In their market report, “Thermal Energy Storage 2024-2034: Technologies, Players, Markets, Forecasts,” IDTechEx predicts that in 2034, over 40 GWh of thermal energy storage will be deployed across the industry.
While TES is a key technology for decarbonizing industrial heating, companies developing other technologies, such as carbon capture and storage (CCUS), heat pumps, hydrogen, and electrification technologies such as electric arc furnaces (EAFs), will also compete for state and federal funding. It is therefore important to explore the various drivers and initiatives influencing what is expected to be the largest TES market growth area over the next decade.
Key drivers for decarbonisation of industrial heating in Europe
European natural gas prices have risen in recent years due to the geopolitical situation and fears of strikes in major exporting countries. In Europe, natural gas prices have risen and become more volatile in recent years. This is mainly due to the impact of the war between Russia and Ukraine, which has caused European natural gas prices to rise from 10-20€/MWh before 2022 to over 300€/MWh.
These prices are unlikely to return to pre-2021 prices, and other natural gas price spikes were driven by concerns about an Australian LNG exporter strike. This volatility and rise in natural gas prices could be an important driver for the growth of European industrial heating decarbonization technologies, including TES.
The European Commission implements the EU Emissions Trading Scheme (EU ETS), which imposes fines on companies if they emit above a certain limit. This limit is lowered each year to ensure that emissions from industry decrease over time. Companies can auction off emission allowances on a common auction platform on the European Energy Exchange. EU companies pay for the excess GHG they emit, giving them an incentive to buy carbon allowances and, ideally, invest in technologies that provide low-carbon heat.
The funds obtained by member states are primarily used to support climate-related efforts, with around 78% of the revenues obtained going to these purposes between 2013 and 2019. This money will go towards the EU Innovation Fund. In November 2023, the EU Commission opened a €4 billion fund to support the deployment of decarbonisation technologies. This follows two rounds of €3 billion and €1.8 billion in 2022, and a €1.1 billion round in 2021. The money will be used to support decarbonisation projects, including energy storage technologies, heat pumps, hydrogen production, etc.
As suggested in an IDTechEx market report, companies developing thermal energy storage technologies may be eligible to receive some of this funding, but it is unclear how much funding will be made available specifically to companies developing and commercializing TES technology.
Key drivers for decarbonizing industrial heating in the United States and Australia
Given that the United States produces a large amount of natural gas domestically and is a net exporter, TES technology is less competitive with natural gas in the United States. However, in 2022, the U.S. Department of Energy (DOE) launched the Industrial Heat ShotTM Initiative to develop cost-competitive industrial heat decarbonization technologies. In 2022, DOE announced that it would provide a “$70 million funding opportunity” in federal funding over the next five years for the development of forecasts focused on low-carbon process heating technologies.
However, $300 million has been requested by players in 2022, and $385 million in 2023, suggesting that funding demand for low-carbon process heating technology development is greater than what is currently being provided. Either way, growth in TES technology in the U.S. is expected, but players developing other decarbonization technologies will compete for funding.
Natural gas prices for end users in eastern Australia typically mirror prices in western Europe. Eastern Australia has domestic production of natural gas, but domestic liquefied natural gas (LNG) consumption competes with export volumes.
In general, Australia’s export volumes far exceed total gas demand, and gas production costs are high. This makes TES technology more cost-competitive against natural gas than in the United States, and likely to be on par with Europe. Furthermore, in November 2023, the Australian Renewable Energy Agency (ARENA) launched a fund of about $260 million, named the Industrial Transformation Stream (ITS). The first funding round will provide funding of AUD 150 million for the decarbonization of industrial heating processes and the decarbonization of off-road transportation. Therefore, Australian TES players are likely to receive this funding.
Thermal Energy Storage Area Market Outlook
In interviews with IDTechEx, key players said that most decarbonization projects currently rely on support funding from state or government grants. As detailed in an IDTechEx market report, as of January 2024, TES operators have accumulated over $600 million in funding, although not all of it comes from state or government grants. Over the next few years, most of the growth in industrial TES is expected to occur in Europe, with over 275 MWh of projects planned for deployment by 2025.
Two major projects in the US and China include GWh deployments by Echogen Power Systems in the US with a 1.2 GWh ETES system, and CHN Energy with a 1.1 GWh TES system at a power station in China. Rondo Energy also plans to deploy 2 GWh of TES for industrial heating applications, apparently across multiple projects, although the locations are currently unknown.
While these deployments skew the outlook in terms of TES capacity, the aforementioned factors – high natural gas prices, the implemented EU ETS, and support from the EU Innovation Fund – will be the main drivers of growth opportunities for the TES market in Europe over the next decade. While it is difficult to pinpoint the exact amount of funding provided for the development of TES technology, it is clear that other countries such as the US and Australia are also directly supporting the decarbonization of industrial heating, and these countries will be key regions for TES growth in the medium term.
Author: Conrad Nichols, Senior Technology Analyst, IDTechEx
