Support clean firm capacity and long-duration storage

In BNEF’s Net Zero Scenario, increased demand-side flexibility as well as low-carbon thermal capacity – such as gas power plants abated with carbon capture and storage, or running on zero-carbon hydrogen – become important aspects of the power sector’s transition. This is especially the case in power systems without abundant hydropower resources, to handle seasonal lows in wind and solar output. Even markets with hydropower need to consider drought resiliency of their systems. Long-duration storage technologies, such as thermal energy storage and compressed air energy storage systems, may also be able to compete and provide this critical role to the system. Virtually all dispatchable, zero-carbon solutions remain uneconomic compared with unabated fossil-fuel power plants today. Therefore, it is essential for policymakers and companies to support clean firm capacity and long-duration energy storage. There are several market design mechanisms being used today to either incentivize new clean firm capacity build or ensure that existing lower-carbon firm capacity stays online, including: • Energy-only markets linked to strong CO2 constraints. This may include a strategic reserve or capacity payment, in order to guarantee reliability and enable backup plants to keep in the money. • Auctions for zero-carbon power with reliability criteria, or capacity markets or reserves with emissions thresholds. Some markets are also using direct capital subsidies or fiscal support measures to encourage clean backup capacity. • Energy supplier obligations for decarbonization and resource adequacy. Electricity network operators face the challenge of integrating new variable and distributed sources of renewable generation, while also ensuring the adequacy and reliability of supply. They may also need to expand the system rapidly to accommodate growing demand from electrification of buildings, industry and transport. However, there are limiting factors, such as supply constraints, power flow control and network congestion management.