Upfront costs conceal the true value of energy storage, says report

A misplaced emphasis on the capital cost of energy storage systems (ESS) is skewing perception about their real value, the World Energy Council says.

According to its report E-storage — Shifting from Cost to Value, the focus on upfront cost is misleading investors into believing that ESS is more expensive than it actually is because it "ignores the system value of stored energy" in tying storage systems into wind and solar plants.

"Energy storage is a critical catalyst of the energy transition whose benefits are still undervalued. The costs have already come down, but will have to fall further for a much broader roll-out and use in household and e-mobility," says the council's secretary-general, Christoph Frei. "The investment community has good reason to be excited about the innovation and business models that will emerge from new opportunities.

"Too often the industry only talks about one half of the profit formula, namely cost."

Lead author, DNV GL's Paul Gardner, adds: “We found clear indications that a narrow focus on costs alone drives the common misperception that electrical energy storage is more expensive than it really is.”

The report calls for the true value of electrical energy storage to be recognised by taking into account revenue benefits. It compares storage costings across different storage technologies, concluding that the widely-used levelised cost of energy methodology is hindering the progress of electrical energy storage.

"The analysis identifies flaws in this methodology, including arbitrariness that does not allow for differences in application cases, and incompleteness as only limited account of revenue is taken," Gardner says.

The report, produced by the council's Energy Storage Network group, led by DNV GL and PwC, calculates that ESS costs will plummet by as much as 70% over the next 15 years, with wind-linked storage becoming more attractive as technical progress in areas such as composite materials boosts average turbine output, and solar storage becoming more competitive as battery prices drop.

The council, which studied a range of storage costings across the technology spectrum, pointed to the "double trouble" problems of using the go-to levelised cost of energy methodology as it had an "arbitrariness which does not allow for differences in application cases, and incompleteness as only limited account of revenue is taken".

To create the "right environment" to industrialise ESS, the report makes five recommendations to policymakers:

  • Go beyond just costs cheapest is not always best.
  • Examine storage through "holistic" case studies, because generic cost estimates are not sufficient.
  • Work with operators and regulators to accelerate the development of flexible markets often the full value of flexibility is not sufficiently recognised and monetised.
  • Establish supporting policies and an enabling regulatory framework to facilitate further commercial deployment of storage technologies.
  • Consider storage as a key component for grid expansion or extension.

"Policymakers should recognise the wide span of marketplaces that can benefit from energy storage," says Frei. "These range from bringing down the cost of home solar systems, enabling the electric car industry to grow, helping electricity suppliers to manage problems when the grid goes down or there is grid overload, to taking advantage of market price fluctuations and selling electricity across borders.

"To take full advantage of the growing wind and solar electricity shares, policymakers must review electricity market design so as to incentivise the build-up of storage capacity and ensure reliable and affordable electricity supply."

Figures from US analyst group Mercom reveal the stall in ESS investment, with storage technology companies seeing $397m in 37 deals last year, compared with $431m in 34 deals in 2014. Total corporate funding, including debt and public market financing, amounted to $676m in 2015, down from $921m the year before.

Flow battery companies enjoyed the most lavish funding, with $120m, followed by general ESS outfits ($96m).

The top venture capital-funded companies included Vionx Energy, which raised $58.1m, Younicos ($50m), Stem ($33m), and Primus Power and UniEnergy Technologies ($25m each).