LCOS the price for stored Energy
Comparison of storage costs
In this post, I would like to explain the LCOS comparison procedure, which is used internationally, and point out the calculation problems.
Where the costs arise
A webinar about LCoS and bulk storage.
At first glance, many people see only the purchase price (CAPEX) for a storage device. But even this is not a trivial decision, let's just think of a pumped storage reservoir that needs to be built. Perhaps ten years from the investment decision to the first electricity supply, a time when a lot of money is spent. Wouldn't it have been possible to invest the money better during this time, perhaps with a 5% interest rate?
To take this effect into account, the discounted price for the future is determined. In a simple case, a storage device that costs 1000 dollars, but can first be used after one year, would cost ~1050 euros.
When the storage facility is in operation, running costs (OPEX) are incurred, e.g. for maintenance and operation, but also for renting the space. If there is a battery storage unit in the house and requires 1 m² of space, you have to allocate the rental costs per month, about $5/m², so that the storage unit alone causes 5*12 = $60 rental costs per year!
A power storage device is never 100% efficient. Since the electricity that is stored is not free of charge, even if the opposite is often claimed, the costs of electricity lost during storage must be considered. For example, if you have a LiIon battery that takes electricity from your own PV system, you can charge assuming 10 ct/kWh for the electricity and a storage efficiency of 90%, measured on the alternating current side. As a result, 10 ct costs are incurred per storage cycle in a 10 kWh storage system due to the internal power loss.
For many calculations, however, the lost interest rate is one of the most expensive but also the most difficult to understand parameter. When making an investment decision, every company wants a return on investment that is higher than the return it would receive from the bank. Since every investment is supposed to generate a profit and is subject to uncertainties, a calculated return is assumed, which appears to be relatively high, currently often 8%.
Consider that a storage facility could break down, in the future, there could be another demand or a much cheaper storage facility could come onto the market. In each of these cases, the expected repayment would be risking and the entrepreneur would be "insured" with a planned return.
Exact calculation
For an exact calculation of the costs of storing one kWh of electricity (or 1 MWh, the usual unit in the electricity market) one must, therefore, know many factors in advance. The most important ones are:
- Electricity price of the electricity to be stored (P_elec-in)
- The efficiency of the storage system (u (DOD))
- The purchase price of the storage system (CAPEX)
- Storage device lifetime (N Storage device lifetime in years)
- Number of storage cycles (#cycles)
- Expected return (r interest rate)
- Operating costs (O&M)
If you have all these figures collected, you can make a first simple calculation:
All costs
Costs per kWh = ---------------
stored power
As simple as this formula may seem, it becomes complicated if future revenues and expenses are used correctly from a financial point of view. Then, for example, a kWh that you store in 5 years becomes smaller than expected, since you have to discount everything for the future (keyword: interest rate).
This discounting can be described by a sum formula which reads as follows:
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| The detailed formula for calculating the storage costs according to the Apricum calculation. |
Evaluation of LCOS with examples
Practically speaking, you can enter such a formula in Excel with a little patience and then start to calculate. I did this together with experts from the Imperial College in London, especially Mr. Schmidt[1], and determined the results for some systems.
Comparing important storage systems gives the following results:
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| Comparison of LCOS for different storage systems[1] |
The graph shows that Gravity Storage and Compressed Air storage have almost the same initial cost (CAPEX) but the storage costs for a Gravity Storage System are lower because the efficiency is higher there and therefore less power (P-elec) has to be stored in the system to have the same amount of power available later.
The following assumptions were made for the estimation above:
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| Data used for the calculation above (click to magnify). [1] |
How strong the impact of the yield (interest rate) is, can be seen if you calculate with 4% interest rate instead of 8% interest rate as shown above.
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| Change in LCOS at 4% interest rate. [1] |
Although all other costs are unchanged, the storage costs for some systems, such as Pumped Hydro are significantly lower. However, the costs of batteries remain relatively high. What is the reason for this? The reason for this is due to the construction period, while battery systems can be connected to the grid within one year, systems with a construction period of several years require a lot of capital upfront until the first revenues are generated. If interest rates are low, this is less important.
Conclusion
I hope it has become clear at this point that the calculation of storage costs, especially if they are an investment of a company, is not easy to determine, but that there are known procedures for accurately calculating these costs.
Many private users of battery systems will rarely make such a calculation, it is often about the good "feeling" to have a store for one's own electricity, but unfortunately, this cannot be reflected in an investment decision.
Read more Global Demand for Energy Storage
Comments:
CAPEX = capital expenditures (capital costs)
LCOS = Levelized Cost of Storage
OPEX = operating expenditures (operating costs)
Sources:
[1] Schmidt, 2017, report: Levelized cost of storage.
