Li-ion BESS: Look-back and lessons for the future

The last couple of years have been a strange time for the world, with wild ups and downs impacting several industries differently. The lithium-ion-based battery energy storage industry is no exception – swung by the push and pull of supply chain dynamics and key policy developments in the US.

The stationary BESS industry has been reactive in most aspects, reeling to control project economics and schedules. But the industry as a whole has learned several lessons and proactive measures to implement.

Price swings like never before

Lithium mineral prices, specifically lithium carbonate, a key component for Li-ion batteries, have experienced quite a roller-coaster in the past few years. The prices surged in the second half of 2022 as high as 10x of average historical levels. This trend was rooted in the overall shift and positive sentiment around transportation electrification, especially electric vehicles (EVs) around the world.

Lithium supply at the time was not able to scale to meet this demand at such a rapid pace – depending on the process of mining and extraction, it can take three to five years to bring new capacity online because of the permitting and capital-intensive nature of extraction.

However, due to a combination of market factors, namely anticipated reduction of EV purchases in China because of the anticipated expiry of government subsidies, the lack of EVs as forecasted because of COVID-induced limited mobility and a big wave of new factories expected to flood the supply-side, prices came back down in dramatic fashion in 2023 compared to highs in November 2022.

As a result of these market dynamics, two noteworthy things ensued: Li-ion battery suppliers began indexing the price of batteries to raw materials (RMI) such as lithium carbonate to mitigate their risk exposure; and the system cost of building BESS increased compared to prior years.

While time will tell if RMI pricing will be here to stay as standard practice, BESS costs stabilised in H2 2023, and continue on their anticipated downward trend from 2024. (For more insights into BESS pricing, see Clean Energy Associates’ analyses of recent trends.)

Supply chain issues plague other components

Key balance-of-plant (BOP) equipment needed for BESS systems – such as transformers, MV switchgears, enclosures and steel – have been plagued by supply-chain issues leading to unprecedented lead times. As of December 2023, owners and EPCs are facing up to two to three-year lead times for main power transformers when the historical norm has been about one year.

Utility off-takers are often valuing BESS projects that can come online earlier higher than later ones, creating a race to achieve aggressive commercial operation dates (CODs) and further fuelling the demand for equipment with expedited delivery.

Planning is the not-so-secret sauce

The Li-ion BESS market landscape is more competitive than ever. To build projects economically and achieve the target COD, developers need to plan to procure equipment smartly, forge strategic partnerships to secure production volumes for battery systems and take into consideration domestic manufacturing, although it remains to be seen how much of the touted domestic manufacturing will take shape in time to feed the enormous North American battery market.

Interconnection fees have increased significantly as part of the queue reform and process times are expected to get shorter, so it is all the more critical to have ‘firm’ projects in the queue and certainty in the equipment planned to be used (specifically the power conversion system). It is also equally important to plan for BOP equipment in the form of tactical bulk ordering for medium-term projects in the pipeline as lead times stabilise to be the ‘new normal’.

EPC resources are an often-overlooked critical aspect as well – the bulk of the major EPC companies are spread thin between a growing list of developers and massive projects. The preconstruction and construction phases of projects are being pulled left and stretched. Hence there is emphasis on forming strategic partnerships and getting them onboarded as early as two years before the planned COD.

With the ‘world’s biggest BESS’ crown seemingly changing hands every other month, it is an exciting time in the BESS arena, and the winners are the best prepared.

This is an extract of a feature article that originally appeared in Vol.38 of PV Tech Power, Solar Media’s quarterly journal covering the solar and storage industries. Every edition includes ‘Storage & Smart Power’, a dedicated section contributed by the Energy-Storage.news team, and full access to upcoming issues as well as the nine-year back catalogue are included as part of a subscription to Energy-Storage.news Premium.

About the Author

Swetha Sundaram is the director of BESS project design at RWE Clean Energy, the fourth largest developer and owner of PV and storage projects in North America. She is responsible for development engineering and product management for energy storage projects. Before RWECE, she worked for DNV as a senior consultant in the energy storage independent engineering and advisory group.

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