Energy Storage News: IRA brings LCOS of 100MW, 4-hour standalone BESS as low as $124/MWh

By Andy Colthorpe

According to Lazard, the impact of Inflation Reduction Act (IRA) incentives on the business case for battery storage in the US is now significant.

It found that, unsubsidised, the LCOS of a utility-scale 100MW, 4-hour duration (400MWh) battery energy storage system (BESS) ranged from US$170/MWh to US$296/MWh across the US.

However, with the full range of tax credit subsidies made available through the IRA, that range falls to as low as US$124/MWh for projects which include ‘energy community’ adders to the investment tax credit (ITC) rate. The highest LCOS calculated for subsidised projects of that scale was US$226/MWh.

Lazard said ‘the power of the IRA is clear,’ and despite some uncertainty still over domestic content provisions and how they will be applied. It was already having some impact between the legislation passing in 2022 and Lazard’s 2023 edition of the LCOS report, largely in offsetting cost increases in lithium carbonate, a key material input for the manufacture of lithium iron phosphate (LFP) battery cells commonly used for BESS applications.

However, its impact is now broader, driving industry trends such as oversizing battery capacity to offset future cell degradation and extend asset lifetime, leading to increased residual value and project returns.

Lazard said that the impact of other policy developments, such as the raising of Section 301 tariffs on imported cells from China is yet to be seen. Industry analysis group Clean Energy Associates (CEA) said a couple of weeks ago that the tariff increases could result in cost increases of 11% to 16% for US battery storage projects, but CEA said that the impact on demand would likely be “limited”.

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