How to calculate Levelized Cost of Energy in different energy storage technologies

Economy is the best criterion for long term energy storage technology, which also reflects the necessity of calculating levelized cost of energy. Among the six energy storage modes, pumped storage is faced with certain geographical resource constraints;

Lithium ion battery energy storage and vanadium flow battery energy storage are facing certain constraints of mineral resources; Molten salt heat storage is restricted by certain application scenarios.

In this article, we will uniformly calculate the levelized cost of energy (LCOE) of pumped storage, compressed air storage, lithium ion battery storage, sodium ion battery storage, and liquid flow battery storage under the long-term energy storage scenario according to the current situation.

Methods for calculating levelized cost of energy of various energy storage technologies

Net present value method is used to calculate the income of the energy storage power station

First of all, to calculate levelized cost of energy, the net present value method should be used to calculate the income of the energy storage power station, reflecting the time value of the investment in levelized cost of energy.

For the energy storage project, the cash inflow is the electricity charge income of the discharged electricity and the income of leveled cost of energy from other sources. The electricity price of discharged electricity that makes NPV equal to 0 is the electricity cost of the entire life cycle of energy storage to calculate the levelized cost of energy.

NPV=Σ (income cost)/(1+discount rate) in the nth year.

Let NPV=0 to get the on grid electricity price, that is, the electricity cost per kilowatt hour.

Calculate revenue

Income calculation method:
Income in the nth year=on grid discharge in the nth year * on grid price+other income sources in the nth year

Among them, in levelized cost of energy, the annual on grid power is related to the energy storage capacity, self discharge rate, cycle decline rate, annual cycle times and discharge depth.

Calculating costs

Estimated Cost of the levelized cost of energy:

Cost in year 0=initial investment cost
Cost of the nth year=annual maintenance and operation cost+replacement cost+charging cost+recovery cost (n ≥ 1)

The breakdown cost structure of levelized cost of energy is as follows:

● The initial investment cost in refers to the total cost invested in the construction of the energy storage system;

● Annual maintenance and operation costs in levelized cost of energy refer to the costs incurred in the annual operation and maintenance of the energy storage system, which can be disassembled into capacity maintenance costs, power maintenance costs and labor operation costs in  levelized cost of energy;

● Replacement cost in levelized cost of energy refers to the cost incurred in the process of replacing components that need to be replaced at a specified time interval due to factors such as the life of the components of the energy storage system;

● Recovery cost refers to the difference between the cost of project demolition and the income from secondary utilization of equipment at the end of the service life of the energy storage system. If the demolition cost is greater than the income from secondary utilization, the recovery cost is positive; Otherwise, the recovery cost is negative.

Core assumptions for measuring the levelized cost of energy

In levelized cost of energy, before calculating the life cycle cost of energy storage technology, based on the technology and cost at the current time point, we make the following assumptions:

● The energy storage power station only relies on peak shaving to make profits, and the annual other income is 0.

● The energy storage time of the pumped storage and compressed air energy storage technologies is 5h, and the service life of the power station is designed as 50 years and 30 years respectively. There is no need to replace the equipment in levelized cost of energy within the life cycle.

● The energy storage time of lithium ion battery, liquid flow battery and sodium ion battery is 5h, the service life of the power station is designed as 20 years, and the cycle life of the battery is calculated as 8000 times, 20000 times and 3500 times respectively.

When the battery reaches its service life, replace the battery part, and other equipment does not need to be replaced in levelized cost of energy. According to the electrochemical properties, the cycle life of liquid flow battery is higher than that of lithium ion battery and higher than that of sodium ion battery.

● The installed power of pumped storage and compressed air storage is 100MW and 60MW respectively, and the installed power of lithium ion battery, liquid flow battery and sodium ion battery is 10MW.

● The energy storage efficiency of pumped storage, compressed air storage, lithium ion battery, liquid flow battery and sodium ion battery is 76%/60%/88%/75%/80% respectively when calculating levelized cost of energy.

● When calculting levelized cost of energy, the discharge depth of pumped storage and compressed air storage is 100%, and that of lithium ion battery, liquid flow battery and sodium ion battery is 90%.

● The self discharge rate of pumped storage, compressed air storage, lithium ion battery, liquid flow battery and sodium ion battery is 0% to calculate levelized cost of energy.

● Assuming that pumped storage and compressed air storage have no cycle decay, the cycle decay rate of lithium ion battery, liquid flow battery and sodium ion battery is 0.004%/0.002%/0.004% each time.

● Assuming that the above five energy storage technologies do not consider the recovery cost (that is, when the service life expires, the residual value is 0), the equivalent charge and discharge times are calculated as one cycle per day and 330 cycles per year.

● The charging price is considered to be 0.288 RMB/kWh.

● Take the IRR of photovoltaic power station with good income as reference, and take the discount rate as 8% when calculating levelized cost of energy.

Cost, efficiency and cycle life are the three core factors of levelized cost of energy

Pumped storage, compressed air and lithium-ion battery storage

In the levelized cost of energy calculation, considering the charging cost, the pumped storage and compressed air energy storage technologies are the most economical, while the lithium-ion battery energy storage is the electrochemical energy storage technology with the lowest energy cost at this stage, and the sodium ion battery and liquid flow battery have higher energy cost in levelized cost of energy.

Compressed air energy storage economy is expected to exceed that of pumped storage

With the improvement of energy storage efficiency, the cost per kilowatt hour of compressed air energy storage technology will continue to decline, which is expected to surpass pumped storage and become the most economical large-scale energy storage technology.

According to the sensitivity analysis in the levelized cost of energy, when the initial investment cost in leveled cost of energy is 1.4 RMB/Wh, assuming that the energy storage efficiency is increased to 70%/75%/80%, the electricity cost per kilowatt hour can be reduced to 0.834/0.806/0.782 RMB/kWh considering the charging price.

At present, the design efficiency of the 100MW/400MWh advanced compressed air energy storage system in Zhangjiakou, China has reached 70.4%, and its operation will be continuously observed.

Lithium ion battery is still an economical long-term energy storage scheme

In the levelized cost of energy, with the acceleration of industrialization and the fall of raw material prices, the initial investment cost of lithium ion energy storage is expected to gradually decline, which will improve its energy storage economy.

According to the levelized cost of energy sensitivity analysis, when the energy storage efficiency is 88%, assuming that the initial investment cost of the 10MW/50MWh lithium-ion battery energy storage system is reduced to 1.5/1.2/1.0 (RMB/Wh), the kilowatt hour cost of the charging price is 1.081/0.966/0.890 RMB/kWh.

Initial investment cost and energy storage efficiency are the two major constraints of liquid flow battery

With the acceleration of industrialization, the initial investment cost of liquid flow battery energy storage is expected to decrease, and its energy storage efficiency will gradually increase, which will further improve the cost of electricity per kilowatt hour of liquid flow battery.

According to the levelized cost of energy sensitivity analysis, when the energy storage efficiency is 75%, assuming that the initial investment cost of the 10MW/50MWh liquid flow battery energy storage system is reduced to 2.5/2.0/1.5 (RMB/Wh), the cost per kilowatt hour considering the charging price will be reduced to 1.293/1.132/0.971 RMB/kWh.

Sodium ion battery can be used as an economical energy storage scheme

With the acceleration of industrialization, the initial investment cost of sodium ion battery energy storage is expected to gradually decrease, greatly improving its energy storage economy.

According to the levelized cost of energy sensitivity analysis, when the energy storage efficiency is 80%, assuming that the initial investment cost of the 10MW/50MWh sodium ion battery energy storage system is reduced to 1.6/1.3/1.0 (RMB/Wh), the cost per kilowatt hour of charging price is 1.263/1.153/1.044/kWh. When the initial investment cost drops to 1.3 RMB/Wh, the cost per kilowatt hour will be lower than the current lithium ion battery.