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Batteries blog_2014_08_28-2

Published on September 3rd, 2014 | by Rocky Mountain Institute

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New RMI Project Aims To Sustain Battery Cost Reduction

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September 3rd, 2014 by  

Rocky Mountain Institute.
By Jesse Morris.

Four short years ago, the U.S. solar industry surpassed expectations by installing 340 MW of solar at a cost of $6.40 per watt in the first half of 2010. How times have changed. In the first quarter of this year alone, the U.S. installed 1,330 MW of solar for an average $2.36 per watt. In other words, we installed roughly four times as much solar in half the time for about one-third the cost. Talk about progress!

Because technology costs (in this case, PV modules) plunged so rapidly, balance-of-system costs today make up the majority of system prices. That’s today’s land of opportunity for further cost declines in solar. And now, battery energy storage is undergoing a similar evolution.

Over the past several months an increasing number of industry executives have drawn analogies between energy storage and the history of solar costs. Lithium ion-based energy storage systems, it’s said, are currently where solar was back in 2010. Typically these kinds of comments are in reference to the cost of lithium-ion batteries, which, with the help of the Tesla gigafactory, are expected to come down dramatically in cost over the next several years—just like PV modules circa 2010.

Batteries can play an important role in helping the U.S. realize a clean, affordable electricity future powered largely by distributed renewables. But forecasted declines in the cost of lithium-ion cells won’t be enough. Just as with solar, batteries’ balance-of-system costs—permitting, interconnection, inverter/converter costs, installation labor, safety testing, battery enclosure, power electronics, etc.—will be an important enabler of greater, faster adoption. This is especially true considering that balance-of-system costs for batteries currently consume an even greater share of distributed energy storage costs than solar balance-of-system costs did for PV systems back in 2010. And that’s precisely why RMI is launching this important line of work.

The Enabling Role of Battery-Based Energy Storage

Battery-based energy storage can enable high levels of renewable energy adoption by complementing the predictably variable and sometimes intermittent nature of solar and wind resources. But selling energy storage on this attribute alone ignores a number of other values provided by the technology, including but not limited to:

  • Peak shifting: Energy storage can shift a building or entire electricity grid’s peak consumption patterns to reduce demand charges, better align energy consumption with distributed resource production, or help reduce the impact of the duck or “nessie” curve.
  • Backup power: Safety considerations prevent most rooftop solar systems installed in the U.S. from running during power outages. Installing an island-capable inverter with an energy storage system solves this problem and can keep the lights on during such events.
  • Frequency regulation and other grid services: In electricity markets like PJM, distributed energy storage systems can actually bid into a special market for frequency regulation at the distribution level. Here, energy storage systems help grid operators better match electricity generation with load by adjusting output on an incremental minute-by-minute basis to maintain desired grid frequency.

Battery Balance of System Costs

Unfortunately, these different values are extremely difficult to capture for two primary reasons: 1) in most cases, markets don’t exist for distributed energy storage systems to do much beyond peak shifting and backup power provision and 2) where such markets do exist (PJM interconnection and CAISO in the U.S.), the high cost of distributed energy storage prevents cost-effective provision of those services. Thus, battery balance-of-system costs must come down in order to enable cost-effective participation in both current and future markets.

While it’s impossible to know exactly how these costs will come down in the future on their own, the graph below illustrates what the cost trajectory would look like if the energy storage industry experienced the same annual percentage decrease in balance-of-system costs as observed in the solar industry during the transformational 2008–2014 period.

Interviews with over twenty distributed energy storage manufacturers, developers, aggregators, utilities, regulators, and industry representatives, along with a review of existing research, show that battery balance-of-system costs comprise nearly two-thirds of the cost of energy storage systems currently being installed in the U.S.—74 percent and 63 percent for residential and commercial systems, respectively. And if the cost reduction history of solar balance-of-system costs is any indicator, these costs will contribute significantly to energy storage system costs well into the future.

The RMI Approach

RMI’s Battery Balance of System (BBoS) project will convene relevant stakeholders and explore the challenges presented by BBoS costs and the potential for collaboration. Similar to our solar balance of system work, we hope to unearth potential pilot projects, working groups, spinoffs, and research products with the ability to help shrink the battery balance of system portion of the cost stack outlined above.

We envision a future where distributed energy storage systems are being used to capture value throughout the electricity system by both utilities and end users, a future where largely renewable microgrids enabled by energy storage are the norm across the U.S. However, in order for this technology to be adopted at scale and have a meaningful impact, costs must come down, and convening industry to address balance of system costs in particular is an important near-term step.

Source: Rocky Mountain Institute. Reproduced with permission.

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About the Author

Since 1982, Rocky Mountain Institute has advanced market-based solutions that transform global energy use to create a clean, prosperous and secure future. An independent, nonprofit think-and-do tank, RMI engages with businesses, communities and institutions to accelerate and scale replicable solutions that drive the cost-effective shift from fossil fuels to efficiency and renewables. Please visit http://www.rmi.org for more information.



  • Roger Pham

    This article is a bit misleading. Balance of system (BOS) costs $1000 / kW while battery costs $420/ kWh for total of $1420/ kWh. It needs not cost that much per kWh if instead of only 1hr storage, we want 10 hrs of storage delivered at 1 kW max power. So battery will costs $4200 + BOS $1000 = $5200 for 10 kWh, or only $520 / kWh.

    In a DC microgrid without strict voltage regulation, the BOS cost will be a lot less.

  • Marion Meads

    “Four short years ago, the U.S. solar industry surpassed expectations by installing 340 MW of solar at a cost of $6.40 per watt in the first half of 2010. How times have changed. In the first quarter of this year alone, the U.S. installed 1,330 MW of solar
    for an average $2.36 per watt. In other words, we installed roughly
    four times as much solar in half the time for about one-third the cost.
    Talk about progress!”

    This is what I have been saying, that you would be a prime sucker if you fell for a lease contract or an early buyer. The fact that solar PV are projected to drop and in fact have dropped very steeply should have been used in the calculations or bargaining for the lease pricing versus your savings in electricity if you have installed during the peak of the price tide. Now those who have installed earlier will have to suck it up with high premium lease agreements.

    Today, we have reached below retail price parity for home solar installers. The only remaining bottleneck is the financing. Many banks that are into solar PV financing are pure rip-offs. They entice you with 3.99% interest rate, but then the APR is more than twice that, and the effective APR from monthly amortization is even higher, and after you add up all the fees, your effective annual interest rate in principal would be around 15%. This is a fleecing of the green minded people who have no cash.

    If you save money now into a nice safe portfolio, would be excellent strategy when prices continue to fall. Right now, the installation prices are falling too. By the time you have enough money, the cost for you to install would even be better, and you would have earned interest on what you save.

  • JamesWimberley

    RMI: “balance-of-system costs for batteries currently consume an even greater share of distributed energy storage costs than solar balance-of-system costs did for PV systems back in 2010.” Pretty incredible. After all, installing large and fragile solar panels on a roof is not that easy, and DIY is foolhardy with high-amperage DC current. Surely a battery + control box can be unloaded from a pickup and hooked up in a garage by you and your nephew? Corrections welcome.

    I like the “Nessie curve” instead of “duck”. What makes Nessie such a great tourist attraction for the frugal Scots locals is that she does not exist and costs nothing to maintain or protect. The Nessie curve for daytime solar may also disappear under closer examination, or with TOD pricing and load management.

    • http://zacharyshahan.com/ Zachary Shahan

      1st paragraph: yeah, i was shocked by that.

    • Vensonata

      It is the “scary factor” that hovers around batteries. Acid anyone? AGM is easier…no acid no maintenance, 50% greater cost per kwh. Wet Lead acid is about 15cents kwh, then there are the cables, box, and inverter, and charge controller. Now about 22cents kwh. But consider the new lithium units from Balqon. Neat little box 1/3 the weight. 1/4 the size, all boxed full monitoring and battery management pre installed. No maintenance, no acid. Plug it in. 14.7 cents kwh. Efficiency of absorption is 20% higher than lead acid. Shipping costs lower. You and your nephew can install and not die in explosion! Available now from Balqon energy U.S. I am seriously considering buying a 36kw unit this year. I’ve been through Lead Acid fro 14 years and welcome this innovation.

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