônio Perrella|date=2020-07-18|title=Pumped hydro storage plants: a review|url=https://doi.org/10.1007/s40430-020-02505-0|journal=Journal of the Brazilian Society of Mechanical Sciences and Engineering|language=en|volume=42|issue=8|pages=415|doi=10.1007/s40430-020-02505-0|s2cid=225550878|issn=1806-3691}}</ref> High costs and limited life still make batteries a "weak substitute" for [[Dispatchable generation|dispatchable power sources]], and are unable to cover for [[Variable renewable energy|variable renewable power]] gaps lasting for days, weeks or months. In grid models with high VRE share, the excessive cost of storage tends to dominate the costs of the whole grid — for example, in [[California]] alone 80% share of VRE would require 9.6 TWh of storage but 100% would require 36.3 TWh. As of 2018 the state only had 150 GWh of storage, primarily in pumped storage and a small fraction in batteries. According to another study, supplying 80% of US demand from VRE would require a smart grid covering the whole country or battery storage capable to supply the whole system for 12 hours, both at cost estimated at $2.5 trillion.<ref name="auto">{{Cite web|title=The $2.5 trillion reason we can't rely on batteries to clean up the grid|url=https://www.technologyreview.com/2018/07/27/141282/the-25-trillion-reason-we-cant-rely-on-batteries-to-clean-up-the-grid/|access-date=2021-07-09|website=MIT Technology Review|language=en|archive-date=August 24, 2021|archive-url=https://web.archive.org/web/20210824002106/https://www.technologyreview.com/2018/07/27/141282/the-25-trillion-reason-we-cant-rely-on-batteries-to-clean-up-the-grid/|url-status=live}}</ref><ref name="auto1">{{Cite web|title=Relying on renewables alone significantly inflates the cost of overhauling energy|url=https://www.technologyreview.com/2018/02/26/241113/relying-on-renewables-alone-would-significantly-raise-the-cost-of-overhauling-the-energy/|access-date=2021-07-09|website=MIT Technology Review|language=en|archive-date=August 13, 2021|archive-url=https://web.archive.org/web/20210813052731/https://www.technologyreview.com/2018/02/26/241113/relying-on-renewables-alone-would-significantly-raise-the-cost-of-overhauling-the-energy/|url-status=live}}</ref> Similarly, several studies have found that relying only on VRE and energy storage would cost about 30–50% more than a comparable system that combines VRE with [[Nuclear power plant|nuclear plants]] or plants with [[carbon capture and storage]] instead of energy storage.<ref>{{Cite journal|last1=Zappa|first1=William|last2=Junginger|first2=Martin|last3=van den Broek|first3=Machteld|date=January 2019|title=Is a 100% renewable European power system feasible by 2050?|journal=Applied Energy|language=en|volume=233–234|pages=1027–1050|doi=10.1016/j.apenergy.2018.08.109|s2cid=116855350|doi-access=free|bibcode=2019ApEn..233.1027Z }}</ref><ref>{{Cite journal|last1=Baird|first1=Zachariah Steven|last2=Neshumayev|first2=Dmitri|last3=Järvik|first3=Oliver|last4=Powell|first4=Kody M.|date=2021-12-30|title=Comparison of the most likely low-emission electricity production systems in Estonia|journal=PLOS ONE|language=en|volume=16|issue=12|pages=e0261780|doi=10.1371/journal.pone.0261780|issn=1932-6203|pmc=8717974|pmid=34968401|bibcode=2021PLoSO..1661780B|doi-access=free}}</ref>