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According to a new study released by Wood Mackenzie, Europe is set to lose the global energy storage race if governments do not start incentivising flexible power through renewables auctions.

The only way to build an energy storage and renewable energy pipeline fit for the net-zero challenge is through low risk, low return government-controlled auctions, according to the research firm.

Current renewable auctions offer little or no value for flexibility, hence the lack of credible hybrid project pipeline development compared to global counterparts.

In contrast to the US regulatory structure, market liberalisation has brought about decoupling within the power sector.

The study states that due to policymakers in Europe underestimating the flexibility challenges ahead, the block’s energy storage ambition will not match the region’s aspiration for renewables.

The European Commission needs to ensure fair energy storage participation in capacity and ancillary markets through its Clean Energy Package, which is progress.

According to Wood Mackenzie, EMEA – the majority of which consists of European deployments – made up 44% of the global market in 2014.

However, this declined to 30% last year and is expected to further decline to 20% by 2025 and 13% by 2030.

The front-of-the-meter (FTM) hybrid storage market, which is key to energy storage success, has seen a similar trend over the last three years.

Whilst Europe is expected to reduce its energy storage capacity if no government action is taken, the US and China are expected to continue accelerating ahead.

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If the current trends continue, Europe is expected to record unstable and volatile energy systems and market prices.

Rory McCarthy, Wood Mackenzie principal analyst, said: “Europe’s energy storage outlook is beginning to pale in comparison to its global counterparts. As deployments are ramping up in major markets, particularly the US and China, it is almost impossible to perceive similar developments in Europe.

“However, despite this, Europe will continue to possess proportionally more variable renewable energy (VRE; wind and solar) than any other region on the planet. While delivering low-cost, low-carbon power in abundance, the non-dispatchable nature of VRE presents a flexibility challenge for power systems. Particularly over the 2020 coronavirus lockdown months, we witnessed the impact of high VRE on the system, resulting in low and negative power prices. This points to a lack of system flexibility.

“Energy storage will be at the forefront of meeting this challenge, as the technology can provide much-needed flexibility with zero carbon emissions, while keeping power prices more stable and affordable for the end consumer.

“If we look at the US, which is the largest storage growth market, the pipeline in this region has the potential to make up 49% of global cumulative GWh capacity by 2030.

“Why does this market have such a healthy pipeline? Today it is driven by utility procurement programmes and a generous ITC tax credit. Perhaps less obvious is its regulatory structure. Vertically integrated utilities – those who can be a retailer, network operator and generator under the same organisation – serve a large swathe of US consumers.”