The long-term cost of lithium-ion battery energy storage systems that power the grid continues to decline, even faster than expected, making them cost-competitive and increasingly becoming an alternative to natural gas power plants in important energy markets.
This is the result of a survey report on the Levelized Cost of Energy (LCOE) of energy storage systems, recently published by Bloomberg New Energy Finance. LCOE is a technology that supplies energy throughout its lifecycle and can be used in many key clean energy technologies.
According to its analysis of public and proprietary data from over 7,000 energy storage projects worldwide, the levelized cost of energy (LCOE) for lithium-ion batteries has fallen by 35% since the first half of 2018, reaching $187 per megawatt-hour. This decline exceeds the continued decrease in the LCOE for solar power installations and onshore and offshore wind power.
Over the past year, the levelized cost of energy (LCOE) for offshore wind power has fallen by 24%, dropping below $100 per megawatt-hour (MWh), compared to approximately $220 per MWh five years ago. The LCOE for onshore wind and solar power has fallen by 10% and 18%, respectively, with projects commencing construction in early 2019 priced at $50 and $57 per MWh, respectively.
It is certain that these power generation technologies remain significantly cheaper than battery storage systems in terms of levelized cost of energy (LCOE), and this does not take into account that they are actually power generation technologies rather than energy storage technologies. To convert the capacity of battery storage systems into LCOE data, the report models utility-scale battery installations operating daily, assuming charging costs are 60% of the relevant wholesale base electricity price.
Bloomberg New Energy Finance points out that even so, the rate of decline in the levelized cost of energy (LCOE) for batteries is still surprising, especially for long-duration energy storage applications that were difficult to supply with previous generations of lithium-ion batteries. Since 2012, based on historical data, the benchmark LCOE for lithium-ion batteries supplying four hours of power has decreased by 74%, which is a standard requirement for many grid services.
In contrast, since 2010, the levelized cost of energy (LCOE) for onshore wind power, solar photovoltaic, and offshore wind power has decreased by 49%, 84%, and 56%, respectively.
The report points out that, in the absence of subsidies, the levelized cost of energy (LCOE) of long-duration lithium-ion battery energy storage systems has begun to compete with the costs of coal-fired and gas-fired power generation in the market, and can supply electricity to the grid when needed (rather than when wind and sunlight are plentiful).
These findings align with those provided by Wood Mackenzie Power & Renewables and other industry analysts. Over the past year and a half, several large solar + storage projects have seen record low bids, including from Colorado's Xcel Energy, which offered $36 per megawatt-hour for solar with storage and $25 per megawatt-hour for standalone solar power, while Nevada Energy offered even lower bids for its solar and solar + storage projects.
Ravi Manghani, head of energy storage research at Woodmac, reported at the Green Technology Media Energy Storage Summit last December that these price points represent a premium of about $6 to $7 per megawatt-hour for solar projects compared to stand-alone solar power facilities, and are partially "dispatchable" in the manner of traditional power plants.
At the same time, it's worth noting that the current pricing trend for lithium-ion batteries is mixed. While continuous technological improvements and the expanding scale of manufacturing have driven down prices, supply bottlenecks have partially offset these factors, driven by surging demand from large-scale energy storage projects in the US and South Korea over the past year.
WoodMac found that, due to these challenges of battery supply shortages, battery prices fell by only about 6% from 2017 to 2018, instead of the previously predicted 14%.
