Not so fast: Battery prices will continue to decrease, but at a slower pace, GTM says
Cost declines for storage systems will slow as raw material prices rise, but deployments will continue apace, according to GTM.
Turnkey prices for front-of-the-meter energy storage systems are expected to continue falling, but the rate of decline will not be as steep as it has been in the past, according to a new report from GTM Research.
The report predicts that storage system prices will decline at an annual rate of 8% through 2022. But through 2015-2016, battery prices fell by as much as 32% and balance of system (BOS) costs fell by as much as 24%.
The slower pace of price declines is not expected to significantly slow the growth of energy storage deployments, however. The report predicts that front-of-the-meter storage installations will grow six-fold between 2017 and 2022.
“A lot of deployments are driven by mandates, and that will continue in the future,” Mitalee Gupta, an energy storage analyst at GTM and author of the report, told Utility Dive.
Cost not the whole story
“Cost is a big factor with a lot of systems, but that doesn’t tell the whole story,” Ray Hohenstein, market applications director at Fluence, told Utility Dive. A lot of the near term growth in energy storage deployments is going to be driven by the increasing ability of storage to participate in utility procurement processes, such as integrated resource plans, on a technology agnostic basis, Hohenstein said. And, “in some markets,” he said, “storage is already the least cost option.”
"Despite the slowing rate of cost declines, even slight decreases will make some projects pencil out,” Gupta said. And as costs continue to decline, "projects that are not economic now will also pencil out," she said.
Generally, growing use of a product drives economies of scale that put downward pressures on costs. That has been true for batteries; but as Gupta pointed out, stationary storage has not been the main driver in that trend. The main market driver for rechargeable batteries has been electric vehicles. The stationary storage market is only now starting to grow significantly, she said.
Growing demand has also prompted manufacturers – from Tesla to Daimler – to build ever larger factories to produce even more batteries. Last year GTM reported that at least 10 battery gigafactories are under construction, and Bloomberg reported that global battery production is expected to double by 2021.
That will put downward pressure on battery prices, but the market is not there yet, Gupta said. “We still haven’t reached the point where the battery market is oversupplied,” she said. “Over the next two years, we will see more production come online,” but as more batteries are produced, demand will push up prices for key raw materials such as nickel and cobalt, she said. Higher commodity prices will slow battery price declines, but Gupta noted that prices are still expected to fall.
GTM estimates that lithium-ion battery rack prices will decline by 10% over the next five years, reaching $144/kWh compared with an estimate of $207/kWh for 2018.
Other cost components
Battery prices aren’t the only cost component of an energy storage system. Balance of system costs are also on a downward trend. In fact, BOS costs have been a strong driver of past cost declines. GTM’s analysis shows that battery prices fell sharply between 2013 and mid-2014, but by 2015, BOS costs took over as the primary driver of cost reductions.
BOS components — identified by GTM as engineering, procurement and construction costs, controls and hardware costs, and interconnection costs — comprise as much 40% of the costs of a storage system.
BOS costs will continue to decline at a rate similar to battery prices, Gupta said, but they are not spread evenly across different types of storage systems. In shorter duration systems, BOS costs represent a larger share of the overall costs. In longer duration systems, the share of BOS costs relative to overall costs declines.
Cost declines are also not evenly spread across BOS components. Inverter costs are more prone to decline as economies of scale ramp up, and engineering, procurement and construction costs can benefit from the cumulative experience of developers bringing more projects to market. Interconnection costs, being more determined by administrative and regulatory decisions, are less susceptible to the effects of a growing storage market.
The last time GTM looked at BOS costs, in January 2016, it predicted they would fall 41% by 2020. Since then, GTM has updated its methodology, Gupta told Utility Dive. “This report is more holistic,” she said.
Power and energy
In the past, GTM looked at storage costs from a power perspective, focusing on the power aspects of storage measured in kilowatts. Now GTM looks at both power and energy, that is, they look not only at how much power a system can provide (power rating) but how much energy it can provide (energy rating), measured in kilowatt-hours.
The change reflects a nascent trend in the storage market. “We’re hearing about more and more longer duration systems coming online,” Gupta said. Combining both metrics also allows for a more even comparison of storage with other technologies.
As the storage market continues to evolve, those comparisons could become more important. In some markets, storage is already beginning to compete head to head with conventional technologies.
In Long Beach, Calif., Fluence is building a 100 MW/400 MWh solar-plus-storage project that will be able to operate on a more continuous basis, more like a conventional power plant. In San Diego, Fluence built a 30 MW/120 MWh storage project and a 7.5 MW/30 MWh project for San Diego Gas & Electric, both of which provide flexible peaking capacity, taking the place of peaking plants. In Arizona, Fluence is installing a 2 MW/8MWh battery array in Punkin Center for Arizona Public Service at half what it would cost to install a transmission and distribution upgrade, Hohenstein said. The company also has two other 2 MW/2 MWh systems already in operation for APS.
All three types of applications are key to the development of the energy storage market, Hohenstein said. But “for us, the most important thing is not a mandate,” he said, “it is having the opportunity to compete. “A lot of things are falling into place beyond costs.”
From a developer’s point of view, it is important to remember that the main trend of energy storage costs is down. As cost declines flatten out, there is also a risk that costs could go up as well, Kris Zadlo, senior vice president of commercial analytics, regulatory affairs and transmission at Invenergy, told Utility Dive. “Things can’t go down forever,” he said.
Zadlo noted that in 2012 storage costs were around $1,000/kWh. They are now about $200/kWh, and “everyone is predicting about $150/kWh by the end of the decade.”
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