Economics of Energy Storage

The past decade has seen a rapid decline in the cost of energy storage technologies — in particular, costs of lithium-ion battery energy storage systems (BESS) have dropped 70% since 2012, and are forecasted to drop below the $200/kWh (€160/kWg) threshold by 2019.

This precipitous decline has made the economics of energy storage correspondingly more attractive to investors, grid operators, utilities and end-users. With storage capacity predicted to double six times before 2030, the maturing technology has clearly reached a tipping point where economies of scale are possible.

Source: Springer Nature

Before this tipping point, energy storage systems (ESS) only made financial sense for certain specific business cases certain business cases or with the help of government subsidies and funding. Now, the number of of situations where ESS are equally or even more financially viable than fossil fuel generation is increasing.

At the time of writing, the economic case for standalone energy storage is still limited — but this is likely to change as prices continue to fall. An important point to consider is that grid resilience and avoiding dangerous power outages is valuable in and of itself, both for whole-grid systems and individual homes. 2018 has seen multiple storage projects for emergency response applications as well as large increase in residential solar-plus-storage installations.

Another way energy storage makes sense economically is when it is measured against the cost of building new fossil fuel generation plants or transmission and distribution (T&D) infrastructure. These are the second most important areas that have seen a sharp uptake in energy storage in the past two years.

Other storage asset owners provide ancillary services to grid operators such as frequency regulation, peaking resources, voltage support and energy arbitrage. While one of these applications alone may not be enough revenue to justify capital expenditure, innovative developers are experimenting with value stacking — one ESS providing multiple services — to achieve profitability.

The successes of ever more ambitious storage projects (Tesla’s South Australian Big Battery, the Aliso Canyon gas-leak response) are proving the business case in the eyes of other companies and utilities. Future economics are foggy but the trend is clear; high capital expenditure, long storage system lifespans and uncertain policy changes make costs uncertain — but the still-falling costs and exponential increase in capacity shows energy storage is here to stay.

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