Abstract
The increasing share of variable renewable generation capacity leads to a growing interest in electricity storage technologies and a summarizing cost metric to analyze the economic viability of such electricity storage units. For conventional generation technologies, the levelized cost of electricity (LCOE) is a well-known metric. In the context of electricity storage however, such LCOE-like metrics are only limitedly applicable as the finite energy storage capacity can limit the charge and discharge scheduling decisions of the storage operator. In addition, the “fuel”, i.e., charged electricity, and “generated electricity”, i.e., discharged electricity, is one and the same commodity which provides the opportunity to use an adapted levelized cost metric. This work analyzes three different levelized cost metrics and their application to electricity storage units used for electric energy arbitrage. The strengths and shortcomings of these storage cost metrics are analyzed in order to determine how they can be applied correctly. This analysis results in the following recommendations. First, it is recommended to use a levelized cost metric in combination with an analysis of a representative price profile upon which the storage operator will act. This allows a more accurate estimation of the number of charging and discharging hours and the associated charging cost and discharging revenue, given the energy storage capacity constraints of the storage unit. Second, when a number of different representative price profiles, hence with different charging costs, is available, it is recommended to use a cost metric which is independent of the charging cost as this single metric can be compared to each price profile, thereby facilitating the interpretation of the results. The results and conclusions from this work provide a framework on how to use levelized cost metrics in the context of electricity storage. Such metrics may help policy makers and investors in prioritizing energy storage investment decisions.
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