Using electricity to make fuels and reconverting the fuels back to electricity will return at best less than 50% of the energy sent to storage back to the electric grid with today’s technology. Battery and pumped hydro storage is in the range of 85-95% efficient. The advantage of creating fuels comes in to play when large amounts of energy need to be stored, as for example in spring when hydro, solar and wind can be available in surplus quantities for weeks at a time. The cost of conventional storage increases with the amount of energy stored, whereas the main cost of making fuels is based more on the cost of the conversion infrastructure.
For example, if the objective is to store 3 weeks of surplus spring energy, a 100 MW electrolyzer costing $200 million would store the equivalent of about 18,000 MWh of electricity (@36% round trip efficiency). Storing that amount of energy with batteries would cost more than a $1.5 billion (at target battery costs!), about 8 times as much. In some bulk energy applications, storage in fuels can be less than a tenth of the cost of battery or pumped hydro storage, despite the lower efficiency. In cases where the energy would otherwise simply be dumped due to lack of demand, the efficiency is hardly a factor—storing even 35% of the energy is better than losing all of it.
The economic advantage is multiplied further if the fuels are used for a more valuable purpose than making electricity such as running buses, heavy duty trucks, locomotives, and even aircraft. In applications where storing short bursts of energy for short periods of time (hours or days) are required, batteries and pumped storage are the better choice.