Are the way costs are calculated for energy storage truly reflecting its value?
With installation and operating costs being the major barrier to further uptake of energy storage, having clear figures for current costs, speed at which costs are dropping and realistic predicted future energy storage costs are of great importance to the whole range of related industries.
Calculating the cost of energy storage is not an easy task. One issue is that a single term — energy storage — covers a whole range of technologies — hydroelectric storage, electrochemical, flywheels, thermal. Creating an apples-to-apples comparison is challenging even before the different energy storage applications are taken into account.
The second issue is that as a still emerging technology, there is simply not enough data available (yet) to make strong future predictions. Energy storage costs are coming down, which promotes uptake, which brings costs down further — this much we know — but the rate becomes exponentially less predictable the more it is projected forward.
The most commonly used metric for energy storage costs is the Levelized Cost of Storage (LCOS), published by financial advisory firm Lazard. Lazard’s LCOS report is by far the most comprehensive study of energy storage costs and continues to improve its model and analysis with each edition.
While a great amount of effort has been expended determining the cost of energy storage, there has not been the same focus on the value of energy storage — a factor more elusive and harder to quantify. The beneficiaries of the value of energy storage can roughly be divided into end users, the grid and the wider environment.
Value to consumers is one aspect that can be easily calculated. The benefit of backup energy storage, reducing demand charges, and the opportunity to further lower future electricity costs are generally easy to quantify and then compare to the lifecycle cost of an energy storage installation.
The value of energy storage to the grid is where the most research is currently being carried out. With so many real world cases that directly benefit from energy storage — frequency regulation and response, energy arbitrage, ramping support, voltage support and capacity firming — accurately calculating value allows for smart long term grid planning.
The area where the value of energy storage is the most difficult to quantify is coincidentally where it has the chance to have the greatest impact. Reducing carbon emissions is the end goal of switching to a majority renewable grid. The inherent variability of such a grid is the main driver behind stationary energy storage development. One way countries are recognising this value is using energy storage as a way to further cut emissions and meet their ambitious national and international targets.
As stationary energy storage further penetrates the market, the research continues to improve. The 3rd version of Lazard’s Levelized Cost of Storage, released in November 2017, now provides “value snapshots” for energy storage technologies across all major use cases. Independent non-profit the Rocky Mountain Institute (RMI) are also trying to quantify the value of battery energy storage, focusing on opportunities with multiple use cases and value stacking.
Due to the number of interlinked variables involved, we may never reach a point where value can be calculated for each energy storage technology as a whole, although recent research continues to move in a promising direction. However, as energy storage technologies continue to mature and more performance data is gathered, the timeline of future predictability for both cost and value can be extended further into the future.
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.