Asia Pacific FTM storage costs to decline 30% by 2025

All-in front-of-the-meter (FTM) battery storage system costs in Asia Pacific markets could decline by more than 30% by 2025, says Wood Mackenzie.

Storage system prices fell faster than anticipated in 2020, the biggest driver being battery price reductions. Improvements in battery energy density also contributed to lower overall balance of system (BOS) components and associated costs.

In addition, other hardware components are beginning to lose their price variance between countries. Beyond a handful of local content requirements, many of the policies that created regional differentiation in hardware component pricing have been eroded by market forces.

Wood Mackenzie senior analyst Mitalee Gupta said: “As batteries are expected to represent shrinking portion of all-in system costs, there will be heightened focus on BOS cost reductions moving forward.

“Manufacturers will continue to innovate and produce BOS components that help reduce labour costs, and installation crews are implementing more efficient labour practices as they gain more experience on job sites. Competitive markets will drive system efficiencies, product standardisation and cheaper batteries as we progress towards 2025.”

World leader China currently sets the record for lowest all-in costs globally. The country’s 2-hour duration all-in FTM system cost is expected to decline 33% to US$369 per kilowatt (kW) in 2025 compared to US$554/kW last year. As a battery powerhouse, the country has benefitted from favourable policy landscape and domestic supply chain.

China is also the world’s largest lithium iron phosphate (LFP) batteries producer and demand centre. As a result, LFP will emerge as the leading battery chemistry (globally) over the next five years. As Chinese vendors ramp up manufacturing and improve LFP technology further, costs of these batteries will decline faster.

The other leading battery chemistry, nickel manganese cobalt (NMC), dominates the rest of Asia Pacific. Over the past decade, rapid rise in the demand of electric vehicles (EVs) has driven down the cost of lithium-ion batteries by more than 85% (since 2010). NMC batteries are suitable for EV and energy storage applications due to their high energy density and robust cycle life. However, LFP batteries are also being considered for use in energy storage applications in recent years. Differences lie in the energy density, fire risk and degradation behaviour.

A key NMC market in the region, Australia, is expected to see costs decline by 34% to US$658/kW in 2025 for a 2-hour duration all-in FTM system cost compared to US$990/kW in 2020. The pace of FTM deployments in the country is expected to ramp up over the next three years, with system costs continuing to slide.

Though a dominant NMC market, technology transition is taking place in in the country as several developers and system integrators are looking at LFP with renewed interest. Cost competitiveness of LFP, supply availability from China and ongoing improvements in the technology make it a favourable choice for energy storage application.

Another key NMC market, South Korea, saw a massive surge in energy storage deployments in 2018, that led to significant reduction in system costs. However, the pace has since slowed down. While the incentive programme created profitability for some of these vendors, many of them struggled to keep up with the growing competition, unsustainably low system prices, and concerns arising from fire incidences. As a result, many of these vendors have exited the space, with fewer companies left, thus slowing down the pace of BOS cost declines.

The country’s 2-hour duration all-in FTM system cost could decrease 29% to US$579/kW in 2025, compared to US$821/kW last year. Over the next five years FTM deployments are expected to grow in South Korea, but the pace of price decline will be relatively slower than China and Australia.

Gupta said: “Asia Pacific is the largest manufacturer for lithium-ion batteries today and will continue to dominate global cell manufacturing capacity through 2030.

“As the region’s storage industry takes off, every component across the value chain will play a role in bringing down system costs. Fire risks and safety standards, tariffs and trade policies, and safe-guarding the supply chain amidst Covid-19 uncertainty are factors that could make or break the industry.”