Projecting the future lifetime cost of electricity storage technologies
There is consensus to use levelized cost of energy (LCOE) as a lifetime cost metric to compare energy generation technologies, such as solar, wind, and coal plants. However, there is no universally applied metric for calculating the cost of energy storage technologies. As a result, manufacturers have a hard time explaining cost advantages over their competitors, investors struggle to make educated decisions for financing, and end-users are unsure about which technology to choose.
Energy storage technologies can be used in a range of applications (e.g. frequency response, energy arbitrage, power reliability). These different applications have different operational requirements (e.g. duration of energy supply, number of activations per year) and each storage technology is differently suited to these applications based on their individual cost and performance parameters.
The best approach is to compare storage technologies for clearly defined application requirements using storage-specific lifetime cost. These lifetime cost account for all technical and economic parameters affecting the cost of delivering stored electricity. There are two forms of lifetime cost which matter:
Levelized cost of storage (LCOS) quantifies the discounted cost per unit of discharged electricity (e.g. USD/MWh) for a specific storage technology and application. It divides the total cost of an electricity storage technology across its lifetime by its cumulative delivered electricity. By doing that, the metric describes the minimum revenue required for each unit of discharged energy for the storage project to achieve a net present value of zero. The metric is used for applications that value the provision of electric energy (e.g. MWh)
Capacity cost quantifies the discounted cost per unit of power capacity provided for a certain timeframe. If represented per year this gives the annuitized capacity cost (ACC).
Pumped hydro had the lowest LCOS in 2015 at just below 200 USD/MWh median (range: 150-225 USD/MWh), followed by compressed air at 250 USD/MWh median (range: 200-300 USD/MWh). However, the strong anticipated investment cost reductions for battery technologies mean that by 2030 vanadium redox flow and lithium ion are likely to be the most cost-efficient solutions for this application.