Global installations of long-duration energy storage (LDES) surpassed 15 GWh in 2025, marking a 49% year-on-year increase. However, a new report by Wood Mackenzie warns that the sector is facing mounting challenges due to declining investment and intensifying competition from lithium-ion battery technologies.
According to the firm’s Long Duration Energy Storage Trends report, compressed air energy storage (CAES) accounted for the largest share of installations in 2025 at 45%, followed by thermal energy storage at 33% and vanadium redox flow batteries (VRFB) at 21%. China continues to dominate the global market, representing approximately 93% of cumulative LDES deployment. The country’s growth has been driven by strong policy support, including provincial mandates and the national Special Action Plan for the Development of New Energy Storage (2025–2027).
Despite strong deployment growth, analysts note that LDES technologies are facing structural market pressures. Jiayue Zheng, managing consultant for energy storage at Wood Mackenzie, said lithium-ion batteries have captured the economically critical four- to eight-hour storage market due to lower costs and established supply chains, leaving LDES technologies struggling to secure sufficient demand and pricing mechanisms for commercial viability.
The report also highlights the importance of longer-duration storage to meet global decarbonisation targets. Under Wood Mackenzie’s net-zero scenarios, the average global energy storage duration would need to increase from about 2.5 hours today to nearly 20 hours. As countries including Germany, Australia and Denmark expand renewable energy penetration beyond 50% by 2030, LDES is expected to play a key role in maintaining grid stability.
However, LDES represented only around 6% of global energy storage installations in 2025. Lithium-ion battery systems typically provide about two hours of storage, while VRFB and CAES systems average around four hours and thermal storage solutions about eight hours.
The report identifies stronger revenue certainty in markets such as the United Kingdom, Italy, United States and Australia, where capacity mechanisms and procurement frameworks are gradually emerging. Technology-specific procurement programs are also being explored in countries including Spain, Ireland and Germany. However, most markets still lack supportive capacity mechanisms, making it difficult for multi-day storage projects to secure stable revenue streams.
Investment trends also reflect growing challenges for the sector. Global funding for LDES declined by roughly 30% in 2025, excluding a US$1.76 billion commitment by the United States Department of Energy to energy storage developer Hydrostor. Venture capital funding fell even more sharply, dropping by 72% year on year, placing financial pressure on a growing number of LDES start-ups.
Between 2021 and 2025, only three companies—Hydrostor, EOS Energy Enterprises and Form Energy—raised more than US$1 billion each in funding, collectively securing over US$4 billion. Despite this, even well-capitalised firms continue to face significant financial hurdles.
Cost competitiveness remains a major barrier. In China, a four-hour lithium-ion battery project costs approximately US$107 per kWh. By comparison, thermal energy storage and CAES projects cost about US$190 per kWh and US$201 per kWh respectively, representing cost premiums of 78% and 88%.
Priya Shrivastava, research manager for energy storage supply chains at Wood Mackenzie, noted that although VRFB project costs are expected to fall by more than 30% by 2034, they are still projected to remain significantly higher than lithium iron phosphate battery systems for similar four-hour durations.
Looking ahead to 2034, Wood Mackenzie expects lithium-ion batteries to maintain about 85% of the global energy storage market. VRFB and CAES are forecast to capture only around 5% and 3% of market share respectively.
The report also notes that lithium-ion manufacturers are increasingly developing longer-duration battery products, enabling them to dominate the four- to eight-hour storage segment with established supply chains exceeding 1,000 GWh of capacity. Meanwhile, demand for multi-day storage remains limited, as two- to eight-hour storage systems already address roughly 90% of grid storage requirements in most regions.
Several large-scale LDES projects are currently under development worldwide. These include a 50 MW/300 MWh liquid air energy storage project by Highview Power in the United Kingdom, a 20 MW/200 MWh CO₂ battery project by Energy Dome in Italy, and multiple gigawatt-hour-scale CAES and thermal energy storage projects across China.
Despite ongoing innovation and pilot projects, the report concludes that LDES deployment will require significant market design reforms and stronger investment support to transition from demonstration projects to large-scale commercial adoption.
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