29 Sep, 2021
Understanding the cost of storing electricity
2 mins read | CEF Explains
Levelised cost of storage (LCOS) could provide a more holistic picture of the costs of employing energy storage systems.


Energy storage systems (ESS) are integral to the transition to low-carbon energy sources. ESS, however, lack standardisation and are often customised based on energy and power requirements. This makes it difficult to compare ESS based on their upfront financial costs.

The initial cost of installation, which is proportional to the cost per unit of energy (or power) of storage capacity in the system, is useful to quantify the initial investment required. However, this cost does not take into account crucial factors like usage patterns and the ageing properties of the ESS technology. Installation costs are not an ideal metric for comparing technologies or alternative non-storage generation solutions, whose costs are generally reported in terms of costs per unit of energy generated.

Levelised cost of storage (LCOS)

A better cost metric, which essentially captures the cost of storing energy, is levelised cost of storage (LCOS). LCOS can be described as the discounted total lifetime investment costs of an ESS technology divided by the discounted total electricity discharged from the ESS1. A basic LCOS equation is presented in Figure 1.

Figure 1: Levelised cost of storage captures the cost of storing energy

Source: Oliver Schmidt et al., 2019, “Projecting the Future Levelized Cost of Electricity Storage Technologies.” Joule 3(1): 82-83. https://doi.org/10.1016/j.joule.2018.12.008

The initial investment (A) is assumed to be incurred in the first year of the project, while the operations and maintenance (O&M) (B) cost can occur throughout the project lifespan. Accounting for the charging cost (C), or the cost of charging the ESS from the grid or co-located renewables, ensures that the energy storage system is not evaluated in a vacuum. The charging cost also reflects the round-trip efficiency of the ESS2. The end-of-life (EOL) (D) cost is also a crucial consideration. The total energy discharged (E) reflects both the lifetime of the technology and the application of the ESS.

Figure 2 provides the estimated LCOS of ESS technologies in a large-scale grid-connected application. It is evident that other factors, such as cycle life (size of circle) and round-trip efficiency (%) play a role as important as that of installation cost in the final LCOS.

Figure 2: Cycle life and round-trip efficiency impact the final LCOS of long-duration energy storage (100 MW/400 MWh) as much as the initial installation cost

Source: Kendall Mongird et al. 2020. Grid Energy Storage Technology Cost and Performance Assessment. Technical Report, Richland: US DoE. https://www.pnnl.gov/sites/default/files/media/file/Final%20-%20ESGC%20Cost%20Performance%20Report%2012-11-2020.pdf. 
Note: The chart compares the Installation cost (USD/kWh) and levelised cost of storage (USD/MWh) of various large-scale 100 MW, four-hour duration energy storage systems (ESS) technologies. Each technology’s cycle life is represented by the size of the circle, while the round-trip efficiency is provided as a percentage. Further, pumped hydro and compressed air storage are only viable in certain geographies and require large water reservoirs and naturally occurring caverns, respectively.

Relevance and impact

New technologies and applications of ESS are constantly making headlines, with the discovery of record-low installation costs and technologies like batteries becoming much cheaper. Still, developers and investors should be conscious of various aspects related to the cost of energy storage:

  • The initial investment costs might only be a fraction of the total investment required due to high maintenance and replacement costs. On the other hand, the long lifespan of a technology might more than make up for the high initial investment.
  • LCOS is a useful tool to compare ESS technologies across different applications and compare costs to potential revenue sources3
  • LCOS calculations are highly dependent on several assumptions about system size, power, usage, and ageing. LCOS figures for new storage technologies should be compared with on-ground conditions and requirements to avoid arbitrariness in the announced values4.
  • LCOS is not universally applicable. For power applications, the annualised capacity cost can be determined per unit of power capacity (USD/kW-year)5.

Who should care?

  • Power-generation companies 
  • Distribution companies
  • Ancillary service providers
  • Data centre and telecom tower operators
  • RE investors


  • [1]Oliver Schmidt et al., 2019, “Projecting the Future Levelized Cost of Electricity Storage Technologies.” Joule 3(1): 82-83. https://doi.org/10.1016/j.joule.2018.12.008.
  • [2]Schmidt et al. “Projecting the Future Levelized Cost” 82-83.
  • [3]World Energy Council. 2016. E-storage: shifting from cost to value; Wind and solar applications. London: World Energy Council. https://www.worldenergy.org/assets/downloads/Resources-E-storage-report-2016.02.04.pdf.
  • [4]World Energy Council. 2016. E-storage.
  • [5]Schmidt et al. “Projecting the Future Levelized Cost” 82-83.


CEF Analysis” is a product of the CEEW Centre for Energy Finance, explaining real-time market developments based on publicly available data and engagements with market participants. By their very nature, these pieces are not peer-reviewed. CEEW-CEF and CEEW assume no legal responsibility or financial liability for the omissions, errors, and inaccuracies in the analysis.
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