/ CAPEX is the costs you will incur to buy, install and commission the battery safely. While CAPEX of newer technologies may be relatively high, it generally decreases over time as install base grows, supply chains expand and economies of scale are realized. CAPEX should also include permitting costs, civil works, and other installation costs beyond the DC batteries themselves.
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/ O&M costs have both fixed and variable components. Fixed costs, for example, may include scheduled annual or bi-annual routine maintenance. Variable costs will typically vary with hours of operation or cycle count. And data costs are often overlooked: some lithium-ion manufacturers&#; product warranties require operators to collect and maintain detailed operating data.
/ Augmentation or replacement costs represent a large chunk of lithium ion battery project costs today, but they are notably absent from non-degrading technologies such as vanadium flow batteries. With every cycle, a lithium-ion battery&#;s ability to hold charge degrades; to maintain battery capacity cells need to be replaced or added &#; a process called augmentation. This includes the cost of the new cells, the cost to swap them out, and the cost of any additional space.
/ End-of-life (EOL) costs may include include disassembly, transportation to a battery recycling facility and fees to safely dispose of lithium-ion cells. Some batteries have residual value when they reach the end of their useful life: vanadium electrolyte can be reused in a new battery, and NMC lithium ion batteries contain valuable metals that can be recovered and sold. Other chemistries like LFP have little residual value to offset EOL costs.
/ Efficiency Costs represent the cost of energy lost to round-trip efficiency (RTE). All batteries have an RTE less than 100%, but the figure varies across the range of available technologies available. This can dictate a battery&#;s ideal uses; for example, a vanadium flow battery requires a higher profit per cycle compared to lithium because of its lower RTE, but has better cycling capabilities making it ideal for high throughput regulation services.
We use LCOS in our model below, but if you prefer an LCOE model you would combine both charge and efficiency costs, yielding the total cost of energy delivered. As a reminder, charge costs are what it costs to get useful energy into your battery; if you&#;re charging the battery from the grid then wholesale prices are the other major driver of charge costs.
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Let&#;s look at an example of the LCOS cost breakdown for two different battery technologies performing the same duty cycle: a vanadium flow battery and a lithium-ion system. This is just one example, and different applications mean different inputs, but it demonstrates how relative costs can be quite different across technologies.
We&#;ll cover the formulas in a future article, but if you&#;d like to read more on how to calculate levelized cost of storage we&#;d recommend looking at the World Energy Council&#;s report on shifting from cost to value in wind and solar applications, the U.S. Department of Energy&#;s Energy Storage Grand Challenge Roadmap, the PV + storage cost analysis from NREL, or the University of Oxford study on the LCOE of PV & grid scale energy.
In this example we have modeled a grid-connected utility-owned battery co-located with a solar array, performing multiple daily cycles to serve deep wholesale and balancing markets. Such markets reward high-throughput systems: the more opportunity the battery has to do valuable work like solar shifting or performing energy arbitrage the more revenue it can earn.
Your scenario may be quite different, for example you may use a higher discount rate depending on your company&#;s cost of capital, or you might have a shorter project lifetime horizon; most utilities we speak to are using 25-40 year models today.
In this scenario, we assume a 10 MW / 40 MWh battery with a high throughput equivalent to 700 full depth of discharge cycles per year; that&#;s a little under 2 cycles per day with an availability of 96%. We&#;ve modeled a 6% discount rate over a 40 year project life.
The LCOS for the two systems are quite different ($111/MWh for the VFB vs $131/MWh for the Li-ion), and the composition of that cost varies as shown in figure 3.
Figure 3. Battery Storage Cost Comparison
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