How Batteries and Solar Power Are Disrupting Electricity Markets

How Batteries and Solar Power Are Disrupting Electricity Markets

          
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How Batteries and Solar Power Are Disrupting Electricity Markets

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  • Costs and Pricing of Battery Storage

    Li-ion batteries are the storage technology of choice because of their technical and economic advantages, including an annual decline in manufacturing costs of 10% to 15%. (See Exhibit 1 and “Solar PV Plus Battery Storage: Poised for Takeoff,” BCG article, July 2013.) 

    exhibit

    Currently, it costs about €270 per kilowatt hour (kWh) to produce a Li-ion battery pack. Sodium-sulfur batteries are less suitable for applications such as small-scale residential use, while lithium-sulfur and other battery types are not yet commercially viable. Lead-acid batteries, while still cost effective, are quickly losing their investment cost advantage against Li-ion because of their shorter life- span. (See the sidebar, “Battery Cost Comparisons Defined.”)

    BATTERY COST COMPARISONS DEFINED

    Battery costs play a crucial role in the debate about the viability of energy storage. Typically, they are determined by looking at price versus costs or cell costs versus system costs, but the calculations can vary.

    Price Versus Costs. Costs refer to production and logistics costs, while prices also include the margins of equipment manufacturers and wholesalers. In the behind-the-meter section of this report, we examine the economics from the customer’s perspective, so the calculations include prices. In general, however, we refer to total system costs. (Exhibit 1 provides an overview of manufacturers’ battery pack costs and total component pricing for the customer.)

    Cells Versus Systems. The cost of storage cells tell only part of the story, because it excludes the costs of casing, cabling, power electronics, control systems, and other components that are needed to operate stationary storage units. The numbers cited in this report refer to complete behind-the-meter or in-front-of-the-meter storage systems.

    Li-ion battery production capacity is expected to triple worldwide by 2020, which would reduce manufacturing costs to between €160 and €190 per kWh. However, potential buyers must consider the full price of the system, including balancing costs. Moreover, component prices differ in behind-the-meter and front-of-the-meter systems, as illustrated in Exhibit 1.

    The market for PV-generated electricity storage is determined by the cost of adding batteries to PV installations, as well as by the cost advantage of PV over grid electricity, the PV market size, and the regulatory framework of individual countries. In recent years, battery storage has been developing differently in Europe and Australia than in the US. In Europe and Australia, where electricity prices are higher, most advances have centered on residential and small-commercial uses, known as “behind the meter.” In the US, much of the growth is occurring “in front of the meter,” with larger installations and batteries located somewhere in the transmission or distribution grid in order to balance fluctuating loads from intermittent renewable generators, such as solar arrays or wind farms. (See Exhibit 2.)

    exhibit