Battery Storage at US$20/MWh? Breaking Down Low-Cost Solar-Plus-Storage PPAs in The USA

on March 24, 2020

Over the past few years, a series of renewables-plus-storage projects announced across the USA created headlines and raised eyebrows due to the extremely low combined PPAs involved. Starting in 2015 with a US$139 /MWh PPA signed by KIUC of Hawaii, we then saw the next landmark reached in 2017 with a US$45 /MWh agreement by Tucson Electric Power of Arizona – only to be surpassed last year by the US$40 /MWh Eland PV-plus-storage project in California.

Comparing that to the generation costs of a conventional peaker easily reaching US$200 /MWh, PV-plus-storage makes an increasingly compelling case. It’s no big surprise, therefore, that around 40 of these systems are already in operation in the USA, combining about 533MW of storage with 1,242MW of solar capacity, mostly in California, Hawaii and Florida, as reported by the Institute for Energy Economics and Financial Analysis (IEEFA).

To understand energy storage’s contribution to this boom, we need to break down the combined PPA into a solar and a storage share. Let’s take the aforementioned Eland project for example, in which the PPA without storage would have amounted to US$20 /MWh (“base” price) and a US$20 /MWh “adder” was offered for the storage system, resulting in a PPA of US$40 /MWh for all MWhs delivered. While a PV LCOE at this level is no big news anymore, US$20 /MWh for energy storage seems absurdly low. How is such a low storage adder possible, you might ask, considering that LCOS (Levelised Cost of Storage) is very likely to remain above US$100 /MWh for the next couple of years?

We asked ourselves the same question and decided to drill down into the Eland project (above), consisting of 400MW of PV (AC) and 300MW / 1,200MWh of energy storage located in the Californian Mojave desert, to find the answer.

Reverse-engineering the actual remuneration for the storage system
It is important to understand that the storage adder component of the PPA should not be compared to the LCOS as it is not equal to the actual remuneration for the energy provided by storage. To put the adder into relation to storage costs, we need to “reverse-engineer” this remuneration per MWh, i.e., how much is paid for each MWh discharged from the energy storage system, and we can do this in five steps.

Firstly, we need to account for the fact that the storage adder is paid for all MWhs delivered by the project, not only for the MWhs discharged from the storage system. Taking a sample day from the Eland project, the amount of energy discharged from storage (1,200MWh) is significantly smaller than the amount of energy delivered by the solar-plus-storage system in total (4,700 MWh), i.e., the energy for which the project is remunerated. In other words, the renumeration for 1 MWh of stored energy is distributed over several MWh delivered by Eland in total, in this case, 3.9 MWh. Hence, the ratio of total energy remunerated over energy discharged from storage, 3.9, needs to be multiplied with the storage adder to calculate the actual remuneration for energy discharged from the storage system. That results in an “adjusted adder” per energy from the energy storage system of US$20 USD/MWh * 3.9 = US$78 /MWh.

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Fractal Energy Storage ConsultantsBattery Storage at US$20/MWh? Breaking Down Low-Cost Solar-Plus-Storage PPAs in The USA