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How To Look On The Downtrend Of The Cost Of Energy Storage Systems?
- Jul 19, 2018 -


Nowadays, the cost of energy storage system has dropped so fast that inefficient energy storage companies can not compete effectively in the market. And the winners of the market will be those that actively pursue and achieve operational improvement.


Energy storage manufacturers need to be prepared for this. Even if the cost of energy storage system continues to decline, the next ten years may be more difficult than people think. In some ways, market prospects for energy storage vendors should be inspiring. As we can see, some commercial uses of energy storage have become economically viable. Its more uses will appeal to utilities, industrial customers and families.


However, as the cost of energy storage systems falls, the competition between developers and competitors will become more and more intense, so the store is committed to the cost of engineering, licensing, system integration and installation processes. This is basically similar to the development of the PV industry from 2005 to 2015, when the cost of photovoltaic components dropped by 75%, forcing solar developers to focus on operational efficiency, triggering a major restructuring of solar module manufacturers (some of them bankrupt) and compressing profit margins.


With the development of the market, some energy storage companies are expected to gain a larger share and will take the market share from the less cost-effective competitors. The following is a description of how the cost of energy storage system changes and what companies in the energy storage industry can do to improve their chances of success.


Decline: the cost balance of the battery and the system


Over the past five years, a number of factors have led to an overall decline in the cost of energy storage systems. The global demand for consumer electronics and electric vehicles stimulated investment in battery technology, thereby reducing the unit cost of each component. At the same time, the cost of other hardware such as inverters, containers, and climate control equipment has become lower because of the improvement and efficiency of design and efficiency in the manufacturing and supply chain management. As businesses accumulate experience and simplify processes, the cost of "soft" costs (customer acquisition, licensing and interconnection) and engineering, procurement and construction (EPC) costs fall.


From 2012 to 2017, the battery cost dropped by more than 15% a year, and dropped by more than 50% in five years. The cost of system balancing (BOS), which is composed of other hardware, software, engineering, procurement and construction (EPC), is falling faster, and will exceed 25% annually. Overall, the decline in the BOS of energy storage projects contributes to more than three times the cost savings of the battery (Figure 1).

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How to compare cost according to the type of energy storage system


The installation cost of energy storage system varies with different types of energy storage systems. The cost of battery pack varies from one system to another, depending on the larger energy storage system and the more effective battery management system. However, the system balance (BOS) cost of the energy storage system is affected by the ratio of power (maximum output) to energy (capacity duration), and the serious impact of its suitable market parts (public utilities, business and industry).


The cost of system balance (BOS) is usually proportional to the power output of the system, since the more powerful systems require additional hardware, mainly in the form of power electronics, and often more complex, which improves the cost of engineering, procurement and construction (EPC) and software. Market segmentation is important because commercial, industrial and residential energy storage systems usually bring higher customer acquisition and engineering, procurement and construction (EPC) costs. The estimated cost presented here is mainly indicative, because the specific requirements of each system will ultimately determine its installation cost.


Component analysis of further cost improvement opportunities shows that the cost of energy storage system will continue to decline rapidly, and the type of system will also be different. However, for several reasons, such a decline may be suspended. For example, public utilities and power market regulators may formulate rules or policies, such as rules or policies to manage licensing and interconnection, which make the installation cost of the storage system high and time-consuming. Compared with solar PV market, the efficiency of manufacturing investment may be improved. Tariffs can increase the cost of imported batteries and BOS hardware from low-cost manufacturing sites. After assessing the possibilities of these developments, researchers believe that they are unlikely to seriously impede the cost reduction of energy storage systems, so these factors are not considered in the two cases described below.


With the continuous progress of manufacturing scale and technology, and the improvement of energy storage system engineering and design, the cost per kilowatt hour of the energy storage system will be reduced by about 55% by 2025. The market leading manufacturers and developers of energy storage products have also made a step improvement in cost improvement: additional process efficiency and hardware innovation can reduce the cost of the installed system by less than 70% (chart 2). In 2025, the cost per kilowatt hour of energy storage was about 170 US dollars, less than 1/10 of 2012. In this case, by 2020, the battery pack will be able to break through the $100 / kWh mark.

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The following will explain how these developments play a role in the four main categories of the cost of energy storage systems:

• as global competition increased, the cost of battery groups fell by more than 50% in 2025, leading to a larger scale of manufacturing, integration, manufacturing processes and technology improvements, and the commercialization of products. The best idea is that the battery maker will use a variety of chemical forms of batteries (for example, reducing cobalt cathode and solid state batteries), getting higher efficiency from automation and increasing scale, integrating its supply chain, and even moving some operations like internal electrode manufacturing. With the reduction of capital costs, all of these advances can be financed.


Usually, the system balance (BOS) hardware cost drops by more than 50%. The design improvement eliminates unnecessary cost and complexity of inverter, wiring, containerization, climate control and other components. Further competition between existing enterprises and new low-cost manufacturers will also reduce the pricing of energy storage hardware. In the best schemes of the same kind, the use of new materials and technologies (for example, silicon carbide for inverters), accelerated growth of low-cost products, and design innovations (such as the development of prefabricated modular components) can save additional costs.


Generally, the soft cost is down by 60%. With utility companies optimizing battery energy storage, the procurement process is simplified, and developers can save time and energy. The expected additional cost reductions in the best of the best solutions come from the efforts of developers to digitize bidding, and the emergence of standard methods of permitting and interconnecting.


Usually, the cost of engineering, procurement and construction (EPC) will drop. This is because efficient and experienced EPC companies achieve economies of scale and reduce field labor by pursuing standardization in design and construction. The alliance with developers has also enabled EPC to invest in improving efficiency and resources. The industry's leading scheme takes into account the large EPC enterprise, with plug and play compatibility hardware and software development, and prefabricated components that reduce site manual installation steps.


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Keep the lead: opportunities for energy storage manufacturers


The low cost future of the energy storage market will constitute a fierce competition environment, but it will be advantageous for those manufacturers who have made significant improvements in performance. The following is a description of how companies in the value chain attract and win customers how to reduce costs.


System balance (BOS) hardware manufacturers may need to pursue larger scale growth. Low cost manufacturers have not yet fully focused on the energy storage market. But as public utilities invest more in energy storage products, this will change.  (in the past five years, when new manufacturers challenged the existing enterprises, similar market conditions appeared in the solar inverter market. In order to deal with low cost threats, the existing manufacturers may have no choice but to pursue economies of scale and may extend to other products. Few companies now produce energy storage modules and solar inverters simultaneously, but combining operations can be beneficial, because the underlying technologies are similar. Component manufacturers can also reduce costs by using new technologies such as three-phase inverters, replacing the inverter hardware by software, and using light materials like silicon carbide.


EPC can take more effective practices, such as lean construction (for example, optimizing unit size, eliminating downtime and waste of energy), prefabricating major system components, simplifying bids and simplifying interconnect processes. As enterprises gain more experience, some practices will naturally become reality. Buying higher production components will reduce unit cost. Alliance contractual relationships enable companies to cooperate with complex and low-cost installation partners in many projects. Through better design, there are still plenty of opportunities to save time and energy. Standardization of some aspects of the energy storage system (for example, containers and climate control specifications) will reduce the demand for expensive customized engineering. EPC companies should learn to match their designs strictly according to the requirements of customers, so as to avoid adopting more expensive components. Modular hardware and compatible hardware and software will also eliminate some installation steps.


Battery energy storage: the next disruptive technology in the power industry


Energy storage project developers in the past need to provide new customers with energy storage technology, system design, project economics and available incentives. All these efforts make the cost of customer acquisition more expensive. Today, customers have better understanding of the situation, and the cost of their sales items is much lower. Advanced analysis can help developers identify potential customers and offer attractive quotations for them. A preliminary system design is estimated for saving and developing by automation, for example, to simulate the customer load to help the system to adjust, or to use images from satellites and UAVs. This can improve the digital tools used to attract customers and promote sales.  For utility scale projects, the development of energy storage and renewable energy generation will make the project more profitable by decentralization of customer access costs, more efficient use of land and site infrastructure, and the improvement of the ability to optimize intermittent renewable energy generation.


Energy storage developers and system integrators also need more flexible procurement methods so that they can take advantage of the fast down battery and system balance (BOS) hardware costs. Like the solar market, some energy developers have reached a pricing agreement with battery and component manufacturers, hoping to determine the cost and may modify the agreements as the cost falls. Energy storage developers should pay attention to the same risks.