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Levelized cost of storage — Introducing novel metrics

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  • Belderbos, Andreas
  • Delarue, Erik
  • Kessels, Kris
  • D'haeseleer, William

Abstract

The increasing share of variable renewable generation capacity leads to a growing interest in electricity storage technologies and a summarizing cost metric to analyze the economic viability of such electricity storage units. For conventional generation technologies, the levelized cost of electricity (LCOE) is a well-known metric. In the context of electricity storage however, such LCOE-like metrics are only limitedly applicable as the finite energy storage capacity can limit the charge and discharge scheduling decisions of the storage operator. In addition, the “fuel”, i.e., charged electricity, and “generated electricity”, i.e., discharged electricity, is one and the same commodity which provides the opportunity to use an adapted levelized cost metric. This work analyzes three different levelized cost metrics and their application to electricity storage units used for electric energy arbitrage. The strengths and shortcomings of these storage cost metrics are analyzed in order to determine how they can be applied correctly. This analysis results in the following recommendations. First, it is recommended to use a levelized cost metric in combination with an analysis of a representative price profile upon which the storage operator will act. This allows a more accurate estimation of the number of charging and discharging hours and the associated charging cost and discharging revenue, given the energy storage capacity constraints of the storage unit. Second, when a number of different representative price profiles, hence with different charging costs, is available, it is recommended to use a cost metric which is independent of the charging cost as this single metric can be compared to each price profile, thereby facilitating the interpretation of the results. The results and conclusions from this work provide a framework on how to use levelized cost metrics in the context of electricity storage. Such metrics may help policy makers and investors in prioritizing energy storage investment decisions.

Suggested Citation

  • Belderbos, Andreas & Delarue, Erik & Kessels, Kris & D'haeseleer, William, 2017. "Levelized cost of storage — Introducing novel metrics," Energy Economics, Elsevier, vol. 67(C), pages 287-299.
    • Handle: RePEc:eee:eneeco:v:67:y:2017:i:c:p:287-299
    DOI: 10.1016/j.eneco.2017.08.022
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    References listed on IDEAS

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    1. Reichelstein, Stefan & Sahoo, Anshuman, 2015. "Time of day pricing and the levelized cost of intermittent power generation," Energy Economics, Elsevier, vol. 48(C), pages 97-108.
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    Cited by:

    1. Tronchin, Lamberto & Manfren, Massimiliano & Nastasi, Benedetto, 2018. "Energy efficiency, demand side management and energy storage technologies – A critical analysis of possible paths of integration in the built environment," Renewable and Sustainable Energy Reviews, Elsevier, vol. 95(C), pages 341-353.
    2. Pejman Bahramian, 2021. "Integration of wind power into an electricity system using pumped-storage: Economic challenges and stakeholder impacts," Working Paper 1478, Economics Department, Queen's University.
    3. Amro M. Elshurafa & Mohammad H. Aldubyan, 2019. "State-of-Charge Effects on Standalone Solar-Storage Systems in Hot Climates: A Case Study in Saudi Arabia," Sustainability, MDPI, vol. 11(12), pages 1-19, June.
    4. Tazi, Nacef & Safaei, Fatemeh & Hnaien, Faicel, 2022. "Assessment of the levelized cost of energy using a stochastic model," Energy, Elsevier, vol. 238(PB).
    5. Wang, Yunfei & Li, Jinke & O'Leary, Nigel & Shao, Jing, 2024. "Banding: A game changer in the Renewables Obligation scheme in the United Kingdom," Energy Economics, Elsevier, vol. 130(C).
    6. Ziad M. Ali & Martin Calasan & Shady H. E. Abdel Aleem & Francisco Jurado & Foad H. Gandoman, 2023. "Applications of Energy Storage Systems in Enhancing Energy Management and Access in Microgrids: A Review," Energies, MDPI, vol. 16(16), pages 1-41, August.
    7. Lai, Chun Sing & Locatelli, Giorgio & Pimm, Andrew & Tao, Yingshan & Li, Xuecong & Lai, Loi Lei, 2019. "A financial model for lithium-ion storage in a photovoltaic and biogas energy system," Applied Energy, Elsevier, vol. 251(C), pages 1-1.
    8. O'Shaughnessy, Eric & Cutler, Dylan & Ardani, Kristen & Margolis, Robert, 2018. "Solar plus: A review of the end-user economics of solar PV integration with storage and load control in residential buildings," Applied Energy, Elsevier, vol. 228(C), pages 2165-2175.
    9. Yuhji Matsuo, 2022. "Re-Defining System LCOE: Costs and Values of Power Sources," Energies, MDPI, vol. 15(18), pages 1-39, September.
    10. Natascia Andrenacci & Mauro Di Monaco & Giuseppe Tomasso, 2022. "Influence of Battery Aging on the Operation of a Charging Infrastructure," Energies, MDPI, vol. 15(24), pages 1-18, December.

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    More about this item

    Keywords

    Levelized cost metric; Operational profit; Discharge price; Price spread; Storage investor;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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