Using a conservative cost assumption of US$180-per-kWh from BNEF’s projections, the incremental capital cost to double duration from four to eight hours is approximately US$72 million. However, at the current PJM capacity pricing, annual revenue only increases from US$7 million to US$8.5 million.
“That’s an incremental yield of about 5%,” Khan explains. “As you can tell, that’s not really helping long-duration storage as much. The duration ladder for the ELCC rating should have a similar slope as the cost curve. That way, developers and investors can feel like the additional investment in duration has a reasonable payback.”
This helps explain why, despite widespread acknowledgement that the grid needs 8-, 10-, and 12-hour systems, the market continues to be dominated by four-hour installations. At least in this case, the economics don’t support the capital intensity required for longer duration.
Captive batteries
The data centre-BESS convergence has generated significant attention, but Khan argues the industry has misunderstood what captive batteries actually provide versus wholesale market participants.
