Announcing the Latest Edition of the Levelized Cost of Storage Report (LCOS 3.0)

Daniel Gabaldon is a co-founder of  Enovation Partners.

Earlier this month, Enovation released the latest edition of the Levelized Cost of Storage report (LCOS 3.0) in collaboration with the global investment bank Lazard. Here are some reflections on what we learned:

1. Energy storage costs continue to decline rapidly, but…
   • Not all technologies are following at the same pace of improvement. Li-ion has fallen faster over the past year, and is poised to continue a slightly steeper trajectory of cost decline – compared to lead and flow batteries – over the coming 5 years.
   • As a result, lithium-ion may be the lowest cost chemistry even for longer duration use cases within the next few years.
   • EPC costs went up in several cases over the past year, in part reflecting the OEMs’ and developers’ hard-learned lessons of cost over-runs, especially in BTM.
   • Costs may have fallen even faster – especially given the intense competition evident in some energy storage regional markets – were it not for the ability of the largest battery manufacturers to maintain pricing discipline. On the other hand, we did not detect any impact on costs from much discussed rise in cobalt (or lithium) prices.

2. The various revenue streams available for energy storage projects across North America remain diverse, complex, and often unpredictable:
   • The mix of revenue streams earned by storage projects varies dramatically by use case and region, reflecting differences in regulatory treatment more than underlying differences in regional electricity systems.
   • Even for the simplest types of revenue streams, such as reducing demand charges, complexity in the rules for when and how peak demand is calculated makes a simple comparison of unit prices hazardous.
   • Wholesale market rules continue to evolve – in some prominent cases, in ways unfavorable to storage – and reflect the (year on year) volatility inherent in today’s wholesale electricity markets.
   • Revenues for T&D deferral are extremely situation specific, reflecting a lack of shared regulatory frameworks for rewarding non-wire alternatives as well as the broad range of T&D capital costs.
   • In the “Value Snapshot” section of the report, we offer some specific examples of combined revenue sources for each of our use cases. Optimizing project configuration and operation to reflect the operating realities of different storage technologies and the esoteric details of multiple tariffs, market instruments, and subsidies remains daunting.
   • Numerous system benefits provided by energy storage – and observable in integrated resource planning studies of the impact of energy storage – simply aren’t reflected in revenue streams currently available to developers, especially in liberalized markets. We refer to this as “Missing Money” in the report. More on this later….

3. Rapidly evolving technology and markets demands ongoing refinement of the LCOS methodology. While this year’s study remains anchored on the same core principles of the earlier editions, we have attempted to incorporate several of our own innovations and other’s suggestions:
   • The basic idea behind the LCOS is to provide a framework allowing an apples-to-apples comparison of the cost of energy storage observed in the market (based on dozens and dozens of interviews with leading energy storage market participants). The clear definition of use cases and the provision of a full set of cost and performance data are critical to fulfilling that objective.
   • We apply that same, practical perspective to reporting actual (pecuniary) revenue streams available to real world energy storage projects.
   • This year we have added a bit more cost-related information to make the report more useful, including displaying the LCOS results in $/kW-year as well as $/MWh, and providing estimates of next year’s pricing for lithium projects.
   • We have updated our approach to calculating project “augmentation,” that is, the expected cost of oversizing projects to enable them to continue to provide the stipulated use case performance (e.g., available energy for a given number of cycles and operating days per year) over the life of a project.
   • On the other hand, we have reduced the number of technologies and use cases profiled to simplify the report.

We have already assembled a growing list of additional enhancements we plan to apply to the LCOS 4.0, and would really appreciate any suggestions for improvements/changes can offer.

Enovation Partners would be happy to schedule an in-depth conversation with your team on our findings and methodology. If interested, please contact Ben Lowe at blowe@enovationpartners.com. The team that led the Lazard LCOS 3.0 analysis will be hosting a breakfast workshop at our 2018 Cleantech Forum San Francisco on Tuesday, Jan 23rd.