Pricing Energy Storage Systems
Pricing energy storage units often leads to figures in $/MW or $/MWh, that measure the price of the unit relative to its power or its capacity. These figures are then used to roughly compare different technologies, for instance, or vendor prices and estimates of current or future market price.
This method can be misleading for a series of reasons, some of which are discussed below:
An energy storage unit is made of various components that are put together and commissioned in order to get the system fully operational. In some cases the system is a full solution that includes inverters, interface management, a control system at the EMS (Energy Management System) level. In other instances it is only a battery with its own controls (BMS, Battery Management System). The system can be fully tested and commissioned, or just sold to an integrator that will take care of this. The system can also be installed in a facility or be a stand-alone device, typically delivered as a container. Significant costs can be borne by the buyer in the former case.
2. Price definition
The prices announced are typically purchasing prices, also known as CAPEX, CAPital EXpenditures. This is what the buyer pays to get the system up and running. This figure does not take into account the OPEX, OPerational EXpenditures, i.e. the maintenance costs, the cost of running the unit (for instance supervision or manual operations if the unit is not fully automatic), as well as disposal costs at the end of the system lifetime. The latter may or may not be included in OPEX but will be incurred anyway by the end user, and it is a part of the overall costs that can be barely or very significant depending on the technology used but also the local legal context.
The sum of all these expenditures is the TCO, Total Cost of Ownership. The lifetime of the system, for instance, can make Capex comparisons irrelevant. The buyer of a conventional lead-acid system, for instance, cannot expect to get much performance after as little as 3 years, whereas flow batteries are typically designed for the same lifetime as production assets, i.e. over 10 years and sometimes much more. The very definition of end of life is an open debate, with performance thresholds being specified by customers for each project rather than standardized. Different thresholds also make sense when conventional batteries often decline rapidly in performance once a certain value is reached (visualized as a ‘cliff’), as opposed to a steady decline for flow batteries.
Maintenance can be the biggest component of Opex. It can include the replacement of batteries in conventional technologies like lithium-ion or lead-acid, or the replacement of core parts such as stacks in vanadium redox flow batteries, for instance.
While Capex is known at the time of the purchase, there is always uncertainty about Opex. The cost of specific materials, for instance, can vary, or more stringent regulation can make disposal more expensive years after commissioning.
The lifetime of the system, of course, can hugely affect the projected costs. Flow batteries are often presented as more durable than conventional batteries. If lead-acid batteries have to be changed every 3 years, or lithium-ion batteries every 7 or 10 years, the investment cost for a 25-year system (the lifetime of the solar or windfarm it is connected to, for instance) is going to be much higher than with a 25-year flow battery. However, lifetime of flow batteries are only projections today since the systems on offer are quite recent.
Other factors can affect Opex with high unpredictability. Future innovations can change the game. If some of the Opex is based on the replacement of parts, for instance, progress made on the price or performance of these parts can make the energy storage system more profitable. This is more likely to happen with a recent technology than a older one, since there is potentially more to discover, but disruptive innovation can never be ruled out. In the case of flow batteries, for instance, new electrolytes can replace the original ones and provide more capacity, durability or other interesting features. If corrosion is an issue, such as in conventional flow batteries, better materials can be used in future cells.
Prices are sometimes presented as LCOE, the Levelized Cost of Energy. This definition is actually valid for energy production systems, whereas batteries do not produce any energy. What is labeled LCOE for batteries is in reality often TCO. However, it points to another way of pricing batteries: not from a cost perspective, but from revenues.
Energy storage systems can be used in different ways by customers. Depending on the services they can provide (peak-shaving, load shifting, frequency regulation, energy security, investment deferral, black start, grid resiliency…) and how these services are generating revenues (which is often heavily influenced by local regulation), the systems can generate different revenues in different places, in different business cases, etc., and the performance of a given technology can have a huge impact on its ability to generate these revenues.
An energy storage system used for peak-shaving, for instance, will store energy at a given moment when there is a surplus, and supply this energy back to the grid at peak time, when it is needed. The revenues generated will be different if this is done once a day or twice a day. If it is connected to an intermittent renewable source, its ability to generate revenues will depend on the amount of energy that can be generated: a solar farm in a tropical climate will make the battery more profitable than in a cloudy area. If the technology can only do peak shaving, it will be less profitable than another technology that can do this but also frequency regulation at other times in the day, for instance.
If the business model of the energy storage system is based on sales of kWh to the grid, the LCOE concept can be used to define a cost of the kWh over the lifetime of the system, just as it would be calculated for an energy production system. Profitability would be measured as a difference between the overall cost of the system (TCO) and the overall sales that can be made over the system’s lifetime.
However pricing an energy storage system is rarely as simple as a kWh sales estimate. These systems can make the grid more resilient, for instance, but there is no standard method to measure the value of such a service.
3. System definition
A system can be defined by a number of parameters such as power, capacity, performance, etc. Depending on this definition and the technology used, a solution can look good or not. A 1 MW lithium-ion energy storage system with a storage capacity of one hour could be of roughly the same price as an equivalent flow battery system, with a similar cost in $/MW or $/MWh, but the flow battery will look more complex and much larger due to a lower energy density. However if the same system is slated to store capacity for 6 hours, the cost of the lithium-ion system will be much higher, since it will require additional batteries whereas the flow battery will only require additional electrolyte.
The size of the system also matters. Batteries are usually made with cells that are multiplied to reach the desired power, and ancillary systems to manage these cells. The unit price of the cells usually decreases when the system’s power increases, due to economies of scale, and the cost of ancillary systems is proportional with power (ancillary systems for a system twice as powerful will not be twice as expensive). The overall economies of scale of different technologies are not necessarily similar. In some cases, it could then be more advantageous to choose flow battery over lithium-ion for a given system size, but not for another size.
Due to these considerations, it is not advised to work with raw figures even in the early stages of a project. The recommendation would be to set up a technical definition of the system, paying attention in particular to the size, scope, performance and type of services to be provided, before making estimates of system price for the various technologies which can be selected on that technical basis. An economic analysis is probably required even after these steps, because systems are hardly comparable and a large number of criteria are to be taken into account.
In this context, the objectives of Kemwatt’s technology are:
- To develop cheaper components of the system, such as the electrolyte or the membrane. While this is difficult with a given chemistry (like dissolved metals), using organic molecules provides options that can be used immediately or developed in the future.
- To improve the lifetime of the system, minimize maintenance operations and develop options for the disposal of the unit at the end of life.
- To design the system for as many services as possible and for a large number of business cases.
- To focus on the battery part of the scope of the system and establish partnerships with establish key players for the others parts, so as to get a product as proven, inexpensive and versatile as possible.