Just like the battery in your cell phone, the lithium-ion cells in a utility-scale energy storage facility degrade with use over time, leading to a loss of capacity. The rate of degradation and capacity loss is determined by several factors such as frequency of use, style of operation, the chemistry of the battery and external temperature.

There are two main ways to manage battery degradation. Most commonly, energy storage projects are oversized with extra battery capacity at the start of the project to compensate for degradation. The alternative is to augment capacity periodically throughout the project’s lifetime by installing additional brand-new batteries and related equipment.

Each approach, as you can guess, has advantages and disadvantages for the overall cost and operation of the project. So, how do developers choose which approach to use?

Even though augmentation is typically more attractive from an economic perspective, allowing for lower costs and deferred cash outflows, it’s less common than initial oversizing. Historically, the price of lithium-ion batteries has declined every year over the past decade, from $732/kWh in 2013 to $141/kWh in 2021. This would have made it substantially cheaper to purchase batteries five years down the line and augment capacity, instead of buying extra batteries upfront to oversize the project. However, it’s still not the most common practice for several reasons.

In 2022, battery pack prices went up for the first time – significantly, and to some extent unexpectedly – due to supply chain constraints and inflation. Such volatility in battery prices, as opposed to a steady decline, is a new element pushing developers to a more cautious approach when it comes to deciding between future augmentation versus initial oversizing, as the financial benefits have become less certain.

But prices have already started to drop from the 2022 highs, and overall, the same trend is expected over the next few months and in 2024. According to S&P Global, global lithium-ion battery capacity will more than double by 2030, resolving recent supply shortages. Analysis by the National Renewable Energy Laboratory concluded that four-hour lithium-ion energy storage system costs could fall up to 47 percent by 2030.

With battery prices back on a downward trajectory, augmentation will likely require lower expenditure than initial oversizing and hence be attractive again. However, it will still carry a higher degree of risk and a set of complications.

Time is money

One of the advantages of oversizing an energy storage project upfront is that it won’t have to be shut down for weeks or months, either wholly or partly, for construction later. Doing it at the onset of the project eliminates the need for site mobilization, permits, labor and commissioning of the new section of the plant. Not to mention, implementing augmentation is a project per se, and that naturally comes with an element of risk.

Projects without energy commitments have no obligation to maintain a minimum capacity over time and therefore the owner may not have an interest in augmentation. Instead, they may rather opt to rely on the declining capacity over time and the associated revenue streams. In this case augmentation may simply become an option, an upside, to be decided upon and implemented at some point in time depending on whether the market conditions make sense.

On the other hand, projects with capacity commitments, such as those operating under a power purchase agreement (PPA) or capacity contracts, need to remain above a certain capacity rate. In these cases, decisions to oversize or augment should be made in the initial project phase and not be left for future considerations.

In all cases, augmentation must be properly planned to ensure success. That starts with the initial plant that shall be duly designed, with physical space left in the layout for new hardware and with an adequate electrical configuration. It is also important to select technology-agnostic and modular hardware to minimize installation time, labor, additional costs and integration risks by the time of augmentation. Finally, the flexibility of the software platform is key as the new equipment may well be a different technology and brand. Software is responsible for a seamless integration of the new equipment with the existing systems and efficient operation thereafter.

Augmenting efficiently

One way of augmenting capacity is the so-called “AC augmentation”. In this case, new power conversion systems (PCS) are added, and new battery enclosures are installed behind each new PCS. With this strategy, the existing equipment does not need to be adjusted and this eliminates one element of risk. Then again, adding PCS typically requires a permit, which today can be nearly impossible in some cases. But if the plant is not connected to a grid and rather operating in an isolated microgrid, such as mining operations in remote areas, the permitting process would likely not be required and make AC augmentation an attractive option.

Another way is “Direct Current (DC) shuffling,” which overcomes the above problem and hence can be a better option for projects connected to the grid. In this scenario, the initial battery enclosures from one string are shuffled and added to the other strings. A string of new enclosures is then added behind the PCS to which the existing batteries were connected. The number of PCS does not change, nor does the nominal power of the plant. Each PCS would be either connected to existing batteries or new batteries, meaning the capacity is no longer homogeneous across the plant, depending on the size and configuration of the facility. It’s worth noting once again how a flexible energy management software like Wärtsilä’s GEMS Digital Energy Platform is key to ensuring the new system can be operated and dispatched in the most optimal way, taking full advantage of the “new” capacity as well as the “old” one, while ensuring uninterrupted services.

Positives and negatives of battery degradation management

The decision to over-build or augment energy storage projects mainly comes down to capital expenditure, downtime, readiness and capability of the owner to implement site works after the initial commissioning and interoperability and flexibility of hardware and software systems. 

Battery degradation is inevitable but can be managed with careful planning and consideration. It can even present opportunities to improve the profitability and efficiency of utility-scale energy storage facilities — if you’re willing to take a calculated risk.