Waiting for battery prices to fall? Patience does not pay off.

By Steve Kelley, Senior Vice President | November 28, 2016

Despite the robust outlook for battery-based energy storage, some organizations that could stand to benefit greatly from behind-the-meter systems are considering a delay in purchase, waiting for battery prices to fall. On the surface, it seems to make sense to defer a large capital investment in a time of rapid technology improvement. Even when apprised of Green Charge’s Power Efficiency Agreement (PEA™), which enables customers to deploy energy storage with no upfront costs, some customers reason that falling costs for batteries and related technology should improve their savings outcomes.

But a rational analysis proves otherwise, especially in California, and other states where incentives are in place. Specifically, we’ve found that any benefit accrued from waiting for lower prices will be negated by the reduction in incentive funds and lost savings revenue. This is true whatever type of facility you manage.

Let’s do the numbers

Chart 1 below shows three typical scenarios for deploying a 250kW/500kWh battery-based commercial energy storage system and using it over the 10-year PEA contract period.¹ In the first scenario, assuming you deploy an energy storage system this year, you would pay nothing for installation, software, and maintenance, and you would accrue electricity bill savings of an estimated total savings of $21,777 after one year. These savings are calculated from the current industry average costs of battery storage, as well as installation and commissioning (see Table 1), and takes into account the 2016 SGIP rebate level of $0.5/Wh.

Assuming O&M costs remain unchanged and the increasing demand charge tariff yields a 5 percent larger energy cost saving each year, you will have accumulated savings of nearly $274,000 by the end of 2026.

commercial energy storage industry average costs

The cost of waiting

Now, let’s say you wait two years, until 2018, assuming battery costs come down 35 percent and other hardware and installation costs fall by 20 percent and 15 percent respectively (O&M remains the same). By this point, however, the SGIP incentive rate will have fallen to $0.25/Wh—in an optimistic scenario. As the graph below shows, your cumulative savings by 2026 would lag by more than $53,000, coming in at around $220,000.

If SGIP rates decrease to $0.2/Wh, your savings would fall further, dragging down your cumulative savings by 2026 to just under $186,000. Extending the planning horizon by two more years shows an ever greater gap between the early and late adoption scenarios and the optimistic and pessimistic SGIP predictions.

commercial energy storage savings projections

If you would like to learn more about these cost savings scenarios and the various considerations in optimizing your energy storage solution, please fill out the contact form below. Options abound. Waiting probably should not be one of them.

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¹Costs are based on industry averages provided by several publications and research organizations including Bloomberg New Energy Finance and GTM Research.