Future cost of electricity storage and impact on competitiveness

Future cost of electricity storage and impact on competitiveness Oliver Schmidt 28 June 218 EU4Energy Policy Forum Karven 4 Seasons Resort, Sary-Oi, Kyrgyzstan

Storage may have a big impact, but its future role is perceived as highly uncertain Problem: Uncertainty on role of storage Critical uncertainty: What keeps you awake at night Action priority: What keeps you busy at work Source: World Energy Issues Monitor 217 Exposing the new energy realities. World Energy Council; 217. 2

While pumped hydro is the most widely deployed stationary storage technology Global installed capacity - 217 All data in MW 2% added in last 1 years 99% added in last 1 years PHS Pumped Hydro Storage Li-ion Lithium-ion Battery CAES Compressed Air Energy Storage NaS Sodium-sulphur Battery Flow Flow Battery PbA Lead-acid Battery Source: Energy Storage Database, Department of Energy (217); Global Energy Storage Forecast, 216-224, BNEF (217); https://www.ngk.co.jp/nas/ 3

Investment costs of lithium-ion batteries have fallen dramatically in recent years Recent cost developments Average: 3, $/kwh cap Powerwall 1: 1,1 $/kwh cap Powerwall 2: 5 $/kwh cap October 213 April 215 October 216 Sources: Tepper, M. Solarstromspeicher-Preismonitor Deutschland 216. (Bundesverband Solarwirtschaft e.v. und Intersolar Europe, 216); www.solarfixni.co.uk/solarpanelsystems/tesla/; www.tesla.com/powerwall 4

We need a consistent method to project cost for multiple technologies Approach Technology Cost analyses are focussed on lithium-ion A holistic assessment should cover multiple technologies Scope Cost quotes refer to different technology components A transparent analysis should clarify reference scope Method Cost projections are made with varying methods An objective and consistent method should be chosen Source: www.flaticon.com 5

Electricity can be stored in multiple ways Technologies Electrolysis Supercapacitor Liquid air Lithium-ion Electricity storage concepts Pumped hydro Redox-Flow Gravitation (e.g. pumped hydro) Compression (e.g. compressed air) Rotation (e.g. Flywheel) Mechanical 6

Cost figures can refer to different scopes containing not all cost components Technology scope Cell Module Consumer electronics - 2% of installed system - Pack Electric vehicles 3% of installed system System (ex-works) - 65% of installed system Installed system Stationary applications 1% Source: O. Schmidt, A. Hawkes, A. Gambhir & I. Staffell. The future cost of electrical energy storage based on experience rates. Nat. Energy 2, 1711 (217) 7

Product Price (US$ 215 /kw) Experience curves are an objective tool to model cost reductions for technologies Method 1, 1976 Solar PV (23%, Module) 1, 1, 215 1.1.1.1 1 1 1 1, Cumulative Installed Capacity GW) Source: Liebreich, M. Keynote - Bloomberg New Energy Finance Summit 216. (Bloomberg New Energy Finance, 216). 8

Product Price (US$ 217 /kwh cap ) The experience curve dataset for storage technologies... Dataset 2, 1, 5, 2, 1, 5 2 1 24 213 1995 21 28 213 215 1997 216 217 215 21 217 27 215 1983 213 214 1956 217 216 1989 212 214 5.1.1.1 1 1 1 1, 1, Cumulative Installed Nominal Capacity (GWh cap ) System Pack Module Battery Pumped hydro (Utility, -1±8%) Lead-acid (Multiple, 4±6%) Lead-acid (Residential, 13±5%) Lithium-ion (Electronics, 3±3%) Lithium-ion (EV, 18±3%) Lithium-ion (Residential, 15±4%) Lithium-ion (Utility, 16±3%) Nickel-metal hydride (HEV, 11±1%) Sodium-sulfur (Utility, -) Vanadium redox-flow (Utility, 11±9%) Electrolysis (Utility, 18±6%) Fuel Cells (Residential, 18±2%) Source: O. Schmidt, A. Hawkes, A. Gambhir & I. Staffell. The future cost of electrical energy storage based on experience rates. Nat. Energy 2, 1711 (217) 9

Product Price (US$ 217 /kwh cap )... shows that battery storage investment cost will reach cost of pumped hydro Investment cost projection Capacity-based 2, 1, 5, 2, 1, Price ranges 5 2-33 125-2 2 13 1 5.1.1.1 1 1 1 1, 1, Cumulative Installed Nominal Capacity (GWh cap ) System Pack Module Battery Pumped hydro (Utility, -1±8%) Lead-acid (Multiple, 4±6%) Lead-acid (Residential, 13±5%) Lithium-ion (Electronics, 3±3%) Lithium-ion (EV, 18±3%) Lithium-ion (Residential, 15±4%) Lithium-ion (Utility, 16±3%) Nickel-metal hydride (HEV, 11±1%) Sodium-sulfur (Utility, -) Vanadium redox-flow (Utility, 11±9%) Electrolysis (Utility, 18±6%) Fuel Cells (Residential, 18±2%) Source: O. Schmidt, A. Hawkes, A. Gambhir & I. Staffell. The future cost of electrical energy storage based on experience rates. Nat. Energy 2, 1711 (217) 1

Product Price (US$ 215 /kwh cap ) Resulting time-based cost projections could be used to compare technologies, but Investment cost projection Time-based 1,4 1,2 Lithium-ion (Utility, 16±4%, System) Experience Rate uncertainty + Growth Rate uncertainty 1, 8 6 39 $/kwh 4 2 28 $/kwh 22 $/kwh 215 22 225 23 235 24 11

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Electricity storage technologies differ in many cost and performance parameters Cost and performance parameters Cost Performance Investment cost Cost to construct technology overnight (total vs specific) Nominal power capacity Maximum amount of power generated Construction time Actual duration of technology construction Discharge duration Maximum duration to discharge energy at maximum power Replacement cost Cost to replace technology components Nominal / Usable energy capacity Maximum amount of energy stored Usable amount of energy stored Replacement interval Time interval at which technology component replacement is required Depth-ofdischarge Maximum energy that can be used without severely damaging the store O&M cost Cost of operating and maintaining operability of technology Cycle life Number of full charge-discharge cycles before end of usable life Charging cost Cost for energy to technology with energy Calendar life Number of years before end of usable life (even at no operation) Disposal cost / Residual value Cost to dispose of the technology at its end-of-life (can be negative) Degradation Loss in usable energy capacity Discount rate Rate at which future cost / revenues of technology are discounted Round-trip efficiency Proportion of energy discharged over energy required to charge store 13

Levelised cost of storage (LCOS) consider all cost and performance parameters LCOS Formula Investment cost Construction time Replacement cost / interval Charging cost O&M cost LCOS $ MWh = Investment cost + Operating cost + Disposal cost Electricity discharged Round-trip efficiency Depth-of-discharge Annual cycles Cycle life Calendar life Degradation End-of-life cost or residual value The discounted cost of a MWh discharged from the storage device 14

Applications affect storage operation, so LCOS analysis must be application-specific Electricity storage applications Source: The Economics of Battery Storage, RMI, 215 15

LCOS in US$ 218 /MWh 215 22 225 23 235 24 245 25 215 22 225 23 235 24 245 25 215 22 225 23 235 24 245 25 215 22 225 23 235 24 245 25 Probability LCOS in US$ 218 /MWh Lithium-ion to become more competitive than flow batteries for bill management LCOS Bill Management 1% 5 Power Capacity 1 MW Discharge duration 4 hours Annual cycles 5 Charging cost 1 $/MWh 8% 6% 4% 2% 4 3 2 1 % 215 22 225 23 235 24 245 25 Vanadium redox-flow Lead-acid Sodium-sulfur Lithium-ion 1, 1, 1, 1, 8 6 4 2 8 6 4 2 8 6 4 2 8 6 4 2 16

LCOS in US$ 218 /MWh 215 22 225 23 235 24 245 25 215 22 225 23 235 24 245 25 215 22 225 23 235 24 245 25 215 22 225 23 235 24 245 25 Probability LCOS in US$ 218 /MWh Pumped hydro, compressed air and hydrogen compete for seasonal storage LCOS Resource Adequacy (Seasonal) 1% 3, Power Capacity 1, MW Discharge duration 7 hours Annual cycles 3 Charging cost 5 $/MWh 8% 6% 4% 2% 2,5 2, 1,5 1, 5 % 215 22 225 23 235 24 245 25 Pumped hydro Compressed air Hydrogen Vanadium redox-flow 1, 8, 6, 4, 2, 1, 8, 6, 4, 2, 1, 8, 6, 4, 2, 1, 8, 6, 4, 2, 17

23 Discharge duration (hours) 22 Discharge duration (hours) 215 Overall, increasing dominance of Lithiumion for majority of applications by 23 Summary All technologies Excl. PHS & CAES Discharge duration (hours) 7. PHS PHS 7. H2 H2 8. CAES CAES PHS PHS PHS 8. Lead Lead Lead Lead H2 4. CAES CAES CAES PHS PHS PHS 4. Lead Lead Lead Lead VRFB VRFB 2. CAES CAES CAES CAES PHS PHS 2. Lead Lead Lead Lead VRFB VRFB 1. CAES CAES CAES CAES PHS PHS 1. Lead Lead Lead Lead VRFB VRFB.5 CAES CAES CAES CAES CAES PHS PHS.5 Lead NaS NaS NaS NaS VRFB Flywheel.25 CAES CAES CAES CAES CAES PHS Flywheel Flywheel.25 NaS NaS NaS NaS NaS NaS Flywheel Flywheel 1 1 5 1 5 1 5 1 1 1 5 1 5 1 5 1 Cycles p.a. Cycles p.a. 7. PHS PHS 7. H2 H2 8. CAES CAES PHS PHS PHS 8. Lithium Lithium Lithium Lithium VRFB 4. CAES CAES CAES PHS PHS PHS 4. Lithium Lithium Lithium Lithium VRFB VRFB 2. CAES CAES CAES CAES PHS PHS 2. NaS NaS NaS NaS VRFB VRFB 1. CAES CAES CAES CAES PHS PHS 1. NaS NaS NaS NaS VRFB VRFB.5 NaS NaS NaS NaS VRFB PHS PHS.5 NaS NaS NaS NaS VRFB VRFB Flywheel.25 NaS NaS NaS NaS NaS NaS Flywheel Flywheel.25 NaS NaS NaS NaS NaS NaS Flywheel Flywheel 1 1 5 1 5 1 5 1 1 1 5 1 5 1 5 1 Cycles p.a. Cycles p.a. 7. PHS PHS 7. H2 H2 8. CAES CAES PHS PHS PHS 8. Lithium Lithium Lithium Lithium VRFB 4. Lithium Lithium Lithium Lithium PHS PHS 4. Lithium Lithium Lithium Lithium VRFB VRFB 2. Lithium Lithium Lithium Lithium VRFB PHS 2. Lithium Lithium Lithium Lithium VRFB VRFB 1. Lithium Lithium Lithium Lithium Lithium VRFB 1. Lithium Lithium Lithium Lithium Lithium VRFB.5 Lithium Lithium Lithium Lithium Lithium Lithium Lithium.5 Lithium Lithium Lithium Lithium Lithium Lithium Lithium.25 Lithium Lithium Lithium Lithium Lithium Lithium Flywheel Flywheel.25 Lithium Lithium Lithium Lithium Lithium Lithium Flywheel Flywheel 1 1 5 1 5 1 5 1 1 1 5 1 5 1 5 1 Cycles p.a. Cycles p.a.

LCOS analysis also allows analysing competitiveness of electricity storage Analysis Competitiveness 5Hz Frequency regulation Increased PV self-consumption 19

Nominal Power Capacity (MW) Recent investments in storage to provide balancing services show that... Competitiveness Frequency regulation 5Hz 25 Utility-scale battery capacity 2 15 1 5 212 213 214 215 216 217 Source: https://www.energy-storage.news/news/siemens-to-deploy-market-based-grid-balancing-battery-for-german-utility 2

Annual Capacity Cost (US$ 217 /kw yr ) Product Price (US$ 215 /kwh cap )... frequency regulation is a business case for electricity storage Competitiveness Frequency regulation 2 18 16 Lithium-ion (Utility, 16±4%) Experience Rate uncertainty + Growth rate uncertainty 1,2 1, 14 12 1 8 6 Primary frequency control prices Timespan 8 6 4 2 4 2-21 215 22 225 23 235 24 Time Source: Own Analysis; D.P. Svoboda, D.R. Schemm, M. Bartelt, Aufbruch in den Regelenergiemarkt?, Energ. Manag. (August 215) 28. 21

Cumulative installations (MWh) The market for home storage appears poised for growth... Competitiveness Increased PV self-consumption 5, 45, 4, 35, 3, 25, Short duration balancing Peaking capacity Renewable energy integration Transmission Level Distribution Level Behind-the-meter: PV + storage 2, 15, 1, 5, - 215 217 219 221 223 Time Source: www.tesla.com/powerwall; L. Goldie-Scot, Global Energy Storage Forecast 216-24, Bloomberg New Energy Finance, 216. 22

Levelised cost of storage (US$ 217 /kwh e ) Product Price (US$ 217 /kwh cap ) Still, residential batteries are unlikely to make economic sense in GER before 23 Competitiveness Increased PV self-consumption 1.5 1.4 Lithium-ion (Residential, 15±4%) 1,8 1.3 Experience Rate Uncertainty 1,6 1.2 + Growth Rate uncertainty 1.1 Retail Power 1,4 1. Timespan.9 1,2.8 1,.7.6 8.5 6.4 41.3 4.2 2.1. 21 215 22 225 23 235 24 Source: O. Schmidt, A. Hawkes, A. Gambhir & I. Staffell. The future cost of electrical energy storage based on experience rates. Nat. Energy 2, 1711 (217) 23

Electricity storage can provide multiple services in parallel, i.e. benefit-stacking Concept Value ($) System service Utility service Utility service System service End-user service End-user service Investment cost Increased PV selfconsumption Increased PV selfconsumption Source: Own analysis. 24

Annual Capacity Cost (US$ 217 /kw yr ) Product Price (US$ 215 /kwh cap ) Benefit-stacking is a reality for subsidy-free battery projects in the United Kingdom Benefit-stacking in the UK 2 18 16 14 Network charge avoidance Lithium-ion (Utility, 16±4%) Experience Rate uncertainty + Growth rate uncertainty Timespan 1,2 1, 8 12 1 8 6 4 2 Capacity provision Enhanced frequency response 6 4 2-215 22 225 23 235 24 Time Source: Own analysis. 25

through the combination of three different electricity storage services Electricity storage applications Source: The Economics of Battery Storage, RMI, 215 26

Low-cost policy measures can enable benefit-stacking Policy measures A. Adjust technical standards to open markets for storage technologies (frequency response: reduce minimum bidding sizes, allow assets operating in dispersed fleets) B. Amend competition regulation to allow combined value streams (example: unbundling prohibits simultaneous revenues from generation and transmission) C. Develop consistent legal definition of electricity storage to ascertain that storage can serve as generation, transmission/distribution and consumption support simultaneously All three barriers can be removed at low costs Stephan, A., Battke, B., Beuse, M. D., Clausdeinken, J. H., & Schmidt, T. S. (216). Limiting the public cost of stationary battery deployment by combining applications. Nature Energy, 1(June), 1679. 27

Summary Key messages 1. Investment cost of battery storage technologies will reach cost of pumped hydro. 2. Levelised cost of storage (LCOS) is the metric to be used to compare technologies. 3. Lithium-ion will be most cost-effective in most applications except when long discharge and/or many cycles are required. 4. Electricity storage is expensive, but versatile. Thus, benefit-stacking is the holy grail to profitability and system benefits. 28

Questions? Oliver Schmidt PhD Researcher in Energy Storage Grantham Institute - Climate Change and the Environment Imperial College London, Exhibition Road, London SW7 2AZ Tel: +44 () 7934548736 Email: o.schmidt15@imperial.ac.uk Website: www.storage-lab.com

Global storage capacity is again growing quickly to ensure VRE integration Non-PHS vs PHS Positive market and policy trends supported annual growth of over 5% for nonpumped hydro storage. Near-term storage needs will remain answered by PHS. Source: Tracking Clean Energy Progress 217. International Energy Agency (217). 3

Cumulative power capacity (GW) Non-PHS capacity growth will mostly be required to integrate self-generated PV Medium-term outlook for non-phs storage - Power 5 45 4 35 3 25 2 15 1 5 - Behind-the-meter: PV + storage Other Behind-the-meter: C&I demand charges Distribution Level Transmission Level Renewable energy integration Peaking capacity Short duration balancing 215 216 217 218 219 22 221 222 223 224 Source: Global Energy Storage Forecast, 216-224, BNEF (217) 31

Application requirements can be met by different energy storage technologies Applications vs Technologies Source: Energy Technology Perspectives 214, International Energy Agency (214). 32

New technologies are constantly being developed Technologies 33

Raw Material Cost (US$ 217 /kwh cap ) Raw material costs suggest that these cost projections are not infeasible Sanity Check Raw material cost System Pack Module Battery Pumped hydro (Utility, -1±8%) Lead-acid (Multiple, 4±6%) Lead-acid (Residential, 13±5%) Lithium-ion (Electronics, 3±3%) 1, 1.1 19.1.1 1 1 1 1, 1, 87 Cumulative 72 Installed 52 Nominal 51 Capacity (GWh cap ) Lithium-ion (EV, 18±3%) Lithium-ion (Residential, 15±4%) Lithium-ion (Utility, 16±3%) Nickel-metal hydride (HEV, 11±1%) Sodium-sulfur (Utility, -) Vanadium redox-flow (Utility, 11±9%) Electrolysis (Utility, 18±6%) Fuel Cells (Residential, 18±2%) 1 2 15 14 12 34

Product Price (US$ 215 /kwh cap ) However, experience rates of immature technologies can be highly uncertain Uncertainty Check 2, 1, 24 5, 1995 2, 1, 1997 21 215 5 2 214 211 217 Lithium-ion (Electronics, 3±3%) Lithium-ion (EV, 18±3%) 1 Nickel-metal hydride (HEV, 11±1%) 5.1.1.1 1 1 1 1, 1, Cumulative Installed Nominal Capacity (GWh cap ) Fuel Cells (Residential, 18±2%) Source: O. Schmidt, A. Hawkes, A. Gambhir & I. Staffell. The future cost of electrical energy storage based on experience rates. Nat. Energy 2, 1711 (217) 35

Storage materials reserve base Source: Own analysis 36

ESOI of different storage technologies 37

Application-specific LCOS account for all relevant cost and performance parameters Formula LCOS + + $ MWh = Capex + σ Capex R 1 + r R T r #cycles DoD C nom_e η RT σn n=1 σn n=1 Opex 1 + r n+t #cycles DoD C nom_e η RT σn n=1 Disposal 1 + r N+1 #cycles DoD C nom_e η RT σn n=1 1 + Deg n 1 + r n 1 + Deg n 1 + r n 1 + Deg n 1 + r n Capex: Capex r : Opex: Disposal: P el : r: C nom_e : DoD: N: #cycles: Deg: n: T r : R: T c Investment cost ($) Replacement cost ($) Operating cost ($) Disposal cost ($) Power cost ($/kwhel) Discount rate (%) Nominal capacity (MWh) Depth-of-discharge (%) Lifetime (years) Full cycles per year (#) Annual degradation (%) Period (year) Replacement interval (years) Replacement number (#) Construction time (years) + P el η RT Note: Construction time and self-discharge not explicitly considered for simplification; these parameters affect capex and period, and discharged energy respectively. 38

Energy storage technologies contain a number of components Technology components Battery System Energy System Source: Lazard s Levelized Cost of Storage Analysis 217 39

Discharge duration (hours) Modelled applications cover entire spectrum of performance requirements Applications Detail 1 9 8 7 Seasonal storage Power reliability 1 MW 1 MW 1 MW T&D upgrade deferral 7 6 5 4 3 2 1 Tertiary response Black start Peaker replacement Power quality Energy arbitrage Bill mgmt Congestion mgmt Secondary response Infeasible (insufficient hours per year) Primary response 1 1 1 1, 1, Cycles p.a. (#) 4

Discharge duration (hours) Probability Probability LCOS and technology dominance in modelled electricity storage applications Overview 1 1% 3, Probability 1 9 8 Probability 8% 6% 4% 2% % 7 215 22 225 23 235 24 245 25 2,5 2, 1,5 1, 5 LCOS in US$ 218/MWh Probability 1% 8% 6% 4% 2% % Power reliability 215 22 225 23 235 24 245 25 2,5 2, 1,5 1, 5 LCOS in US$ 218/MWh Probability 1% 8% 6% 4% T&D upgrade deferral 4 2% 2 % 215 22 225 23 235 24 245 25 16 14 12 1 8 6 LCOS in US$ 218/MWh 7 6 5 4 3 2 1 Probability 1% 8% 6% 4% 2% % 1% 8% 6% 4% 2% % Tertiary response 215 22 225 23 235 24 245 25 Black start 215 22 225 23 235 24 245 25 3,5 3, 2,5 2, 1,5 1, 5 12, 1, 8, 6, 4, 2, LCOS in US$ 218/MWh Probability LCOS in US$ 218/MWh 1% 8% 6% 4% 2% % 215 22 225 23 235 24 245 25 Probability 1% 8% 6% 4% 2% % 8 7 6 5 4 3 2 1 Power quality LCOS in US$ 218/MWh 215 22 225 23 235 24 245 25 3,5 3, 2,5 2, 1,5 1, 5 LCOS in US$ 218/MWh Congestion mgmt 5 1% 4 8% Secondary 3 6% 2response 4% 15 1 Primary 5 response 1 1 1 1, 1, Annual cycles (#) 1% 8% 6% 4% 2% % Probability 1% 8% 6% 4% 2% % 215 22 225 23 235 24 245 25 215 22 225 23 235 24 245 25 1 LCOS in US$ 218/MWh 2% % 5 4 3 2 1 LCOS in US$ 218/MWh 215 22 225 23 235 24 245 25 25 2 LCOS in US$ 218/MWh 41

Probability LCOS in US$ 218 /MWh Probability LCOS in US$ 218 /MWh Probability LCOS in US$ 218 /MWh Probability LCOS in US$ 218 /MWh Probability LCOS in US$ 218 /MWh Probability LCOS in US$ 218 /MWh LCOS and technology dominance in modelled electricity storage applications Overview 2 Seasonal storage Power reliability T&D deferral Bill management 1% 8% 6% 4% 2% % 215 22 225 23 235 24 245 25 3, 2,5 2, 1,5 1, 5 1% 8% 6% 4% 2% % 215 22 225 23 235 24 245 25 2,5 1% 2, 1,5 1, 5 Probability 8% 6% 4% 2% % 215 22 225 23 235 24 245 25 16 14 12 1 8 6 4 2 LCOS in US$ 218 /MWh 1% 8% 6% 4% 2% % 215 22 225 23 235 24 245 25 5 4 3 2 1 Black start Tertiary response Peaker replacement Energy arbitrage Probability 1% 8% 6% 4% 2% % 215 22 225 23 235 24 245 25 12, 1% 1, 8, 6, 4, 2, LCOS in US$ 218 /MWh Probability 8% 6% 4% 2% % 215 22 225 23 235 24 245 25 3,5 1% 3, 2,5 2, 1,5 1, 5 LCOS in US$ 218 /MWh Probability 8% 6% 4% 2% % 215 22 225 23 235 24 245 25 8 7 6 5 4 3 2 1 LCOS in US$ 218 /MWh Power quality Congestion management Secondary response Primary response 1% 3,5 1% 5 1% 25 8% 6% 3, 2,5 2, 8% 6% 4 3 8% 6% 2 15 4% 2% % 215 22 225 23 235 24 245 25 1,5 1, 5 4% 2% % 215 22 225 23 235 24 245 25 2 1 4% 2% % 215 22 225 23 235 24 245 25 1 5 42