The Blending of Energy Storage with Renewables

We have all witnessed the drop-in prices of Renewables tariff and also that of battery costs over time. What is important to understand here is therefore how do we come to a final tariff number or as we call “Blended Cost” with addition of storage with renewables. If tariff of Renewables is X/kWh and the LCOE of Storage is Y/kWh, the blended cost is not simply the addition of the two i.e. its not (X+Y)/kWh. The final blended cost depends on a number of factors.

First let us understand what are the factors which affect the LCOE of a battery at system level. The cost per unit of a battery at system level depends on a number of factors like:

Application – Power or Energy – Batteries used for power applications are costlier than energy applications

BMS being Used – Approximately 30-40% of a battery pack level cost comes from the BMS, it varies on the type of BMS being used in the application

Hours of usage: The overall cost of a battery decreases when the duration of use is increased from 1 hour to 4 hours for a lithium ion battery

Depth of Discharge, Round Trip Efficiency and Number of cycles of operation: Improvement in all these yields in better performance and also reduces the per kWh cost of a battery

Apart from the above-mentioned parameters, the system level cost also depends on the margins at manufacturing and system integrator levels along with variables like transportation and customs, location of installation, project management costs, O&M cost, capacity guarantee charges, expected ROE, expected life of battery and insurance costs. All these together along with financial instruments help us to achieve the battery LCOE number

Now to calculate the blended cost. The blended cost depends on two main factors, one the per unit energy available from the renewable resource (this may be only wind or solar or even hybrid) and second the amount of penetration of storage in the project. These two apart, of course the RE tariff and the Battery LCOE costs play a vital part. The more the penetration of storage in a project the blended cost will increase. On the other hand, the more energy being available from RE per unit will help in getting the blended cost further down. At present on a conservative note, the tariff adder for a 4-hour storage ranges between INR 6-8 /kWh, this for a 1-hour solution ranges between INR 10-14 / kWh as per CES analysis. But when this is blended with RE, the final blended tariff for a 1-hour storage can range between INR 3-6 /kWh and that for a 4-hour system can range between 4-9/kWh, based on increasing percentage of storage penetration. These values as per CES analysis are projected to drop to an average of INR 2.5/kWh and INR 3.5/kWh for a 1- and 4-hour system deployment respectively by 2030.

The tariffs achieved in the recent SECI 1.2 GW peaking power tender (won at ~ INR 4.3/kWh) and the more recent 400 MW RTC tender (won at INR 2.9/kWh), more so with the 1.2 GW tender seems much justifiable with proper financing and sizing in place, the latter is very aggressive without doubt, but it largely depends upon the amount of storage inclusion in the project (if any). If the percentage of the storage inclusion is nominal then the effect of the same in the long term LCOE of the project will also be not much significant.

Overall, even on date the blended cost of per unit cost addition over renewables ranges between INR 2-5/kWh. This is projected to decrease to around INR 1-2/kWh by 2030. These tariffs when seen with the new build coal plant tariffs (e.g.: INR 4.79/kWh – Adani 1320 MW Coal PPA with MPPMCL) and peaker-gas plants already has started making much more economic sense, besides being environmentally much more pleasing. The good news here is that the tariffs for storage will have a downward trajectory from now as it grows through its life-cycle, making it even more competitive in days to come. If we see US Solar with storage tenders, there has been a 15% decrease in average PPA prices between 2018 and 2019. A 4-hour battery that is sized at roughly 25% of the PV capacity adds about $4/MWh to the overall PPA price. But as the battery capacity increases to 50% and 75% of the PV capacity, the levelized storage adder increases linearly to ~$10/MWh and ~$15/MWh, respectively. The ratio of battery capacity to PV capacity varies widely, reflecting specific circumstances.

With costs of batteries decreasing and enough innovations and research happening to improve the performance of batteries, more cost decrease is expected mainly due to increase in deployments, performance improvements, better manufacturing techniques and widening of application base. Renewables with Storage is the much-required boost for the Renewables sector to extend its growth and a good catalyst to accelerate the growth of storage. The only requirement here will be to make sure we make this growth sustainable in the long run by keeping the improvements in storage an ongoing event so that as a technology it always enjoys the sustainability edge amongst its other competitors.