Li-ion battery costs to fall 50% in next 5 years, driven by renewables

According to the first edition of its "Levelized Cost of Storage Analysis," investment bank Lazard found that energy storage costs are expected to come down "significantly" over the next five years.

Currently, storage is not cost-competitive with most applications, although some areas – primarily related to strengthening the power grid – are said to be attractive. For instance, even unsubsidized, certain storage technologies, like Li-ion batteries for certain grid support applications, are said to be competitive.

"…select energy storage technologies are cost-competitive with certain conventional alternatives in a number of specialized power grid uses but none are cost-competitive yet for the transformational scenarios envisioned by renewable energy advocates," states the study. Currently, it adds, battery size is easier and cheaper to increase, than battery life.

Declining costs

Going forward, cost declines are forecast to benefit from the increased use of renewable energy generation, government policies supporting storage, and changing power grid needs. They will be seen more in the manufacture and engineering of batteries, rather than in balance of system costs. "Therefore, use case and technology combinations that are primarily battery-oriented and involve relatively smaller balance of system costs are likely to experience more rapid levelized cost decline," writes Lazard.

Overall, industry participants in the study, which numbered around 50, expect lithium battery prices to fall by roughly 50% over the next five years, while flow battery costs will decline by approximately 40%, and lead batteries, by around 25%. The table below shows the unsubsidized LCOS, and capital costs, relevant to solar PV integration, per MWh, according to the study. Other scenarios, including for commercial & industrial and residential are also outlined in the study.

Battery type

Unsubsidized LCOS/MWh (US$)

Capital costs/MWh (US$)

5 year LCOS/MWh with declines (US$)

Flow battery

373 – 950

662 – 1,387

282 – 642

Lead-Acid

402 – 1,068

682 – 2,072

355 – 842

Li-ion

355 – 686

622 – 1,425

243 – 418

Sodium

379 – 957

611 – 1,751

Not supplied

Zinc

245 – 345

359 – 532

239 – 334

"If industry projections materialize, some energy storage technologies may be positioned to displace a significant portion of future gas-fired generation capacity, in particular as a replacement for peaking gas turbine facilities, enabling further integration of renewable generation," continues the study.

Solar PV LCOEs

In a separate study, Lazard also looked at levelised costs of energy (LCOEs) in the U.S. It concluded that even unsubsidized, both utility-scale solar PV and wind are competitive compared to conventional energies. Energy storage is essential, however, if solar is to match the dispatch characteristics of conventional peaking technologies.

In an interview with Bloomberg, Jonathan Mir, head of the North American power and utilities group at Lazard, commented, "Utility-scale solar and utility-scale wind technologies continue to be a cost-effective complement to conventional generation even in a low natural gas environment." He added, "Storage may be on the cusp of a pattern very similar to renewables five to seven years ago. This is the critical element." Increased demand for storage should also boost further cost reductions in renewables and, in turn, increase their uptake, he said.

While utility-scale solar PV is very much competitive, rooftop solar is still requires "significant" subsidization, says Lazard, chiefly due to the higher installation costs involved. " … the levelized cost of rooftop solar PV is expected to decline in coming years, primarily as a result of more efficient installation techniques, lower costs of capital and improved supply chains," write the study’s authors.

The table below outlines the various unsubsidized LCOEs/MWh and capital costs/kWh in the U.S. for solar PV versus some conventional energies:

Energy

LCOE/MWh (US$)

Capital costs/kWh (US$)

Solar PV – Rooftop residential

184 – 300

4,100 – 5,300

Solar PV – Rooftop commercial & industrial

109 – 193

2,600 – 3,750

Solar PV – Community

78 – 136

2,000 – 2,800

Solar PV – Crystalline utility-scale

46 – 70

1,350 – 1,750

Solar PV – Thin film utility-scale

43 – 60

1,350 – 1,600

Natural gas reciprocating engine

68 – 101

650 – 1,100

Nuclear

97 – 136

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