Calculating the True Cost of Energy Storage

By Anna W. Aamone

With regard to energy storage systems, many people erroneously think that the only cost they should consider is the initial – that is, the cost of generating electricity per kilowatt-hour. However, they are not aware of another very important factor.

This is the so-called LCOE, levelized cost of energy (also known as cost of electricity by source), which helps calculate the price of the electricity generated by a specific source. The LCOE also includes other costs associated with producing or storing that energy, such as maintenance and operating costs, residual value, the useful life of the system and the round-trip efficiency. Some of these factors will be discussed in this article, so if you want to get a solid grasp of the matter, check the information provided below.

Batteries and round-trip efficiency

Let's begin with saying that using batteries to store energy may be a costly adventure. The basic reason is that, due to poor maintenance, inefficiencies or heat, part of the energy captured in the battery is released ... or rather, lost. The idea of round-trip efficiency is to determine the overall efficiency of a system (in that case, batteries) from the moment it is charged to the moment the energy is discharged. In other words, it helps to calculate the amount of energy that gets lost between charging and discharging (a “round trip”).

In other words: You charge your battery, believing you will use 100 percent of it, but the truth is that you will only get to use about 75 percent due to loss of energy somewhere along the way. It's just inevitable. Roughly speaking, you can only release about 75 kilowatt-hours from a battery that has been charged with 100 kWh of electricity. Those 25 kWh of electricity get wasted for a number of reasons like the ones mentioned above (heat, improper maintenance, etc.). Are you getting the idea? So, as it turns out, using batteries is not free either. And it has to be added to the final cost of the energy storage system.

Maintenance costs

The next thing that customers keep forgetting is that paying for an energy storage system is definitely not the first and the last time they will need to give money away for that system. When calculating the true cost of energy storage you have to include maintenance costs. An energy storage system requires regular check-ups so that it operates properly in the years to come. Note that keeping such a system running smoothly can be quite pricey. Some batteries need to be maintained more often than others. Therefore when considering buying an energy storage system, you need to take into account this factor. It will help you calculate the true cost of the system and save you a bunch of headaches in the long run.

Useful life of the energy system

Another important factor in determining the true cost of energy storage is a system's useful life. Most of the time, this is characterized by the number of years a system is likely to be running. However, when it comes to batteries, there is another factor to take into account: use. The truth is, batteries wear out due to use and time. More often than not, the life of a battery depends on the number of charge and discharge cycles it goes through. Imagine a battery has about 10,000 charge-discharge cycles. When they are complete, the battery will wear out, no matter if it has been used for two or for five years.

The good news is, flow batteries can be charged and discharged a million times without wearing out. Hence, cycling is not an issue with this type of battery, and you should keep this in mind before selecting an energy storage system. Think twice about whether you want to use batteries that wear out too quickly because their useful life depends on the number of times they are charged and discharged. Or would you rather use flow batteries, the LCOE of which is much lower than that of standard batteries?

So, what do we have so far?

LCOE = Round-trip efficiency + maintenance costs + useful life of the energy system.

These are three of the most important factors that determine the LCOE. Make sure you consider all the factors that determine the true cost of energy storage systems before you buy one.

Image credit: Flickr/INL

Anna W. Aamone works for TopDomesticCleaners Crofton Park. She likes to spend her free time at quiet places like small local cafés or playing chess in the near park.