The last few years have seen increasing adoption of energy storage technology across sectors, from power to transportation to buildings. Despite the changing policy environment, the demands-led growth shows little signs of slowing down. With its versatile configuration both as a standalone technology and in conjunction with other clean energy assets such as renewable energy, the innovation space is incredibly expansive. By breaking down different types of energy storage technology, I intend to provide a detailed overview of how different types of energy storage solutions can be applied to various use cases and their investment implications.

Solutions Overview

Depending on the technology, there are four different types of energy storage solutions.

Electrochemical storage

This is likely the most prevalent form of energy storage solutions, simply known as ‘batteries’ (although people often loosely refer to all energy storage solutions as ‘batteries’). First conceived in 1800 by Volta, it converts chemical energy to electrical energy through controlled reduction-oxidation (redox) reactions between two electrodes separated by an electrolyte. Among various solutions, lithium-ion (Li-ion) batteries dominate the leaderboard, driven by improving performance and declining costs and powering a broad range of applications from mobile devices to EVs. Other emerging technologies include sodium-ion batteries, which share similar designs as lithium-ion batteries; solid-state batteries, which show the most promise as the next-gen batteries; as well as redox flow batteries (RFB) and metal-air batteries, which are being explored for long-duration energy storage due to their unique characteristics.

Mechanical storage

This type of system draws energy from gravity or rotating kinetic force and stores it for electricity generation. Pumped hydro is the most mature technology in this category, accounting for most of the energy storage capacity today and supporting mostly grid-scale power generation. Most pumped hydro projects in the US today were developed between the 1960s and 1990s. While the interest faded in the following decades mostly due to environmental concerns and financing difficulty, it’s coming back in the last few years as the industry searched for clean solutions to meet base load demands. Of other types of mechanical storage, compressed air storage is breaking ground as well, led by startups such as Hydrostor. Other solutions under development lean on solutions such as gravity-based solids, pressured fluid, liquid air, flywheel, etc.

Thermal storage

Thermal storage converts electricity to heat, stores heat, and converts heat back to electricity. Depending on the material to store heat, the solutions can be divided into sensible thermal or latent thermal. Sensible thermal materials are usually solid or liquid, where the temperature of the materials changes upon gaining heat. For example, molten salt systems, commonly used in concentrated solar power plants, store heat at high temperatures in large insulated tanks. Water-based systems, including hot water tanks and steam accumulators, remain popular in residential and industrial applications. Latent materials, in contrast, absorb heat through a material phase change, such as solid-liquid, liquid-gas, solid-solid, or solid-gas. While the system usually has higher energy density, the phase-change materials can degrade quickly over cycles. Regardless of the material, the system is limited by the law of physics, i.e. the Carnot efficiency, which sets a theoretical limit on the conversion rate from heat to electricity at a maximum of 100% varied by temperature. Despite this, the system remains an appealing option for its lower capital costs, longer lifespan, and, most importantly, the ability to be used either in high-heat industrial processes or to reduce heat waste in residential or commercial settings.

Chemical storage

Chemical batteries store energy in chemical bonds. While this system is not limited to a specific type of molecule, hydrogen is leading the pack due to its wide range of use in many industries beyond the power sector. You can find more discussion around hydrogen in my previous post here.

Measuring the Trade-off

Investing in battery technologies requires triangulating three factors: performance, costs, and end markets.

Performance

The performance of batteries can be further broken down into three dimensions.

Energy and Power Density

Energy density and power density are the two most fundamental metrics when measuring battery performance. Energy density measures how much energy can be stored per unit of mass (Wh/kg), which is crucial for applications like electric vehicles where weight and space are at a premium. Power density, measured in watts per kilogram (W/kg), describes how quickly that energy can be delivered and is essential for applications requiring rapid bursts of power, like power tools, frequency regulation in the grid, or performance vehicles. Among various types of batteries, lithium-ion batteries have the highest energy and power density, driving their broad adoption.

Operational Characteristics

The ratio between capacity and power forms the other important dimension - duration. This is particularly important for grid storage applications. Grid-scale lithium-ion batteries run between 2-6 hours. Although the duration can be extended through charging, the costs stack up quickly when accounting for multiple cycles. Round-trip efficiency (RTE) measures the fraction of energy used for charging storage that is available for discharge and is generally determined by the technology employed independently from power or energy capacity. Charge and discharge rates decide how quickly a battery can be charged or discharged relative to its capacity, which is increasingly important for EV batteries.

Reliability and safety

Cycle life indicates how many complete charge-discharge cycles a battery can undergo before its capacity degrades to a specified level (often 80% of its original capacity). This can range from a few hundred cycles for consumer electronics to several thousand for grid-storage applications. Slower degradation is especially preferred for grid storage where the upfront costs are high. Safety is another important dimension, especially for mobile consumer products, including EVs. It usually encompasses multiple aspects, including electrical safety, thermal safety, chemical safety, and physical safety. Much of the excitement in solid-state batteries has been driven by their ultimate safety promise in addition to their high performance.

Costs

Costs of developing a storage system can be broken down into upfront Capex including materials costs, manufacturing costs, balance of system, other development costs to acquire land, attain permit, pay for various overheads, as well as ongoing Opex for maintenance, augmentation, and the eventual disposal/recycling.

Electrochemical batteries like lithium-ion batteries usually have high Capex driven by manufacturing battery cells and constructing the system, but are balanced by low Opex thanks to their high RTE, minimal maintenance, and long cycle life.

Mechanical storage like pumped hydro or compressed air has lower Capex on a unit capacity basis but higher Opex due to the high maintenance costs and lower efficiency.

Thermal storage has significant Opex from heat losses and thermal management needs, but Capex is low due to cheap material. Due to its design proximity to gas turbines, the Capex can be further reduced when thermal storage is developed from retrofitting existing power systems.

Chemical storage, such as hydrogen, faces both high CAPEX and high OPEX. Without breakthrough technology to improve RTE, and expanded manufacturing to bring down electrolyzers and fuel cell costs, it’s hard to imagine a critical path for hydrogen to succeed as a power-generating solution.

End Markets

Energy storage systems are being increasingly adopted by many industries. Overall, the applications can be bucketed into two categories:

Mobile batteries are used to power portable devices. Small devices like phones and laptops use batteries ranging from 10 to 100 Wh. EVs, on the other hand, demand batteries of much larger capacity, ranging from 40-100 kWh. Both require higher energy-density batteries that are safe and preferably also offer higher power density and charging speed. Lithium-ion technologies are the default solution at the moment as they have evolved to meet these complex requirements.

Stationary energy storage systems include many industrial and commercial applications. Some are used off-grid as energy management or backup power systems for buildings, factories, and data centers. The others are on-the-grid energy storage systems monitored by utilities to improve grid efficiency and reliability. Duration for such solutions can range from two hours to seasonable. Different from mobile batteries, capacity needs for stationary batteries are usually determined by peak shaving requirements or backup duration rather than space or weight constraints. Given the high upfront cost, these systems usually prioritize duration, cycle life, and cost-effectiveness over energy density.

Innovation Roadmap

Short-Duration Energy Storage

In the short-duration storage market, electrochemical batteries have established a clear lead thanks to their higher energy and power density. Within electrochemical batteries, lithium-ion batteries are the default solution these days used across industries, dethroning last-gen technologies, including lead-acid batteries and nickel-based batteries, which have poorer performance and more toxic waste.

R&D is ongoing to improve the electrochemical battery performance further.

• The next-gen Lithium-ion batteries focus on improving efficiency through either silicon anode and/or new cathode material.
• Sodium-ion batteries are also being rolled out to reduce reliance on lithium.
• Down the road, solid-state batteries, which replace the liquid electrolyte with solid material, are expected to usher in the next era by making the battery safer without compromising performance.

Solid-state batteries, in particular, offer several significant advantages over traditional lithium-ion batteries. The elimination of flammable liquid electrolytes fundamentally improves safety and is the most desirable characteristic of such technology. The potential energy density could reach 400-500 Wh/kg, substantially higher than current Li-ion batteries, due to its compatibility with lithium metal anodes. The technology also enables new cathode materials, allowing for further performance improvements.

However, solid-state batteries are still early on in the technology and commercialization journey. The key technical hurdles include achieving high ionic conductivity at room temperature, where the solid electrolytes still lag. Manufacturing challenges are equally daunting, particularly for all-solid-state versions which require new production processes and equipment, particularly the production of oxide electrolytes, which require layer-by-layer atomic deposition. As a result, many companies, especially Chinese manufacturers, are developing semi-solid-state batteries as a stepping stone to accelerate commercialization. Companies that go directly to all-solid-state are mostly Japanese, Korean, and US battery pure-play or auto companies. Major automakers, including Toyota, Volkswagen, and Nissan, have announced production targets of solid-state batteries for premium vehicle segments for 2025-2027.

Long Duration Energy Storage

In contrast to the short-duration energy storage space, the long-duration energy storage (LDES) market is a Wild West and no clear winner has emerged yet. In fact, there’s no consensus on what is considered long duration. As most of the grid-scale lithium-ion batteries are within 6 hours for economic reasons, the low range of the LDES includes 6-10 hours of intraday energy storage. That said, the real potential of the market lies in technologies that support multi-day and even seasonable energy storage, enabling batteries to be used as the ultimate backup power system.

Long-duration energy storage encompasses all four main categories of technologies.

• Mechanical systems, particularly compressed air energy storage, currently dominate the market with 57% of installed capacity and 66% of the project pipeline. These systems store energy through physical means like compressed air in above-ground tanks or underground caverns.

• Flow batteries, especially vanadium redox flow batteries, represent another significant category with strong deployment, particularly in China. Another electrochemical solution being explored is metal-air batteries, which are suitable for long-duration energy storage since they can be “recharged” by simply replacing the metal anode while the oxygen cathode is freely available from the air.

• Thermal storage, using materials like molten salts, accounts for a substantial portion of installations, especially in regions with abundant solar resources.

• R&D into other technologies, including gravity storage, liquid air storage, and hydrogen chemical storage, are also ongoing.

• Adding to the complexity of the landscape, some groups have gone into a totally different tangent for solutions and focused on battery swapping to extend the duration range. China has been developing more and more battery swapping infrastructure, led by companies such as Nio, offering convenient battery replacement for its EV users, often within minutes.

The LDES space is wide open as none of the technologies provides a perfect answer. Compressed air storage offers high reliability and scalability but requires specific geological conditions or expensive pressure vessels. Flow batteries offer flexible, independent scaling of power and energy capacity but face challenges with cost and efficiency. Metal-air batteries have low material cost and relatively high energy density but have low round-trip efficiency and sometimes high operating costs from metal recharging. Thermal storage systems are relatively simple and cost-effective but have even lower round-trip efficiency, capped by the law of physics, i.e. Carnot efficiency.

A more unique challenge lies in the business model. Unlike short-duration energy storage, where a mature market exists, how to generate revenue for a long-duration energy storage system remains an open question. The continued deployment of LDES will likely require regulation support to account for its economic benefits and create the market. In fact, policy has been playing a dominating role in driving the deployment of LDES. China has been leading 99% of the new projects, mostly driven by supporting policies. Notable projects outside China include Form Energy’s iron-air battery developments and Hydrostor’s compressed-air projects, thanks to the local utility mandates.

Amid rising geopolitical tension, much of the capital has also gone into developing the supply chain to reduce the reliance on Asia for critical mineral sourcing, processing, and battery manufacturing while scaling the deployment. Innovations are taking place in different parts of the system to ease supply concerns.

• Most of the new designs use modular battery pack architectures, allowing for easier component replacement and recycling.
• Advanced recycling technologies are being developed to improve the recovery efficiency of critical minerals in the used material, reducing toxic bi-products and energy consumption.
• Startups such as Moment Energy focus on second-use batteries, repurposing high-performance auto batteries into grid storage systems with lower performance thresholds.
• Software solutions are also developed to track material sourcing and manufacturing and cut inefficiency.

Last But Not Least

Energy storage solutions have evolved at an unprecedented pace in the last few years. The declining costs, coupled with supportive policies and maturing supply chains in China, have driven the global expansion of the sector. While the policy uncertainty in the US and the rising geopolitical tension cast uncertainty on the sector in the years ahead, the demand growth will likely continue. Those who can navigate the challenging macro environment while scaling the solutions in an economical way will likely emerge as leaders in the energy storage landscape of tomorrow.