As efforts to decarbonize the global energy system gain momentum, attention is turning increasingly to the role played by one of the most vital of goods: heat. Heating and cooling—mainly for industry and buildings—accounts for no less than 50 percent of global final energy consumption and about 45 percent of all energy emissions today (excluding power),1 so decarbonizing heat is central to the effort to achieve net-zero emissions (Exhibit 1).
Less well understood is often the role that managing and storing heat can play in addressing a crucial challenge facing the power sector: how to increase the share of inherently variable renewable sources, such as wind and solar in the energy mix while ensuring supply matches demand.
Thermal energy storage (TES) comprises a set of technologies that could both accelerate decarbonization of heat and help establish a stable, reliable electricity system predominantly powered by renewables. TES can be charged with renewable electricity or waste heat to discharge firm, clean heat to users such as industrial plants or buildings.
A new industry report with insights and analysis by McKinsey shows how TES, along with other forms of long-duration energy storage (LDES), can provide “clean” flexibility by storing excess energy (electrical or thermal) at times of peak supply and releasing it as heat when demand requires. It shows that when heat cannot be directly generated with renewable electricity, TES can be a more cost-efficient and low-carbon way of fulfilling heat demand than delivering a steady electricity supply with stored renewable power. TES can cover a wide range of heat applications, including reaching the very high temperatures required in some industrial processes.
The report is published together with the LDES Council, an executive-led organization formed to bring together the industry ecosystem and build a holistic fact base, thereby accelerating the cost reductions achievable through deployment of LDES solutions.
LDES can offer a clean flexibility solution to secure reliable power and heat supply
As discussed in the earlier net-zero power report by the LDES Council, the energy system will likely need to operate more flexibly as the renewables’ share in the power mix grows. Right now, the necessary flexibility is provided mainly by dispatchable fossil-fuel generation, but that is not a long-term solution that achieve climate targets. The more sustainable alternative will likely be a mix of flexibility solutions, including LDES (and TES).
While direct electrification via renewables supports net-zero heat when the sun is shining and the wind is blowing, combining renewables with storage can help to complete the decarbonization of heating. Deploying TES can enable the provision of clean heat from renewables to industrial processes such as chemicals or food and beverage production.
All of these activities can help to match variable renewable electricity generation with demand and enable the system to operate at maximum efficiency, thus reducing the need to invest in infrastructure to cope with peaks and troughs. TES provides supply-side and demand-side storage and helps reduce the waste involved in curtailing renewable supplies at times of peak supply. It can improve overall grid utilization and reduce system stress, while in the process facilitating faster deployment of renewables.
Some TES technologies are already commercially available and cost-competitive
TES can enable the cost-efficient electrification of most heat applications including steam and hot air, two of the most common forms of heat used in industrial processes. It covers a spectrum of technologies that can address a wide range of storage durations (from intraday to seasonal) and temperatures (from subzero to 2,400°C). According to the LDES benchmarking results, TES could facilitate cost-efficient clean heat provision. Exhibit 2 illustrates one example and compares the levelized cost of delivering medium-pressure steam using TES to other fossil and clean technologies.
Some TES technologies are already commercially available and can be easy to deploy and integrate with existing systems—for example, medium-pressure steam as applied in the chemicals and food and beverage industries. Innovative technologies that can help address higher-temperature needs well above 1,000ºC are also on the way.
The new report examines a number of use cases for TES and shows that they can potentially already be profitable, depending on local conditions and market design, with internal rates of return of up to 28 percent. The use cases assessed in the report include medium-pressure steam in a chemicals plant, district heating, high-pressure steam in an alumina refinery, and cogeneration for an off-grid greenhouse.
The findings also demonstrate the importance of a supportive market design that provides some form of reward for the system flexibility TES creates, such as lower grid fees. TES is most likely to thrive, the report states, where there is access to abundant solar or wind power or to existing captive-heat supplies.
In any case, the evidence suggests that TES, like other forms of LDES, is set to become more cost-competitive as the market matures and scales. The LDES Council figures suggest that the unit capital cost of TES is expected to decline between now and 2040—by between 5 and 30 percent in discharging equipment and by 15 and 70 percent in the energy storage medium.
Decarbonizing the energy system: an integrated approach
To realize the potential benefits of TES, it can be helpful to take an integrated view of an energy system that is fast becoming more complex and interconnected. For example, there are early signs that the power and heat sectors, as well as the emerging hydrogen industry, are becoming increasingly interconnected through technologies like heat pumps, electrolyzers, or hydrogen boilers.
A case study on the port of Rotterdam—one of the world’s largest ports and industrial clusters and a vast concentration of power and heat demand—illustrates the potential importance of storage technologies such as TES in integrating and decarbonizing complex energy systems. It shows how TES combined with power LDES could help to transform the variable output of nearby offshore wind farms into a more stable supply of clean heat for industry. This creates another source of demand for offshore wind developers and a cost-efficient path to decarbonization for industrial energy users.
It is through such initiatives that TES could accelerate the global pace of emissions reduction and bring net zero closer. The report shows that TES could double global LDES capacity by providing a cost-efficient alternative for decarbonizing heat, including high-temperature heating applications. This would potentially reduce global system costs by up to $540 billion annually, enable a faster renewables build-out, and optimize grid utilization.
Overcoming potential challenges to boost TES adoption
There are a number of potential challenges to overcome before TES can become widely adopted. It can be helpful to improve the level of awareness of TES’s potential among business leaders, policymakers and investors, and of the role it could play in enabling a cost-optimized pathway to net zero for the energy system. Beyond that, there remain potential commercial risks arising from the relative nascency of the industry and the varying maturity of TES technologies in a business with expensive and long investment cycles.
The report suggests various ways to change this picture. Business leaders could play their part by investing in pilots and demonstration plants to create awareness and showcase TES business cases, and by creating joint efforts with key parties across the supply chain. Policymakers could start designing long-term frameworks to reduce uncertainty, including market mechanisms that reward system flexibility and create a level playing field, as well as provide direct support for TES investments. Investors, too, could make a contribution by putting TES on their radar and deepening their understanding of TES applications and opportunities.
The study shows that TES could be among the most cost-effective routes to decarbonization of heating if applied at scale, while also providing stability and resilience for heat and power sectors as they transition to net-zero. Now is the time to start building out this promising technology so it can fulfill its potential to transform the energy system.
