Energy Storage Costs Declining. But No One-Size Fits All

Energy storage costs continue to decline, but with wide variations, depending on the battery technology and where and how it’s used, according to new research by Lazard.

Lazard also found solar generation costs declining at an even steeper rate.

Solar and storage often are coupled in microgrids and nanogrids.

“Our studies continue to demonstrate that there are no one-size-fits-all solutions in energy generation or storage,” said George Bilicic, vice chairman and global head of Lazard’s Power, Energy & Infrastructure Group. “The demands of a developed economy will continue to require both traditional and alternative energy sources as the technologies driving renewable energy evolve.”

Lazard offers the following insights from the two studies, known as LCOE 10.0 and LCOS 2.0.

Costs continue to decline for power from solar photovoltaic (PV) technology, Lazard says. The median levelized cost of energy from utility-scale PV technologies is down approximately 11 percent from last year, and rooftop residential PV technology is down about 26 percent.

Despite their promise, alternative energy systems alone will not be capable of meeting the baseload generation needs of a developed economy for the foreseeable future, according to Lazard. Therefore, many regions of the world should use complementary traditional and alternative energy resources in a diversified generation fleet.

Lazard also said that:

• Energy storage costs are generally dropping. For example, the median cost of using lithium-ion technologies decreased last year by about 12 percent, 24 percent and 11 percent for peaker replacement, transmission investment deferral and residential use cases. Lazard attributes the decline partly to lower capital costs.
• Great promise exists for behind-the-meter merchant energy storage at factories, universities, hospitals, and other high energy use locations. However, the economic viability of the projects depends greatly on local market structure and incentives.  For example, a battery-based storage system that is economically viable in Pennsylvania may not be viable in Texas.
• Industry participants continue to expect  demand for batteries to enhance manufacturing scale and lower energy storage costs. If industry projections materialize over the next five years, cost-effective energy storage technologies will have increasingly broad applications across the power grid. They will provide an alternative to conventional gas-fired peaking plants in certain areas, as well as extend the usefulness over the course of the day of solar and wind energy.

“The economic viability of commercial energy storage systems varies widely by application and on a regional basis,” said Jonathan Mir, who heads Lazard’s North American Power Group. “As manufacturers and customers identify optimal technologies for different use cases, we expect further innovation and a continued drop in costs, which will help drive increased use of renewables.”

Lazard is an international financial advisory and asset management firm that operates from 42 cities across 27 countries in North America, Europe, Asia, Australia, Central and South America.

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