The Complexity of Levelized Cost of Storage

LCOS

Energy storage investors often evaluate many different projects and technologies. In doing so, one of the most important key performance indicators includes comparing LCOS. The Levelized Cost of Storage (LCOS) measures the annualized capital cost of energy storage for the energy (most often measured in MWh). The issue is that it’s difficult to compare different storage technologies since they have different characteristics and are used for different purposes. Here is our overview when comparing LCOS.  

Comparing energy storage solutions

Pumped Storage is an established technology with a high technology readiness level. It can provide energy to balance the grid for hours and days if needed. The amount of stored energy is immense compared to batteries for instance. The pumped storage plants that Mine Storage are developing range from 15-400 MW in power output, and 30-2 800 MWh in energy for one discharge. In addition, it adds much needed inertia to stabilize the grid and improve power quality.

Lithium-Ion is suitable close to the load since it can respond in milliseconds and is more or less portable. On the other hand, it has much less scale and duration than Pumped Storage Hydropower or Hydrogen solutions. Furthermore, Lithium is a rare earth metal, where the reserves are projected to run out by 2025 given the projections for e-mobility.

Hydrogen solutions, also referred to as Power2X is about producing fuel in gasified form, suitable for decarbonizing the transport, steel, and mining sectors. However, most experts agree that the grid supporting application of creating electricity from hydrogen and feeding it back to the grid is very limited. It becomes too expensive and energy consuming since the round-trip efficiency of such an application is substantially less than 50%.  

Different ways of calculating LCOS

Comparing LCOS results from different sources is difficult, as the parameters differ. For instance:

The application of different energy storages differ, some can be used for frequency regulation whilst others are used for arbitrage.

If the storage is coupled with other forms of generation such as wind power it will affect how the LCOS looks.

Also, the discount rate has an impact on LCOS. This in turn is affected by the capital structure, i.e. the equity-debt ratio, expected rate of return, tax rates, beta risk and inflation.

Just by adjusting the discount rate the results will differ substantially between the scenarios. Pumped Storage has an economic lifecycle of at least 40 years. Some of the existing plants has been in operation for more than 80 years. The lifecycle of batteries depends on the use and the physical prerequisites around them, temperature, the number of charging cycles, and therefore their lifecycle is limited to between 3 and 15 years. A true LCOS comparison between large scale storage technologies requires using a timespan of for example 40 years, which increases the LCOS for batteries as they regularly need to be replaced.

Studies on comparing LCOS

There are a few good comparisons available, where both large-scale gravitational solutions, electrochemical solutions and hydrogen is included. Lazard compares the LCOS on a regular basis, but has chosen not to include pumped storage from 2017 and onwards, even if pumped storage accounts for more than 90 % of the world’s storage capacity.

Navigant has compiled a comparison between storage technologies including LCOS, where they are referring to a development of Lazard’s studies done by San Diego Water Authority, but taking into account the long lifecycle of pumped storage which results in a severely lower LCOS per MWh compared to Lithium –Ion.

Early analyses by Lazard gives results in the same direction with the LCOS of pumped storage being less than 50 % of Lithium-Ion. The most part of the LCOS of pumped storage being for charging, it does not consider that pumped storage can be coupled with solar or wind power, and it does not consider pumped storage as a solution for frequency regulation for instance.

Conclusions

Different energy storage technologies have different characteristics of application, duration, length of life, round-trip efficiency, energy to power ratio, technology readiness and environmental impact. In addition, only a few technologies add inertia to the grid (which pumped storage does).

Lithium-Ion batteries has limited scalability for large power and energy outputs which makes them better for ultra-fast frequency regulation with less duration, for electric vehicles or as stationary storage close to the load.

Power2X solutions has scale, a lower round-trip efficiency, and are suitable for producing fuel in the form of gas for the transport sector or the steel and mining industry. It is still also an emerging technology, which has still significant way to go before commercially viable for large scale.

Pumped storage has a significant initial capital cost. It’s competitiveness only becomes apparent at tens of MWh but above that it has the lowest LCOS of all technologies. It is a grid-scale storage solution that can balance the grids and enable more weather dependent power generation. Pumped storage has a higher capital cost than batteries, but with the amount of energy that is stored, the LCOS is the lowest of all deployed technologies today.