Key point: Based on the electricity cost formula released by the US Department of Energy, we have developed a calculator that can be used to calculate the full life cycle electricity cost of energy storage systems, to help people compare different energy storage technologies. Calculator Portal: http://nelcos.z-henergy.com/



Main text:

With the intensive introduction of national energy storage policies, more and more investors and battery manufacturers are turning their attention to the field of energy storage. However, when faced with various lithium battery energy storage systems with different standards and a variety of non lithium battery energy storage technologies, the most common problem that people encounter is: how to scientifically calculate the cost of energy storage systems at the end?



Lithium batteries mainly target end consumers in the fields of 3C products and power battery applications. End consumers usually consider the performance and price of a product comprehensively, in order to choose the most suitable product for themselves. Energy storage is mainly aimed at commercial users. In the bidding process of commercial projects, the competition is usually based on the prices of each bidding party, provided that the performance requirements are met. So commercial applications are generally very price sensitive, which is also the driving force behind the continuous decline in commercial technology costs.



In the bidding process of energy storage projects, people usually pay attention to the final installation cost, which is xxxx yuan/kWh. However, this figure is only the initial investment in construction funds, and does not take into account the operation and maintenance costs for the next few years, losses during system storage of electricity, and financial considerations such as cash flow. So, people have also started to use the concept of cost per kilowatt hour to compare different projects. The definition of electricity cost is the total amount spent on the energy storage system over its entire service life divided by the total amount of stored electricity. However, in order to obtain effective numbers, it is still difficult to consider the issues mentioned above, such as operation and maintenance, power loss, and fund discounting. So, people simply adopted the simplest scenario to calculate the cost of electricity - dividing the installed cost by the number of cycles, which has also led to the current trend in the market that cycle times are the most important guide. Both producers and buyers prioritize increasing cycle times. The number of cycles we heard about lithium batteries a year or two ago may only be 3-4 thousand, with a lifespan of 6-8 years; Now this number has started to increase from 10000 times to superscript, and its service life can also reach 15 years, and so on. But if we calculate, even under laboratory conditions, with uninterrupted charging and discharging tests at a rate of 1C, we can only run 4380 cycles a year. It is unknown how many companies will actually test the battery cycle more than 10000 times, or whether most of them are predicted based on short-term tests.



Speaking of which, with high cycle values, the so-called cost of electricity can be significantly reduced. Two or three years ago, the cost per kilowatt hour of lithium-ion battery energy storage systems was still higher than 0.5 yuan/kilowatt hour. Now many companies have promoted that they can achieve a cost below 0.2 yuan/kilowatt hour. We have calculated the bidding cost of lithium battery energy storage in the past year, and the lowest installation cost using a new battery is around 1600 yuan/kWh. If calculated using 10000 cycles, the cost per kilowatt hour can indeed be calculated as 0.16 yuan/kilowatt hour. In combination with the time of use electricity price policy introduced this year, the country has started to implement peak valley electricity prices. Provinces with high differences in peak valley electricity prices have reached a price difference of over 1 yuan per kilowatt hour. If an energy storage system with a cost of only 0.2 yuan per kilowatt hour is used for peak shaving and arbitrage, wouldn't it be possible to significantly save on electricity costs!





Taking a closer look at the power generation side, under the national policy of promoting fair grid access for wind and solar power generation, the future grid electricity price will be between 0.3-0.5 yuan/kWh. Two or three years ago, when the cost of energy storage per kilowatt hour was higher than 0.5 yuan/kilowatt hour, people had no motivation to build energy storage systems for peak shaving. Because they couldn't pay off their debts and couldn't make ends meet, they would rather dispose of the excess electricity that was not used up. Nowadays, the cost of energy storage systems per kilowatt hour is less than 0.2 yuan/kilowatt hour. Will the construction of energy storage on the power generation side also usher in a beautiful spring?



However, the market is not as hot as we expected. The construction of energy storage on the power generation side still needs to be pushed forward by policies. The country first requires that newly built wind and solar power stations must have a capacity of 10-15%, and then adds a requirement that the discharge duration of the storage must be greater than 2 hours. Then, on August 10th of this year, a new policy was introduced, requiring some storage periods to be more than 4 hours. On one hand, the national policy actively guides the carbon peak/carbon neutrality target of 3060, while on the other hand, construction companies are forced to launch energy storage supporting projects under policy pressure. In some places, there have even been situations where energy storage projects are tendered at extremely low prices but are no longer used after completion, purely to meet the policy requirements of power generation and grid access. Why is this happening?



The reason for this is still that the current simple electricity cost calculation method omits several other important costs, as mentioned earlier, resulting in a significant deviation between the data and actual costs. Although there are many academic articles actively exploring more scientific methods for calculating the cost of electricity, the more scientific the calculation method, the more unfavorable it is for sales personnel - because the cost of electricity will be higher, the bidding party does not have the motivation to promote scientific calculation methods for electricity costs. This phenomenon has caused a lot of trouble for the bidding party. Although it looks like a very cost-effective bidding result, why is it that when it comes to actual operation, it is completely different?



Therefore, in order to find a more scientific method for calculating the cost of electricity, and to help the market compare different energy storage technologies, we have consulted and analyzed many literature materials. Among the many calculation methods found, the US Department of Energy's standardized full life cycle electricity cost formula introduced during the bidding of energy storage technology projects is a comprehensive method. Therefore, we borrowed this formula to calculate the electricity cost, in order to help everyone better examine the various hidden costs of different technologies.



The formula and its parameters are explained in the following figure. The total expenditure of the formula includes three parts: the initial installation cost, the subsequent annual operation and maintenance cost, and the cost of power loss caused by the cycle efficiency of charging and discharging (i.e. 100 kWh of electricity is used for charging, but only 85 kWh is released during discharging). When calculating expenses, this formula also takes into account financial cash flow issues and introduces the calculation of discount rates to convert all future expenses to current value. So similarly, when calculating the total number of life cycles for the denominator, the discount rate is also used to convert future cycles to the current effective number.





Using the above formula, we calculate the cost per kilowatt hour for a lithium battery energy storage system. The parameters are shown in the following figure. Assuming that the system is used for daily cycling on the power generation side, even after 15 years of use, the total cost of electricity per kilowatt hour is still as high as 0.516 yuan/kilowatt hour. It is not difficult to imagine why there is still not much power on the power generation side to actively build energy storage systems.





Based on the above calculation formula for electricity cost, a full life electricity cost calculator called NeLCOSTM has been developed by ZH Energy Storage. This calculator can be used to calculate the full life cycle electricity cost of different energy storage systems or technologies. We welcome everyone to test it through the following link or scan the code. If you have any questions or suggestions, please feel free to give us feedback in a timely manner: http://nelcos.z-henergy.com/







**The article is only for communication, because the official account can not open the message function, if you have questions or suggestions, please send a message to the official account, and we will reply as soon as possible, thank you! Please pay attention to ZH Energy Storage official account.



Reference:

https://arpa-e.energy.gov/sites/default/files/documents/files/DAYS_ProgramOverview_FINAL.pdf



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Introduction to ZH Energy Storage Company:

Shenzhen ZH Energy Storage Technology Co., Ltd. is committed to the research and development, promotion, and application of energy storage technology, aiming to help achieve China's goal of "carbon neutrality" through the application of electrochemical energy storage technology. In the early stages of development, the company focused on providing technical support and consulting services to the Chinese energy storage market by leveraging its accumulated industry experience and outstanding research and development capabilities in the field of energy storage. At the same time, the company focuses on investigating and analyzing the Chinese energy storage market, developing or introducing the most advanced and effective energy storage technologies for the Chinese market, including but not limited to: liquid flow battery systems, lithium-ion battery materials, fuel cells, and ion exchange membranes.