NREL Study Forecasts Significant Decline in BESS Costs by 2030

The long-term lithium-ion battery energy storage system (BESS) costs could halve over this decade, as per the “Cost Projections for Utility-Scale Battery Storage: 2023 Update” report by US National Renewable Energy Laboratory (NREL).

The report forecasts the future capital expenditure (capex) costs of Battery Energy Storage Systems (BESS) from 2022 to 2050. It specifically focuses on a four-hour lithium-ion BESS as a representative example.

A noteworthy finding is that the National Renewable Energy Laboratory (NREL) estimates a decline in BESS costs commencing this year in its low and mid-cost projections, while its high scenario suggests a temporary increase in the coming years, as illustrated in the accompanying graph.

After 2030, the high projection declines by 5.8 per cent, while the mid and low projections have initial slopes being steeper than later slopes. This indicates that most publications see larger cost reductions in the near term that then slow over time.

NREL further predicts that compared to the costs in 2022, BESS expenditures will decrease by 47 per cent, 32 per cent, and 16 per cent points by 2030 in the low, mid, and high-cost projections, respectively. Looking ahead to 2050, the costs could potentially diminish by 67 per cent, 51 per cent, and 21 per cent points in the three respective scenarios.

These projected declines would result in estimated costs of US$255/kWh, US$326/kWh, and US$403/kWh by 2030, and US$159/kWh, US$237/kWh, and US$380/kWh by 2050.

Notably, NREL cautioned that the initial cost data from 2022, which forms the basis for these figures, is likely positioned towards the higher end compared to the sources analyzed, including BloombergNEF. A visual representation of these comparisons can be found in the graph below the report.

A significant factor contributing to the decline in BESS costs will be the reduction in battery cell and pack expenses, which can account for approximately half of the total cost of a lithium-ion BESS. Additionally, NREL has emphasized that the long-term cost projections for the energy and power components of a BESS differ, making it crucial to consider the duration when discussing project costs. Both of these aspects are visually represented in the graphs provided below the report.

The following figure shows the cost projections for 2-, 4-, and 6-hour duration batteries (using the mid-projection only). Notably, the longer-duration batteries demonstrate lower capital costs on a US$/kWh basis, while shorter-duration batteries prove more economical on a US$/kW basis.

The NREL study states that additional parameters besides capital costs are essential to fully specify the cost and performance of a BESS for capacity expansion modelling tools.

Further, the cost projections developed in the study report utilize the normalized cost reductions and result in 16-49 per cent capital cost reductions by 2030 and 28-67 per cent cost reductions by 2050. It must be noted that apart from the factors mentioned in the study, many other factors may influence how costs evolve going forward including market demand, supply chain expansions or constraints, interplay with other sectors such as electric vehicles, and material costs and availability.