By Phoebe Skok, PV Magazine

Despite growing recognition of long-duration storage’s importance, independent system operator (ISO) and regional transmission organization (RTO) market structures in the US still reward short-term response, leaving developers little financial incentive to build batteries with more than two hours of capacity.

Most new energy storage projects in the United States remain stuck at two-hour durations despite a growing consensus that long-duration energy storage (LDES) will be critical to providing firm power and grid reliability.  

According to Agilitas Energy CEO Barrett Bilotta, the problem isn’t the technology. It’s the market. 

“The actual power markets don’t pay for duration,” he told ESS News, adding that there isn’t an economic signal that incentivizes LDES over short-duration storage. “That’s primarily because the market frameworks within the ISOs haven’t yet evolved in a regulatory framework to incentivize the use of energy storage.” 

Bilotta explained that the American electric grid is built on an analog system that relies on large-scale combined cycle power plants with slow ramp-up and ramp-down times. Batteries, on the other hand, respond to signals instantaneously; while the tech has improved, Bilotta noted that the markets haven’t caught up.  

“The only way that these systems make economic sense at the moment is through power,” he said. As a result, he noted, most storage systems are chasing ancillary services or frequency regulation, not energy, “because that’s where they’re going to get paid.” 

“If I’m going to make the same amount of money building a two-hour system versus a four-hour system, why would I put in the extra millions of dollars to build the extra two hours of duration?”  

“You wouldn’t really ever be building that unless there was another reason to do so,” he added.  

While Texas has seen a boom in battery buildout due to real-time market volatility, Bilotta noted that California is taking a more proactive structural approach to build a market that supports energy storage beyond immediate returns. 

“California is ahead of the power curve—no pun intended—in terms of putting forth specific markets that are incentivizing the deployment of ESS,” he said, adding that other ISOs will likely follow CAISO’s lead because of its potential to help ISOs make better use out of what batteries are already there.  

Still, even in CAISO, project economics remain tight.  

“It’s obviously hard to create projects that are on the margin, especially with the backdrop of tariffs and higher interest rates,” Bilotta said, as the financial structure of most energy storage projects today still assumes a short-term payback. “The investment community is looking at it like this: if we build a machine that can earn back its value in the next three years, there will be some residual benefit from year four and beyond and we can’t yet quantify that.”  

Some one-off contracts do exist to support longer duration, including a four-hour Agilitas project in Long Island; there, a Con Edison tolling agreement effectively subsidizes the “extra” two hours.   

“But you wouldn’t build [that duration]” in today’s open markets, said Bilotta, without those external incentives. 

While the landscape is starting to shift as the value for LDES becomes clearer, progress is rolling in slowly.  

“Things will change because they have to change,” Bilotta said. “But it could take three to five years for market rules to actually change within the grid operators because they also need to make sure that the lights stay on, full stop.”