Author Leo Lin
Updated April 30, 2024

Statistics show the cost of lithium-ion battery energy storage systems (li-ion BESS) reduced by around 80% over the recent decade. As of early 2024, the levelized cost of storage (LCOS) of li-ion BESS declined to RMB 0.3-0.4/kWh, even close to RMB 0.2/kWh for some li-ion BESS projects. With industry competition heating up, cost reduction becomes the key to sustainable business development. 

In May 2023, industry experts claimed a vanadium-flow battery energy storage system (VFB ESS) displayed cost-effectiveness, with an LCOS lower than RMB 0.2/kWh. In mid-2023, some manufacturers predicted the LCOS of li-ion BESS to decrease by 50% to RMB 0.2/kWh by the end of 2025. As solar and wind installations surge, reducing LCOS becomes a dire concern. Manufacturers must reduce LCOS continually through technological innovations to survive the intensifying industry competition.

Energy storage addresses the intermittence of renewable energy and realizes grid stability. Therefore, the cost-effectiveness of energy storage systems is of vital importance, and LCOS is a critical metric that influences project investment and policymaking. The following paragraphs break down the current and projected average LCOE over the product life of energy storage systems. 

Calculation and formula 

The calculation of LCOS converts the total CapEx from project construction to retirement with a discount rate, then divided by the number of roundtrips. This calculation considers the time value of money, thus presenting cost-effectiveness more accurately. The formula is as follows: 

LCOS = (electricity loss + O&M + installation cost) ÷ number of roundtrips
240415_ESS life cycle and LCOE fundamentals

LCOS of different energy-storage technologies

Based on this formula, the LCOS of hydro pumps, li-ion BESS, and VFB ESS is RMB 0.213/kWh, RMB 0.316/kWh, and RMB 0.428/kWh, respectively, and not considering charging prices. Actual figures will vary due to regional issues, policies, and prices. 

240415_ESS life cycle and LCOE fundamentals_en_1

LCOS projection

Currently, hydro pumps have the lowest LCOS, with li-ion BESS catching up closely, while VFB ESS remains the most expensive. With technological advancement and scaled manufacturing, both three will see LCOS decreasing continually, especially li-ion BESS, given raw material price declines and improving production efficiency. Additionally, battery and system production costs keep decreasing, and technology advancements extend product lifetime, reduce energy loss, and raise power conversion efficiency, allowing cost reduction throughout the entire system lifetime. 

The Global Lithium-Ion Battery Supply Chain Database of InfoLink shows still excess lithium carbonate and energy-storage cell production capacities. In China, battery-grade lithium carbonate prices plunged by 83% to the current RMB 100,000 MT after peaking at RMB 600,000/MT in 2022. As of the end of March, the average low price for 280 Ah energy-storage cells dropped by 8.3% to RMB 0.36/Wh. By 2030, the average LCOS of li-ion BESS will reach below RMB 0.2/kWh, close to or even lower than that of hydro pump, becoming the cheapest energy storage technology.

240415_ESS life cycle and LCOE fundamentals_en_2

Average LCOS over product lifetime 2024-2023

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