How do I calculate ROI on a battery energy storage system?

Jan 31, 2023

It is not so easy to provide calculations about an energy storage system. It is not an off-the-shelf product and there are several reasons for its installation, which may include energy savings, increasing the mix of renewable energy, going off grid, replacing a UPS system, or simply for emergency backup.

To calculate the return on investment (ROI) on a battery energy storage system, you need to consider several factors, including:

  1. Capital costs: This includes the cost of purchasing and installing the system. There are significant incentives which impact the capital costs. Bank financing or an equipment lease may also provide alternatives when considering implementation. Energy as a Service (EaaS) consists of asset and energy use management, which are tailored to a customer’s specific energy goals and delivered through a contract with a services company.
  2. Operating costs: This includes maintenance, replacement parts, and energy costs. It is critical to verify and extend, if possible, the warranty period of the vendors (battery, inverter), since this may cost more than originally anticipated over the years. Insurance also plays a part. Take into account possible optimizations (software update to the BMS), upgrades along the way, for example additional batteries and a more powerful inverter to accommodate higher consumption and peaks.
  3. Energy savings: This includes savings on energy costs due to the use of the energy storage system. The rate of inflation and the rise of energy prices may vary. New legislation may allow for higher savings (if night time electricity becomes cheaper for example) or limited options (if you can no longer sell back to the grid).
  4. Revenues: This includes any additional revenues generated by the system, such as selling excess energy back to the grid. Services like charging EVs, generating clean hydrogen, or selling electricity to the neighbors, where legal, could add revenue.
  5. Time horizon: The length of time over which you expect to realize the benefits of the energy storage system. Depending on how they are used, some systems deteriorate after 5 years, others are guaranteed until 10. It is best to invest in resilient systems which are built for a 20-25-year horizon to match the lifetime of solar panels.

To calculate the ROI, you can use the following formula:

ROI = (Net benefits / Capital costs) * 100

Net benefits = Energy savings + Revenues – Operating costs

It is important to note that ROI calculations for battery energy storage systems can be complex and may depend on many factors, such as the cost of energy, the regulatory environment, and the specific design of the energy storage system. A detailed financial analysis is recommended to accurately determine the ROI of a specific battery energy storage system.

We at SMARTESTORAGE will be happy to provide such calculations, we know what to look for when installing a battery storage system.