Energy storage: How to compare costs
Cost comparisons of energy storage systems only make sense for a common and clearly defined use case, Apricum expert Florian Mayr stresses.
Basic rules to followWhile there is general consensus to use levelized cost of energy (LCOE) for comparing different energy generation technologies, such as solar parks, wind farms and coal plants, there is no universally applied metric for calculating the cost of energy storage. This can make it a tough exercise for all stakeholders: storage system manufacturers have a hard time explaining cost advantages over their competition, investors struggle with making an educated decision for financing and end users do not know which energy storage solution is most economical in the targeted application. In order to determine meaningful, comparable ESS costs, there are three basic rules to follow.
Compare costs within same use cases onlyIn contrast to technologies for generation, which have the single use case of generating electricity, energy storage technologies can serve a variety of use cases. Each use case requires different operating parameters, which affect the costs, and each storage technology optimizes along these parameters differently. Therefore, cost comparisons of energy storage only make sense for a common and clearly defined use case.
Choose the right basisCost of energy storage is typically based either on the provided energy (i.e., kWh, MWh) or on the power capacity (kW, MW). Choosing the most appropriate basis depends on the value that energy storage is adding in the specific use case, i.e., in many cases, the costs that are avoided through application of energy storage.
Know your cost influencersThe key to comparing apples with apples is to make sure that individual cost factors are calculated with the same level of detail and are based on comparable assumptions.
Upfront costs:All necessary investments required for the complete and connected system, e.g., power electronics, balance of system, assembly.
O&M costs: Costs for periodic minor and major servicing.
Charging costs: Cost of charging the ESS with either grid sourced or self-generated electricity, impacted by roundtrip efficiencies and energy needed for ESS operation.
Useable energy over the lifetime: Cost of an ESS intended for energy-based applications should be put in relation to the expected energy output of the ESS over its lifetime – determined by calendar life, number of cycles per year, cycle lifetime and depth of discharge.
Residual value: After-life value based on the achievable sales price for the individual components including inverters, switchgear and transformers, can be also negative.
Financing costs: Discount factor reflecting the financing costs, typically the weighted average cost of capital, needs to be applied to all outflowing and inflowing cash.