Focus on costs alone leads to misconceptions about energy storage


A narrow focus on cost alone may be leading to misconceptions about the real value of energy storage according to a new report by the World Energy Council ‘E-storage – shifting from cost to value.’

The focus only on investment costs is leading to the perception that energy storage is more expensive than it actually is because it ignores the system value of stored energy, says a new report from World Energy Council.

The report, ‘E-storage – shifting from cost to value,’ calls for recognizing the true value of energy storage by taking into account both its cost and revenue benefits.

With the declining cost of capturing and storing wind and solar energy, there is bright future for energy storage with significant innovation potential.

The report concludes that widely used levelised cost of energy methodology is hindering the progress of energy storage.

The analysis identifies “double trouble” problems with the methodology, namely arbitrariness which does not allow for differences in application cases, and incompleteness as only limited account of revenue is taken.

Christoph Frei, secretary general of the World Energy Council, said, “Energy storage is a critical catalyst of the energy transition whose benefits are still undervalued. The costs have already come down, but will have to fall further for a much broader roll-out and use in household and E-mobility.”

“The investment community has good reason to be excited about the innovation and business models that will emerge from new opportunities,” Frei said.

The market is right to be enthusiastic about storage of energy, not just because of the cost reductions that it brings, but also because of additional revenue and other benefits that specific technologies in specific contexts can deliver, the research says.

The report also estimates that with the many new technologies in the pipeline, storage costs of energy will fall by as much as 70 percent over the next 15 years.

Solar storage will become more competitive as new battery technology drives prices down, and wind storage more attractive as technical advances in areas such as composite materials enables the power generated by wind turbines to increase.

While batteries are currently too expensive for large-scale use, improving technology is cutting costs, which means storage systems could replace some plants and avoid the need for new ones, as well as reduce demand for oil.

In order to create the right policy environment that will unlock the potential of energy storage and capitalize on its true cost and value benefits, the report makes five recommendations to policymakers:

  • Go beyond just costs – cheapest is not always best.
  • Examine storage through holistic case studies – generic cost estimates are not sufficient.
  • Work with operators and regulators to accelerate the development of flexible markets – often the full value of flexibility is not sufficiently recognised and monetised.
  • Establish supporting policies and an enabling regulatoryframework to facilitate further commercial deployment of storage technogies.
  • Consider storage as a key component for grid expansion or extension.

However, the report warns that the value of stored energy needs to be assessed on a case by case basis because revenue streams will vary over time and between countries as they are dependent on the market, policy regime and variability of competing resources.

Christoph Frei added: “Too often the industry only talks about one half of the profit formula, namely cost. Policymakers should recognise the wide span of market places that can benefit from energy storage. These range from bringing down the cost of home solar systems, enabling the electric car industry to grow, helping electricity suppliers to manage problems when the grid goes down or there is grid overload to taking advantage of market price fluctuations and selling electricity across borders.

“To take full advantage of the growing wind and solar electricity shares, policymakers must review electricity market design so as to incentivise the build-up of  storage capacity and ensure reliable and affordable electricity supply,” Frei said.

Rajani Baburajan