Navigating the Maze of Energy Storage Costs 9 th German PV & - - PowerPoint PPT Presentation

Navigating the Maze of Energy Storage Costs

9th German PV & Energy Storage Market Briefing Frankfurt a.M., May 19, 2016

Apricum – The Cleantech Advisory

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Business Founded in 2008, over 100 successful transaction advisory and strategy consulting projects Industry focus

• Cleantech. Strong focus on solar, wind,

energy storage and integrated renewable energy systems Team >40 cleantech experts with decades of industry experience

Clients Companies, investors and public

institutions Services Transaction advisory (e.g., fund raising, due diligences, bid advisory) Strategy consulting (e.g., market entry) Locations HQ in Berlin, Germany Representative offices: UK, Turkey, Saudi Arabia, India, China, South Korea, Japan, Indonesia, Philippines, Thailand, USA, Mexico, Brazil, Argentina

Apricum at a glance

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The cost of energy storage is a key driver for the expected growth – but what does “cost” really mean?

• Significant growth is expected over

the coming years in particular for stationary energy storage systems (ESS)

• One of the key drivers – and

prerequisites – of this growth is a significant cost decrease, increasing the competitiveness of energy storage compared to alternative solutions

• However, there is no universally

applied metric for calculating cost of energy storage such as levelized cost of energy (LCOE) is for energy generation technologies

• Assessment of costs for different energy

storage solutions can be a tough exercise for all stakeholders, e.g., when:

• Storage system manufacturers need

to explain cost advantages over their competition

• Investors need to make an educated

decision for financing

• End users need to know which

solution is most economical in the targeted application ► Calculation of meaningful, comparable cost of energy storage needed Situation and complication

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To calculate meaningful, comparable costs of energy storage, three basic rules have to be followed.

Cost comparison for same use cases only a. Upfront costs b. O&M costs c. Residual value d. Charging costs e. Usable energy over lifetime f. Financing costs

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• ESS technologies can serve a variety of use cases, both

in-front-of-the-meter and behind-the-meter

• Each use case requires different operating parameters,

which impact costs and the optimal ESS technology Solution Choose the right basis

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• Cost of energy storage is based either on provided

energy (kWh) or on power capacity (kW)

• Appropriate basis depends on the value the ESS is

adding in the specific use case, i.e., the costs avoided1 Know your cost influencers

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• Calculations based on

the same level of detail and comparable assumptions

• All cost influencing

factors are included

1) In the following, focus on calculating the cost of energy storage on an energy basis

Already on the basic level of energy storage costs, a close look is required when comparing different storage solutions.

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Cost influencers (1/6): Upfront costs Upfront costs: All necessary investments required for the complete and connected system What to watch out for:

• Are we talking AC or DC? Costs for inverters can

make a significant difference (~200–500 USD/kW)

• Balance of System (BoS) included? Necessary

equipment (e.g., AirCon) can vary significantly from technology to technology

• On-site work and integration considered? Assembly of

batteries and racks, technical assistance during installation, equipment testing and commissioning support can account for 15–20% of total system costs

O&M requirements and the residual value of different storage technologies can vary significantly.

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Cost influencers (2/6): O&M costs and residual value

• Maintenance costs neglected? Some storage

technologies involve mechanical parts requiring significant maintenance (e.g., redox-flow pumps)

• What can be sold? Inverters, switchgear,

transformers; resale value of ESS depends on secondary market and life expectancy

• “Negative” sales price? Residual value can be

negative if respective ESS requires costly dismantling and recycling of hazardous materials O&M costs: Cost incurring from required periodic minor and major servicing Residual value: Achievable sales price after ESS has reached its end of life What to watch out for:

Redox flow battery system Pumps and

• ther

mechanical components can result in maintenance cost

The cost of charging the ESS needs to be considered – but is often left out.

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Cost influencers (3/6): Charging costs

• What are the roundtrip efficiencies? Depending on

technology, varying losses during a cycle with impact depending on electricity price

• Energy needed for ESS operation? Depending on

technology and often ambient temperatures (e.g., AirCon for Li-Ion)

• Effective efficiency applied? Low discharge power

at residential ESS leads to actual efficiencies significantly below rated efficiencies in data sheets Charging costs: Costs for charging the ESS with electricity from the grid/self-generated electricity What to watch out for:

ILLUSTRATIVE

Discharging power residential ESS Hours of day 0% 100% Inverter efficiency 12h 22h

Costs of storage in energy use cases should be put in relation to the ESS’ energy output over lifetime.

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Cost influencers (4/6): Usable energy over the lifetime (calendar life, cycles per year)

• What is the calendar life of the ESS? Elapsed time

before an ESS becomes unusable, whether it is active or inactive – mainly depending on chemistry, manufacturing specifics, voltages and temperatures

• How many annual cycles are needed? Depending
• n the full cycles per day and operating days per

year – determined by the use case and often the geography (self consumption PV: ~300 cycles/yr in California vs. 200–250 cycles/yr in Germany) Usable energy over lifetime: KWh of electricity that can be discharged from the ESS until its end of life What to watch out for:

Average monthly irradiation [kWh per day] Munich

Source: PVGIS, NREL; including illustrative PV+ ESS that needs 4 kWh per day of irradiation to be filled

2 4 6 1 2 3 4 5 6 7 8 9 10 11 12 2 4 6 1 2 3 4 5 6 7 8 9 10 11 12

Insufficient irradiation to fill storage in winter months San Diego, California

Costs of storage in energy use cases should be put in relation to the ESS’ energy output over lifetime.

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Cost influencers (5/6): Usable energy over the lifetime (cycle lifetime, depth of discharge)

• Projected cycle lifetime vs. cycles needed? Number
• f full cycles before nominal capacity falls below

70–80% of initial rated capacity – however, typically exceeds calendar life times annual cycles needed; “excess” cycles should not be reflected in costs

• What is the depth of discharge (DOD)? For most

chemistries, the lower the DOD applied, the higher the cycle lifetime and the roundtrip efficiency – but also the lower the electricity discharged per cycle Usable energy over lifetime: KWh of electricity that can be discharged from the ESS until its end of life What to watch out for:

ILLUSTRATIVE

Capacity degradation for battery in use case with 200 full cycles/yr Calendar life 15 years 100% 80% Battery #1: 2,000 cycles lifetime – cycle life limits lifetime Battery #2: 3,000 cycles or more lifetime – calendar life limits lifetime

Financing costs and time value needs to be reflected by discounting in- and outflowing cash with the WACC.

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Cost influencers (6/6): Financing costs

• Time value considered? Future cash flows have a

lower present value than cash flows generated or paid today and need to be discounted accordingly

• Realistic cost of capital applied? Cash flows are

discounted with the weighted average cost of capital (WACC), which depends on risk and return expectations amongst others – watch out for overly

• ptimistic assumptions

High gearing High country risk High offtaker risk Long duration of offtake contract High technical risk High currency risk High stability of revenues

Likely impact on WACC

Key drivers of WACC: Financing costs: Cost of equity and debt required to finance the ESS What to watch out for:

Levelized Cost of Stored Energy (LCOS) – simple metric to reflect the cost influencers, but not a way to “rule them all”.

• To reflect all the cost influencers in a

simple metric, a constant price per kWh over the lifetime is assumed: Levelized Cost of Stored Energy

• LCOS = levelized price per kWh at

which the net present value of the ESS project is zero

• Only applicable for use cases

with value added through energy supply (second rule) – should not be applied for power based use cases (e.g., T&D deferral)

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LCOS methodology

Source: Apricum analysis With: #cycles full charging/discharging cycles per year, DOD depth of discharge, Crated rated capacity, annual degradation rate of capacity (assuming linear degradation), N project lifetime in years, r discount rate (e.g., weighted average cost of capital), O&M O&M cost (assumed to be constant), residual value (after project lifetime), Pelec-in charging electricity tariff (assumed to be constant), 𝜃(DOD) round-trip efficiency at DOD

By applying LCOS, the significant impact of the cost influencers becomes obvious.

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Example: Dispatchable PV in island grid

• Description:
• ESS for shifting PV generated

electricity to the evening to meet peak demand in an island grid

• Comparison to the cost of

alternatively installing a diesel genset

• With all cost influencing factors

considered, Li-Ion would end up with LCOS of 35 USD¢/kWh

• Compared to diesel-based generation

in island grids, an ESS solution is still economically viable

1) Divided by undiscounted total energy; 2) Impact of discounting total energy; 3) Discounted and divided by discounted total energy Source: Apricum analysis Assumptions: Li-ion battery with CAPEX of 500 USD/kWh; 350 cycles p.a. @ 80% DOD; calendar lifetime 15 years; cycle lifetime 6,000 cycles; O&M cost 10 USD/kWh p.a.; charging cost of 0.06 USD/kWh with 92% ESS efficiency; 10% WACC; Residual value 20% of CAPEX; Diesel LCOE calculation over 20 years with fuel cost 1 USD/l with 2% yearly increase

13 4 7 1 12 35 38 LCOS Charging cost Financing impact on CAPEX2 Residual value3 CAPEX1 O&M cost3 Cost diesel generation

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Be aware of influencing factors for ESS costs and apply them correctly depending on the individual use case.

• Complex set of cost influencing factors with large variations

between technologies/use cases and significant impact on total system cost

• LCOS is not a metric to rule them all, but only works with

energy-based applications for single use cases (benefit stacking not considered)

• Cost metrics like the LCOS should be applied with caution:

Due to the complexity, costs for a specific use case are easily quoted as a reference in completely different, non-applicable situations

• Standardization of methods for calculating storage costs

needed to increase transparency and set the right level of expectations: The energy storage industry as a whole will benefit from further increased confidence in ESS

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Conclusions For more details on this topic, have a look at Apricum’s article in PV Tech Power magazine published next week

Florian Mayr Apricum GmbH Spittelmarkt 12 | 10117 Berlin | Germany

• T. +49.30.308 77 62 - 25 | M. +49.170.96 86 366

mayr@apricum-group.com www.apricum-group.com