Navigating the Maze of Energy Storage Costs 9 th German PV & Energy Storage Market Briefing Frankfurt a.M., May 19, 2016
Apricum – The Cleantech Advisory Apricum at a glance Business Founded in 2008, over 100 successful transaction advisory and strategy consulting projects Industry focus Cleantech. Strong focus on solar, wind, energy storage and integrated renewable energy systems Team >40 cleantech experts with decades of industry experience Clients Companies, investors and public institutions Services Transaction advisory (e.g., fund raising, due diligences, bid advisory) Strategy consulting (e.g., market entry) Locations HQ in Berlin, Germany Representative offices: UK, Turkey, Saudi Arabia, India, China, South Korea, Japan, Indonesia, Philippines, Thailand, USA, Mexico, Brazil, Argentina 2
The cost of energy storage is a key driver for the expected growth – but what does “cost” really mean? Situation and complication • Significant growth is expected over • Assessment of costs for different energy the coming years in particular for storage solutions can be a tough stationary energy storage systems exercise for all stakeholders, e.g., when: (ESS) • Storage system manufacturers need • One of the key drivers – and to explain cost advantages over their prerequisites – of this growth is a competition significant cost decrease, increasing • Investors need to make an educated the competitiveness of energy decision for financing storage compared to alternative • End users need to know which solutions solution is most economical in the • However, there is no universally targeted application applied metric for calculating cost of ► Calculation of meaningful, energy storage such as levelized comparable cost of energy storage cost of energy (LCOE) is for energy needed generation technologies 3
To calculate meaningful, comparable costs of energy storage, three basic rules have to be followed. Solution • ESS technologies can serve a variety of use cases, both Cost comparison in-front-of-the-meter and behind-the-meter 1 for same use • Each use case requires different operating parameters, cases only which impact costs and the optimal ESS technology • Cost of energy storage is based either on provided energy (kWh) or on power capacity (kW) Choose the right 2 • Appropriate basis depends on the value the ESS is basis adding in the specific use case, i.e., the costs avoided 1 • Calculations based on a. Upfront costs the same level of detail b. O&M costs and comparable c. Residual value Know your cost 3 assumptions influencers d. Charging costs • All cost influencing e. Usable energy over lifetime factors are included f. Financing costs 1) In the following, focus on calculating the cost of energy storage on an energy basis 4
Already on the basic level of energy storage costs, a close look is required when comparing different storage solutions. Cost influencers (1/6): Upfront costs Upfront costs: All necessary investments required for the complete and connected system What to watch out for: • Are we talking AC or DC? Costs for inverters can make a significant difference (~200 – 500 USD/kW) • Balance of System (BoS) included? Necessary equipment (e.g., AirCon) can vary significantly from technology to technology • On-site work and integration considered? Assembly of batteries and racks, technical assistance during installation, equipment testing and commissioning support can account for 15 – 20% of total system costs 5
O&M requirements and the residual value of different storage technologies can vary significantly. Cost influencers (2/6): O&M costs and residual value O&M costs: Cost incurring from required periodic minor and major servicing Residual value: Achievable sales price after ESS has reached its end of life What to watch out for: • Maintenance costs neglected? Some storage technologies involve mechanical parts requiring significant maintenance (e.g., redox-flow pumps) Pumps and other • What can be sold? Inverters, switchgear, mechanical transformers; resale value of ESS depends on components can result in secondary market and life expectancy maintenance • “Negative” sales price? Residual value can be cost negative if respective ESS requires costly dismantling and recycling of hazardous materials Redox flow battery system 6
The cost of charging the ESS needs to be considered – but is often left out. Cost influencers (3/6): Charging costs Charging costs: Costs for charging the ESS with electricity from the grid/self-generated electricity ILLUSTRATIVE What to watch out for: Discharging power residential ESS • What are the roundtrip efficiencies? Depending on technology, varying losses during a cycle with impact depending on electricity price • Energy needed for ESS operation? Depending on technology and often ambient temperatures (e.g., AirCon for Li-Ion) • Effective efficiency applied? Low discharge power 0% 100% 12h 22h at residential ESS leads to actual efficiencies Inverter Hours of day significantly below rated efficiencies in data sheets efficiency 7
Costs of storage in energy use cases should be put in relation to the ESS’ energy output over lifetime. Cost influencers (4/6): Usable energy over the lifetime (calendar life, cycles per year) Usable energy over lifetime: KWh of electricity that can be discharged from the ESS until its end of life Average monthly irradiation [kWh per day] What to watch out for: Insufficient irradiation to fill Munich • What is the calendar life of the ESS? Elapsed time storage in winter months 6 before an ESS becomes unusable, whether it is 4 active or inactive – mainly depending on 2 chemistry, manufacturing specifics, voltages and 0 1 2 3 4 5 6 7 8 9 10 11 12 temperatures San Diego, California • How many annual cycles are needed? Depending 6 on the full cycles per day and operating days per 4 2 year – determined by the use case and often the 0 geography (self consumption PV: ~300 cycles/yr 1 2 3 4 5 6 7 8 9 10 11 12 in California vs. 200 – 250 cycles/yr in Germany) Source: PVGIS, NREL; including illustrative PV+ ESS that needs 4 kWh per day of irradiation to be filled 8
Costs of storage in energy use cases should be put in relation to the ESS’ energy output over lifetime. Cost influencers (5/6): Usable energy over the lifetime (cycle lifetime, depth of discharge) Usable energy over lifetime: KWh of electricity that can be discharged from the ESS until its end of life ILLUSTRATIVE What to watch out for: Capacity degradation for battery in use case with 200 full cycles/yr • Projected cycle lifetime vs. cycles needed? Number Battery #2: 100% of full cycles before nominal capacity falls below 3,000 cycles or more lifetime – 70 – 80% of initial rated capacity – however, typically calendar life exceeds calendar life times annual cycles needed; limits lifetime “excess” cycles should not be reflected in costs • What is the depth of discharge (DOD)? For most chemistries, the lower the DOD applied, the higher 80% the cycle lifetime and the roundtrip efficiency – but Battery #1: 2,000 cycles also the lower the electricity discharged per cycle Calendar life lifetime – cycle 15 years life limits lifetime 9
Financing costs and time value needs to be reflected by discounting in- and outflowing cash with the WACC. Cost influencers (6/6): Financing costs Financing costs: Cost of equity and debt required to finance the ESS What to watch out for: Key drivers of WACC: • Time value considered? Future cash flows have a High gearing lower present value than cash flows generated or High country risk paid today and need to be discounted accordingly High offtaker risk • Realistic cost of capital applied? Cash flows are Long duration of offtake discounted with the weighted average cost of contract capital (WACC), which depends on risk and return High technical risk expectations amongst others – watch out for overly High currency risk optimistic assumptions High stability of revenues Likely impact on WACC 10
Levelized Cost of Stored Energy (LCOS) – simple metric to reflect the cost influencers, but not a way to “rule them all”. LCOS methodology • To reflect all the cost influencers in a simple metric, a constant price per kWh over the lifetime is assumed: Levelized Cost of Stored Energy • LCOS = levelized price per kWh at which the net present value of the ESS project is zero • Only applicable for use cases with value added through energy supply (second rule) – should not be applied for power based use cases (e.g., T&D deferral) Source: Apricum analysis With: #cycles full charging/discharging cycles per year, DOD depth of discharge, C rated rated capacity, annual degradation rate of capacity (assuming linear degradation), N project lifetime in years, r discount rate (e.g., weighted average cost of capital), O&M O&M cost (assumed to be constant), residual value (after project lifetime), P elec-in charging electricity tariff (assumed to be constant), 𝜃 (DOD) round-trip efficiency at DOD 11
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