The upcoming 14th Energy Storage World Forum will feature over 40 experts in energy storage, hailing from all over Europe. These experts will be sharing their insights from recently deployed projects, and addressing the crux of key challenges currently being faced by the industry. During our research, one issue repeatedly raised was the relatively high costs of deploying large-scale battery energy storage (BESS) projects in Europe. With that in mind, we approached two speakers from renowned developers to find out exactly what they thought about this issue.
Christophe Banos, Portfolio Development Manager at Pivot Power (UK), and Tancredi Peraino, Project Manager of Hybrid Power Systems at Akuo Energy (France), shared their opinions on what they believe to be the biggest contributors to the overall cost of energy storage projects and how it can be reduced.
Q: From your experience, what is the biggest contributor to the overall cost of energy storage projects?
Christophe Banos: If talking about battery energy storage, then the highest cost would naturally be related to the integrated battery storage system (from cells through to the inverters) package which can contribute up to 70% of the total Capital Expenditure (CAPEX).
Tancredi Peraino: The BESS investment cost is basically structured in the following way:
- 40% – Battery Pack: Modules, racks, and battery management system
- 33% – BOS: Inverter, containers, climate control, SCADA and EMS
- 15% – Soft Costs: customer acquisition, project development, grid connection, overhead, taxes and duties
- 12% – EPC: General and detailed engineering, multi-site procurement, civil and electrical works, commissioning, and tests.
Then, when it comes to compare the BESS cost with other storage technologies, it is important to find a new variable capable of accurately representing the costs of an energy storage project. More specifically, we are looking for the equivalent of the Levelized Cost of Energy (LCOE), used for the energy production assets, but, this time, for an asset that does not produce energy but provides services instead.
Here comes a new metric that is now prevailing in the storage sector which is the Levelized Cost of Storage (LCOS). This variable considers the investment cost needed to design, construct, and utilize the BESS over the course of its useful economic life cycle. Specifically, this includes the operation and maintenance (O&M) costs, effects of the battery technology’s degradation and battery replacement. For these reasons, the LCOS is the value to look at when comparing a BESS against alternative resources or for several applications.
Based on a large portfolio of BESS projects, the CAPEX accounts for about 80% of the total LCOS calculation.
Q: Do you have any suggestions for how this cost can be reduced?
Christophe Banos: Battery cell costs have significantly reduced over the last few years due to the high demand from car manufacturers switching to electric vehicles. Further cost reduction may be achieved through a learning curve, modular design requiring less civils and electrical works on site as well as innovation in chemistries (e.g. solid states).
Tancredi Peraino: Battery prices will for sure play a big role in the overall cost reduction of BESS projects. Bloomberg sees the capital cost of a utility-scale lithium-ion storage system falling by another 52% by 2030. Tesla is even more optimistic. Elon Musk foresees a reduction of battery costs by over 50% in just 3 years based on the following components: cell design, cell factory, anode, and cathode materials.
Performance improvements of battery modules will be another important factor that will drive the LCOS down. In fact, the number of cycles that a battery can support will have a directly proportional impact on the levelized cost of a storage project. Currently, the industry generally assumes a 10-year performance warranty. However, things change fast and 15- and 20-year warranties are being discussed which will boost the economics of a BESS project. Price reduction is also expected in the balance of system components, soft costs, and the construction phase. We are bound to see more cost optimisations along the entire value chain as the energy storage industry matures.
Q: In your opinion, what are the significant soft costs associated with battery energy storage projects?
Christophe Banos: Not having common international standards can lead to additional costs being incurred. Insurance cost is a good example, as the insurance industry is still learning and adapting to the perceived risks that battery energy storage systems present.
Tancredi Peraino: Many soft costs are derived from the lack of uniformity across the international energy storage sector. This is quite normal given that the utility scale energy storage industry is still in its infancy.
Q: How can soft costs incurred be addressed?
Christophe Banos: As with any new industry or asset-class, soft costs can be addressed by continuous improvement and “learning by doing” and this is applicable throughout the project lifecycle from development to operations. Battery storage systems are still complex projects with tightly interlinked cells usage/life and revenue capture – which in the UK, comes with merchant exposure. It is therefore key to have the complete picture to inform the business and technical case and deliver. Organisations must also embrace lessons learnt to be able to hone in the key identified assumptions that could be improved on.
Tancredi Peraino: Most of the players are rapidly addressing this problem by, for example, adopting the UL and IEC certifications. Furthermore, a better understanding of energy storage technology and its application is spreading among public and private entities, making the process of customer acquisition and tendering smoother. Additionally, best practices and processes are being aligned across all the players in the storage sector, which will help to reduce soft costs.
Utilities are also starting to develop more expertise in BESS integration. In the future, this could probably reduce the role of the integrators. In fact, one day the utilities and developers will directly manage the engineering, procurement, and construction of their own BESS assets without having to partner with specialised companies.
Tancredi Peraino will be delving deep into strategies for managing the charge cycle of batteries to prolong the life of energy storage assets during his stand-alone presentation. Christophe Banos will be touching on how to solve the conflict between achieving the highest possible profits from ESS projects and reaching 100% clean energy in the grid during the EPC panel discussion at the 14th Energy Storage World Forum in May.
If you want to know more about this and other topics directly from end users of energy storage technologies join us at one of these annual events: The Energy Storage World Forum (Grid Scale Applications), or The Residential Energy Storage Forum, or one of our Training Courses.