Comparing Contract-Based Support Mechanisms for Long-Duration Energy Storage
For policymakers and investors in energy storage, this paper provides a comparative analysis of contract designs to address revenue volatility and investment barriers.
This paper evaluates four contract-based support mechanisms for long-duration energy storage (LDES) using an equilibrium model with risk-averse investors, finding that all can achieve targeted capacity but differ in cost-effectiveness and risk sensitivity. Contracts eliminating revenue volatility achieve lowest costs but may weaken operational incentives.
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.