Levelized Cost of Storage
Definition
The levelized cost of storage (LCOS) is the present value of a storage system's lifetime costs divided by the present value of the energy it discharges, giving a cost per megawatt-hour delivered. EIA defines LCOS, like LCOE, as 'the estimated costs required to build and operate' diurnal storage 'over a specified cost recovery period.' Unlike LCOE, it must account for the cost of the energy used for charging and the energy lost in each cycle.
Why it matters
LCOS figures are sensitive to assumptions that differ from project to project, especially cycling, charging price and augmentation. A low LCOS built on heavy cycling may conflict with warranty limits, and one that omits charging cost compares poorly with revenue. Investors should check each assumption and compare LCOS with the revenue the battery can actually earn, as EIA does by pairing it with LACE.
Common misconceptions
- •LCOS is not comparable with LCOE without accounting for charging energy.
- •More cycles lower LCOS on paper but raise degradation and warranty risk.
- •Augmentation and replacement are lifetime costs, not optional extras.
- •The label is only a starting point. Investor outcomes usually depend on the governing documents, cash-flow priority, valuation policy, disclosure quality, and manager discretion surrounding the term, not just the shorthand definition used in marketing materials.
Technical details
Worked example (illustrative)
Annualized capital and fixed costs: $4.6 million for a 100 MWh battery.
At 300 full cycles a year: 30,000 MWh discharged, about $153 per MWh before charging.
At 150 cycles: 15,000 MWh, about $307 per MWh.
Charging at $30 per MWh with 82% round-trip efficiency adds about $36.59 per MWh discharged.
How investors apply the term
Investors usually apply this term by tying the definition back to the controlling documents and then asking which cash flows, rights, restrictions, or valuation assumptions it changes. A useful review looks at the term alongside fees, leverage, liquidity, reporting frequency, and manager discretion rather than treating it as a standalone concept.
The practical diligence test is simple: identify who benefits if the assumption is wrong, who has control when conditions change, and what evidence the investor receives after closing. Terms that cannot be reconciled to documents, cash movements, and monitoring data should be treated as marketing shorthand until proven otherwise.
Frequently asked questions
- What costs are included in levelized cost of storage?
- Capital cost; fixed operating costs; charging energy and the round-trip losses that make charging energy exceed discharged energy; augmentation or replacement to hold capacity; financing; and, where included, tax credits. The denominator is energy discharged, which depends on cycles per year, depth of discharge, degradation and availability.
- Why does utilization matter so much?
- Most of a battery's cost is fixed, so spreading it over fewer discharged MWh raises cost per MWh. A battery cycled half as often has roughly double the capital cost per MWh delivered, before charging costs.
- What do batteries cost?
- Berkeley Lab reports all-in battery capital cost for solar-plus-storage projects rose to $458 per kWh in 2024, and that adding batteries raised a solar project's LCOE by $36 per MWh before, or $25 per MWh after, tax credits.