Battery storage projects aren’t the same as PV or other energy projects; they have unique challenges and opportunities. This means that it’s vital for private investors, utilities and policy makers to understand and prioritise the crucial areas that can break down barriers to investment. This enables them to capitalise on the flexibility that battery storage offers, while managing the technical and commercial risks.
We’ve used our experience on dozens of grid-scale battery storage projects – such as EDF’s 50MWh Fast Frequency Response battery energy storage plant at West Burton – to identify the eight steps that make battery storage projects work.
1. Optimise capital and operational expenditure
The larger the battery system, the lower the price per kWh. Capex typically ranges from £300/kWh down to £200/kWh for large installations while opex is between £8/kWh/year and £2/kWh/year for 10MWh to 100 MWh systems.
The battery system itself accounts for the largest slice – typically 46% – of capital expenditure. Civil and electrical plant accounts for 30%, with grid connection, security and site facilities comprising the remaining 24%. Improvements in technology and increasing demand (as a result of increased up take of Electric Vehicles) have led to reducing Li-ion battery costs. Other equipment and engineering costs have not reduced proportionally and vary across sites.
2. Choose the best battery layout and housing strategy
Should batteries go inside warehouses or outdoors in containers? The ‘containerised’ solution is usually preferred due to factors such as space constraints and fire risk.
Containers can be used to house the Li-ion battery cells, the battery management systems, HVAC and fire suppression systems. They provide energy densities anywhere from 300kWh/container to 5MWh+/container. But some suppliers achieve this higher energy density by placing HVAC systems outside the container – meaning the overall solution may take up more land area. So it is important not to choose a supplier purely based on energy density but also the land area and how the other balance of plant (BoP) is housed.
3. Carry out a competitive tendering process
The benefits of a full procurement and tender exercise include significant cost reductions. In our experience, the process typically cuts 5% off capex, with bidders cutting another 8-10% at the best and final offer stage.
A robust tender process also ensures that bids are thoroughly evaluated, and that the client receives the best technical and commercial solution.
4. Negotiate a flexible warranty
A warranty that allows battery storage to be operated flexibly enables the owner to take full advantage of opportunities to generate revenue and benefits through grid support services.
Under a flexible warranty the supplier allows for variation in parameters such as charge and discharge rates, depth of discharge, operating temperature and throughput. New degradation profiles can even be calculated in real time using the control software. This can then be used by BESS operators to determine optimal usage profiles for their system.
Major suppliers are developing even more flexible warranties for their customers and we recommend that they should be negotiated into contractual warranty documents for any grid-scale battery project.
5. Develop an augmentation strategy
When battery capacity degrades, augmentation will be required. It’s important to plan for this and develop an augmentation strategy during the project development phase. This should consider questions such as:
- Is augmentation necessary to achieve the revenues forecast in the business model?
- Will better battery technologies be available when this augmentation is needed?
- Will new grid-level services make more lucrative options available in the future?
- Is land available for augmentation?
- Is the current installed system future-proof?
Addressing these questions enables developers to allow for additional space and funds, to negotiate with suppliers and to ensure optimal commercial outcomes.
6. Use flexible control systems to stack revenue
Batteries don’t have to perform just one service; most grid-scale systems have capacity to carry out multiple services – known as revenue stacking.
While almost all controllers and battery management systems are currently limited by the supplier to performing one specific task, we have supported technical negotiations on adding flexibility to the control systems. This involves the battery supplier either allowing for a fixed number of additional services for an upfront fee or charging a fee for every additional service.
7. Understand safety, fire risk and insurance costs
Whatever chemistry is used, Li-ion battery projects are always considered a fire risk and it’s important to understand the implications.
For example, one major battery supplier chooses not to supply a fire-suppression system with battery projects. If a fire breaks out, the container is allowed to burn and is simply replaced for the owner.
Other suppliers have built-in fire suppression systems, and some have additional systems that can be operated from outside the container.
Many of the main battery integrators now base their systems on new, more stringent, fire safety regulations released by the New York Fire Department in 2019. Fire suppression services or lack of fire suppression should be considered in full before choosing a preferred supplier.
8. Look for added value services
Almost all the major battery suppliers currently provide added value services to their battery systems in one way or another.
Some major suppliers support projects by providing financing options while others provide automatic trading software. These additions ensure that the supplier has a stake in the project and delivers a better product, while reducing capex or opex for the owner.
Other suppliers offer additional services in the form of added safety systems, as well as truly flexible warranties and even augmentation.
By considering these eight steps carefully, investors and funders can ensure they get battery storage that achieves their goals.
To learn more about any of the steps required to ensure your scale-battery project is successful, download our Making Batteries Work report.