A battery storage market trends update issued by the Energy Information Administration (EIA) in August 2021 reported that the cost of installing and operating large-scale battery storage systems in the United States declined by 72% between 2015 and 2019. This trend as well as studies from NREL and others indicating strong prospects for continued cost declines have lead regulators in at least nine states to advance battery storage programs via utility requirements and customer incentives. Utilities in these states and elsewhere are setting their own aggressive energy storage goals in long-range integrated resource plans (IRPs). Is battery energy storage the best solution for goals such as reliability, flexibility, and emissions reductions or one tool of many in our technology march?
California is oft sited as an example of a state that is placing major reliance on energy storage for the electricity sector. It increased the battery storage on its ISO grid by 10 times to 2,500 MW by the end of 2021. Significantly more storage is expected in response to an order from the California Public Utility Commission requiring the procurement of 11.5 GW of new capacity by California's load-serving entities by 2026. The order emphasizes zero-emitting generation, generation paired with storage, or demand response resources. Pacific Gas and Electric Company’s response to the order was a proposal to add nine new battery energy storage projects totaling approximately 1600 MW to its system.
Significant reliance on renewable energy resources to achieve ambitious greenhouse gas (GHG) emissions reduction targets has made storage a critical issue in California. But what about the economics of storage alone and storage coupled with other technologies? Lazard’s 2021 Levelized Cost of Storage study found the levelized energy cost (LCOE) of large-scale, wholesale storage ranged from $131 to $232/MWh for a 100MW/400MWh application. Large scale, wholesale storage plus PV ranged from $85 to $158/MWh for a 50MW/200MWh application. For comparison, Lazard found the levelized cost of gas peaking ranged from $151-$196/MWh and gas combined cycle ranged from $45-$74/MWh.
These LCOE figures indicate large-scale battery storage should be competitive now in certain market applications. Lazard’s case studies bear this out for domestic large scale illustrative projects sporting returns as high as 24% for a standalone battery project and 29% for a wholesale battery plus PV project. However, numerous caveats apply. Foremost, the rules for the participation of storage in the wholesale market must be clear and supportive. For example, wholesale battery storage participants should be able to monetize benefits including energy arbitrage, demand response, frequency regulation, resource adequacy and spinning/non-spinning reserve market participation.
Even in markets such as California that are strongly dedicated to making battery storage work, there is more to do. A review of California Independent System Operator (CAISO) energy storage working group meeting minutes reveal claims that present dispatch and bid cost recovery mechanisms may be causing financial losses for resources and potential reliability risks for CAISO. In addition, the ISO’s storage resources consist largely of short-duration capacity of one to four hours, whereas long-duration storage that can last at least eight hours is needed to weather the day-to-day and seasonal variability of solar and wind generation. Technologies other than lithium-ion may take precedence for large scale, long-duration storage. This is important because lithium-ion batteries are presently considered the optimal solution for EVs, and available capacities/resources may be insufficient for robust EV and stationary application expansion.
Jurisdictions around the country are adopting programs to promote behind-the meter battery storage for homeowners and commercial customers. Some public policy makers even believe energy storage is a means of reaching underserved communities. Lazard estimates the LCOE for a 0.006 MW / 0.025 MWh PV plus storage project to be $416-$621/MWh. In contrast, a Lawrence Berkeley National Laboratory study found the lifetime cost of saving electricity by U.S. utility efficiency programs is $0.046/KWh ($46.00/MWh). The order of magnitude difference between these costs makes it evident that promoting efficiency would be much better for customers and ratepayers than promoting PV and storage.
The LCOE for large scale battery storage makes it attractive and even competitive today for some applications in accommodative markets. Caution is still prudent because projections for continued cost declines are premised on growing economies of scale, which in-turn depend on continued renewables expansion. Further, the declining cost trend must extend to long-duration storage, which is needed to address increasing hours of negative pricing and renewables curtailment in ISO regions with high levels of wind and solar penetration. Finally, thorough analysis may reveal that battery storage is not the optimal solution for all challenges, considering the familiar example of energy efficiency that can lower peak demand, help reduce emissions, and improve flexibility at a lower cost than storage.