Energy Storage

Storage, renewables gain against gas-fired generation

The costs of two technologies that were considered prohibitively expensive only a couple of years ago have fallen dramatically, according to a new report from BloombergNEF.

The levelized cost of electricity, or LCOE, for lithium-ion batteries and for offshore wind has fallen 35% and 24%, respectively, since the first half of last year, according to BloombergNEF (formerly known as Bloomberg New Energy Finance).

“Batteries co-located with solar or wind projects are starting to compete, in many markets and without subsidy, with coal- and gas-fired generation for the provision of ‘dispatchable power’ that can be delivered whenever the grid needs,” according to the BNEF report.

In February, Arizona Public Service announced that two energy storage projects totaling 150 MW (300 MWh) were winners in its solicitation for dispatchable resources.

“Solar PV and onshore wind have won the race to be the cheapest sources of new ‘bulk generation’ in most countries, but the encroachment of clean technologies is now going well beyond that, threatening the balancing role that gas-fired plant operators, in particular, have been hoping to play,” Tifenn Brandily, energy economics analyst at BNEF, said in a statement.

In the report, BNEF compared the LCOE of stand-alone batteries, rather than batteries co-located with wind or solar resources, because gas-fired peaking plants and batteries offer the same type of services, that is, they can start up quickly and run at low load factors, Brandily clarified in an email.

After demand response, short-duration batteries are the cheapest option for meeting narrow peaks in demand in all major economies except in the United States where cheap shale gas still gives gas turbines an edge, Brandily said. “But we expect the steep cost declines for batteries will overturn this situation by 2021.”

In the U.S., the LCOE of a new gas turbine is between $74/MWh and $272/MWh, depending on how the plant is used, and for a combined-cycle gas turbine the LCOE is between $38/MWh and $76/MWh, depending on the plant’s load factor, BNEF found.

In its calculations, BNEF assumes that the price of natural gas in the U.S. rises from $2.9 per million British Thermal Units in 2019 to $4.8 per MMBtu in 2050.

BNEF did not include the value of federal tax credits in its analysis of wind and solar projects. The tax credits can make the LCOE of co-located systems lower, but it would also distort the competitive balance between technologies, Brandily said.

“Without subsidies, we expect a PV+storage system, say, with 100 MW PV and 25MW/100MWh of storage to be competitive on a LCOE basis by 2024 against a new combined-cycle turbine plants burning cheap shale gas,” Brandily said.

 For projects starting construction in early 2019, the BNEF report pegs the LCOE for onshore wind and photovoltaic solar projects at $50/MWh and $57/MWh, respectively, down 10% and 18%, from a year ago.

 The report puts the LCOE for lithium-ion batteries at $187/MWh, a 35% decline since the first half of 2018. Meanwhile, the LCOE for offshore wind projects has dropped to below $100/MWh, compared with more than $220/MWh five years ago, as a result of auction programs and much larger turbines that have spurred “sharp reductions” in capital costs, the report says.

The cost decline for offshore wind over the past six months is “the sharpest we have seen for any technology,” Elena Giannakopoulou, head of energy economics at BNEF and lead author of the report, said in a statement.

BNEF said its analysis shows that the per MWh LCOE for onshore wind, solar PV and offshore wind have fallen by 49%, 84% and 56%, respectively, since 2010 and that the LCOE for lithium-ion battery storage has dropped by 76% since 2012.

LCOE measures the all-in expense of producing a megawatt hour from a new project and includes the costs of development, construction and equipment, financing, feedstock, operation and maintenance. BNEF bases its LCOE analysis on actual projects starting construction and on proprietary pricing information from suppliers.