The business case is a key determinant for utilities in planning to implement new technologies and systems. The challenge comes in ensuring that all the potential benefits are quantified alongside the costs. With emerging technologies, this is further complicated not only in understanding all those benefits but also their dependence on a changing regulatory environment.
Energy storage has been rapidly gaining ground at utility-scale, especially in the US, Europe and Asia Pacific. [Engerati-Energy Storage Innovations Boosting Renewables and Disrupting Markets] Despite this positive activity, there appears to be a gap in the cost data.
System value of energy storage being ignored
A new report from the World Energy Council - which should give a further boost to storage - suggests that the value of energy storage has been underestimated by the industry, because of a too narrow focus on cost and ignoring of the system value of the stored energy.
The study finds that a narrow focus on the levelised cost of storage (LCOS) alone can be misleading. While the levelised cost metric is widely used for renewables and other power plants and allows for comparison across technologies, in the case of storage the levelised costs are both arbitrary and incomplete as they do not allow for differences in use cases, i.e. how the energy is stored and discharged, or cover all the applicable business models.
“Energy storage is a critical catalyst of the energy transition whose benefits are still undervalued,” states Christoph Frei, Secretary General of the World Energy Council. “The market is right to be enthusiastic about storage of energy, not just because of the cost reductions that it brings, but also because of additional revenue and other benefits that specific technologies in specific contexts can deliver.”
Storage for solar and wind
The report, which was lead authored for the Storage Knowledge Network by DNV GL with significant contribution towards the cost analysis from PwC, considers two storage use cases for solar and wind.
For the solar case, of daily storage with 6-hour discharge time at rated power (365 cycles/year), the most competitive energy storage technologies were compressed air and thermo-chem technologies, with LCOS of €50-200/MWh.
For the wind case, of a two-day storage structure with 24-hour discharge time at rated power (183 cycles/year), few technologies appeared attractive. The higher levelised costs, >€200/MWh, result from the high sensitivity of the LCOS to the number of discharge cycles per year, as well as the suboptimal energy-to-power ratios required.
For both cases, a significant decrease in cost for the majority of storage technologies is estimated to 2030, which will result in both solar and wind storage becoming more and more competitive. Battery technologies followed by sensible thermal, latent thermal and supercapacitors show the greatest reduction in cost. Battery technologies show a reduction from 2015 around €100-700/MWh to €50-190/MWh in 2030 (€_2014), which is a reduction of over 70% in the upper cost limit in the coming years. Pumped storage shows the lowest cost reduction, due to the current maturity level of the technology, followed by compressed air energy storage.
Shifting from storage cost to value
In the report the industry’s focus on the cost of storage is attributed to two factors – a legacy from the renewables industry, with its narrow focus on LCOE, and that in most energy markets, flexibility is not sufficiently valued or monetised.
The immaturity of the energy storage industry is reflected in the current wide variation in storage costs. Increased use of renewable energy generation will increase the demand for energy storage and then economies of scale and improvements in the manufacturing and engineering of batteries will bring costs down further over the next couple of years.
Nevertheless, while the cost reduction of storage is important for its use, it is insufficient. The important metric is value, which is a function of both cost and revenue. As these will vary with context, storage applications need to be assessed on a case-by-case basis considering the intrinsic and extrinsic value of the storage and the costs avoided by its operation. There is thus also an urgency to better understand the revenue side of storage.
Storage policy recommendations
Some specific recommendations for policy makers include focusing less on an investment cost only approach for storage technology assessment, where only technologies with the lowest LCOS are rewarded. Flexible markets should be developed as a matter of urgency as should policy support and an enabling regulatory framework to facilitate further commercial deployment of storage technologies. Finally, storage should be considered as a key component for grid expansion or extension.