Comparing Contract-Based Support Mechanisms for Long-Duration Energy Storage

TL;DR

This paper compares four contract-based support mechanisms for long-duration energy storage, analyzing their cost-effectiveness and impact on operational incentives using an equilibrium model in a 2035 Great Britain case.

Contribution

It introduces a comparative analysis of support mechanisms for LDES, highlighting trade-offs between cost and operational incentives.

Findings

All mechanisms can achieve targeted LDES capacity.

Contracts eliminating revenue volatility are most cost-effective.

Maintaining market exposure preserves operational incentives but at higher costs.

Abstract

Long-duration energy storage (LDES) faces significant revenue volatility that impedes investment. This paper evaluates four contract-based support mechanisms using an equilibrium model with risk-averse investors and incomplete risk markets. Applied to a stylized 2035 Great Britain case, we find that all mechanisms can achieve the targeted LDES capacity but differ substantially in cost-effectiveness and risk-aversion sensitivity. Contracts that eliminate revenue volatility achieve the lowest costs but may weaken operational incentives, while contracts that preserve market exposure maintain incentives at higher costs.