Residential Energy Storage Economics: Page 3 of 5
Inside this Article
STORED ENERGY COSTS
The US Energy Information Administration (EIA) tracks average electricity prices by state and market sector over time. In October 2015, EIA published its recently aggregated annual energy cost data, which indicate that the average retail price of electricity in the residential sector was 12.52 cents per kWh in 2014. Drilling down on the state-level data, Washington, which gets 65% of its electricity from hydro, had the lowest residential electricity prices (8.67 cents per kWh), whereas Hawaii, which gets the lion’s share of its electricity from fuel oil, had the nation’s highest prices (37.04 cents per kWh).
So how does the cost to store energy in residential applications compare to retail electricity prices? In reality, this depends largely on the energy storage system’s use and cycling practices. However, it is possible to use the simplified formula in Equation 1 to derive a back-of-the-napkin value for the LCOS:
LCOS = Cost ÷ (Usable Capacity x Cycles x Efficiency) (1)
Cost. In the SolarPro article “Levelized Cost of Energy” (April/May 2012), Tarn Yates and Bradley Hibberd note that LCOE calculations “should include all costs that the project incurs—including construction and operation—and may incorporate any salvage or residual value at the end of the project’s lifetime.” They go on to explain how to account for project financing costs, discounted cash flow and depreciation in these calculations. As the formulas in the 2012 article evidence, detailed LCOE calculations can become quite complicated.
For the purposes of this article, we intentionally strip away many of these layers of complexity. We do not factor the time value of money into our LCOS calculations; we do not consider the residual value of the equipment at the end of its life cycle; we do not even consider O&M costs. Instead, we use the initial installed cost of the energy storage system and the associated power electronics as a proxy for the total life cycle costs.
To justify this simplified approach, we look specifically at the LCOS for a representative set of lithium-ion energy storage solutions and applications. Since vendors advertise these advanced battery appliances as maintenance-free solutions, we assume that the user does not incur any additional costs to maintain and operate the energy storage asset. Note that if you wanted to use this formula to analyze the LCOS for an energy storage system with flooded lead-acid batteries, which have lower up-front costs than lithium-ion batteries, you would have to factor in O&M costs over the life of the system. These costs vary based on labor rates and travel times.
Table 2 illustrates the sensitivity of LCOS to costs. On one hand, Green Mountain Power, Vermont’s largest electric utility, is selling turnkey Tesla Powerwall solutions—complete with a SolarEdge StorEdge inverter, autotransformer and energy meter—for an installed price of $6,500, made possible in part by a bulk purchase order for 500 units and the fact that the utility can use its own technicians to install the systems. On the other hand, TreeHouse, an Austin, Texas–based sustainable home improvement store, is the nation’s first retailer to offer Tesla’s Powerwall, which it provides through a network of licensed installation partners. According to one of these installation partners, the initial turnkey cost for a StorEdge plus Powerwall system in Austin will likely be “closer to $9,000.” This $2,500 difference in up-front costs results in a $0.16/kWh difference in the LCOS between the utility provider and the retail provider.
Usable capacity. An energy storage system’s usable capacity is primarily a function of nameplate kWh capacity, the allowable depth of discharge and battery capacity degradation over time. For example, Adara Power (formerly JuiceBox Energy) sells a residential energy storage system with a nominal 8.6 kWh lithium-ion battery. According to the company’s CEO, Neil Maguire, the maximum allowable depth of discharge for these nickel manganese cobalt oxide batteries, which Samsung manufactures, is 75%. Based on this allowable depth of discharge, the usable capacity of Adara’s energy storage system is 6.45 kWh (8.6 kWh x 0.75). However, this is the nominal battery capacity on day 1 only. This battery capacity will invariably decline over the life of the system, based in part on aging and in part on usage.
There are challenges associated with deriving a realistic value for an energy storage system’s usable capacity. Notably, the energy storage industry lacks nameplate and datasheet reporting standards and independent third-party verification requirements. This scenario is not unlike the early days of the US solar industry, when some manufacturers batched modules according to very tight nameplate power tolerances, such as +5% to −0%, while others had a very wide window, such as +5 to −10%. It is also reminiscent of the days before the CEC established independent verification test requirements for PV modules (PTC ratings) and inverters (CEC-weighted efficiency).
Without access to standardized data verified by a third party, the battery warranty may provide the best approximation of usable capacity over the life of an energy storage system. For example, Tesla nominally rates its Powerwall at 6.4 kWh when used for daily cycling. If we assume that a Powerwall cycles to capacity 3,650 times over its 10-year warranty period, the best-case LCOS falls in the $0.31–$0.43/kWh range, depending on system cost. However, if we review the Powerwall warranty, which accounts for the stepped degradation over time shown in Figure 3, we see that Tesla guarantees “18 MWh of aggregate discharge” from the battery cells. If we calculate LCOS based on the warranted battery capacity, LCOS increases to $0.40–$0.56.