Lithium-ion batteries are one of the most common types of batteries found in consumer electronics. They can power electric vehicles and homes, but until recently they have not been feasible for widespread use because they were too expensive to produce. But a new study from researchers at Stanford University shows that the cost of Li-ion cells has fallen dramatically over the last few years, making them much more competitive with other energy storage technologies like pumped hydroelectric and compressed air. This is great news for proponents of renewable energy sources such as solar and wind, who need a way to store their electricity when there’s no sun or wind available.
This blog post will explore what the Levelized Cost of electricity storage means and how it is calculated as well as how lithium-ion compares to other technologies. The main applications that storage can provide are energy management, bridging power, power quality, renewable integration, transmission and distribution deferral, ancillary services, system capacity, renewable smoothing, and reliability.
The Levelized Cost of Storage (LCOS) quantifies the discounted cost per unit of discharged electricity for specific storage technology and application.
The metric, therefore, accounts for all technical and economic parameters affecting the lifetime cost of discharging stored electricity. It is directly comparable to the Levelized cost of electricity (LCOE) for generation technologies and represents an appropriate tool for a cost comparison of electricity storage technologies.
Levelized cost of storage can be described as the total lifetime cost of the investment in an electricity storage technology divided by its cumulative delivered electricity. Delivered electricity can refer to electrical energy or electric power. It reflects the internal average price at which electricity can be sold for the investment’s net present value to be zero (i.e., its revenue requirement), and is therefore analogous to the concept of Levelized Cost of Electricity (LCOE) for generation technologies. The LCOS for storage technologies and LCOE for generation technologies can be directly compared.
In simple terms, the Levelized Cost of energy storage is the minimum price per kWh that a potential investor requires to break even over the entire lifetime of the storage facility.
In the 2019 market environment for lithium-ion batteries, an estimate of an LCOES of around twelve U.S. cents per kWh for a 4-hour duration system was calculated, with this cost dropping to ten cents for a 6-hour duration system.
Projected cost reductions for battery technologies limit the competitiveness of pumped hydro and compressed air. Battery technologies exhibit the highest probability of lowest LCOS in most applications beyond 2025. By 2030, lithium-ion appears to be the most cost-efficient in most applications, in particular with <4 h discharge and <300 annual cycles such as power quality and black start. For applications with greater duration and cycle requirements, vanadium redox flow stays competitive, albeit never being the most likely to offer minimum LCOS.
The average projected capital cost reduction to 2022 for all relevant technologies for small-scale use is depicted below. This cost was calculated using the average cost reduction extracted from research for the years 2019-2022 for each technology and extrapolated in Rands/kWh for each technology.
Levelised Cost of Storage Formula
The LCOS for 5 different technologies were computed using the above calculation. The assumptions used to compute LCOS were obtained from research on the respective topics and are as follows:
- The combination of energy storage with PV systems creates value through shared infrastructure such as having only one Power conversion system (PCS), interconnection, and balance of system in the combined plant. The assumption that was made as a result is that the cost of the PCS will be deducted from the installation cost of the battery system. This cost was equated to 30% of the total installation cost per kWh for each technology.
- The initial average BESS capital costs for each technology will be as per the chart above.
- Loss of efficiency costs as a result of charging from PV was not considered.
Assumptions used to calculate LCOS for different battery technologies
The key variables in determining the Lifetime Cost of your battery includes:
20% of a battery’s capacity is degraded after 10 years and therefore must be replaced and the cost of such a replacement is 8.4% p.a less than the original price. In year 20, it is assumed that another 20% of the battery capacity has degraded and that cost is double the aforementioned percentage less than the original price.
Integral to PV system design and cost is how the battery is intended to be used. We assume a 75% discharge rate of battery capacity per day for a 4 hour, 60-megawatt battery. The amount of electricity that is fed to a battery as a percentage of the total generated energy from the PV system will vary depending on location, as sunnier locations will generate more electricity and therefore, a lower percentage of that will go to the battery.
Here the roundtrip energy losses from feeding the electricity from the PV system to the battery and then from the battery to the grid or demand source are calculated. Energy losses can also be calculated with electricity from the grid to a battery and back again, as these calculations may differ.
In addition to the normal operating and maintenance costs of a PV system, there is also the 2% of capital cost for operating and maintaining the battery above and beyond any battery replacement costs.
The projected dominance of lithium-ion technology is the result of good performance parameters, such as high round-trip efficiency and sufficient cycle life, and strong relative investment cost reduction due to a high experience rate coupled with moderate levels of installed capacity for stationary systems. It follows that the development of alternative electricity storage technologies might become futile due to the challenge in matching the cost and performance advancement lithium-ion has achieved to date and is expected to achieve in the future. This would mirror the continuing dominance of 1st-generation (crystalline silicon) solar cells despite significant investments in alternative solar cell technologies which were initially expected to be significantly cheaper. Just like crystalline silicon solar cells, “lithium-ion” is collective for a range of technologies, offering the possibility of chemistry or design improvements that ensure the projected cost reduction for the technology group. A more detailed study could include distinct cost and performance parameters of lithium-ion technology variations.
One possible reason for the high experience rate for stationary lithium-ion systems could be the technology’s modularity that enables knowledge spillover from other markets like lithium-ion batteries for electric vehicles.
On performance, it should be noted that due to the recent research and deployment focus on lithium-ion batteries for portable, transport, and stationary applications, the technology might be closer to its performance limits than others, which could suggest that performance improvements offer an avenue for alternative technologies to become more competitive than lithium-ion.