Why battery degradation should be included in standard ROI calculations for storage systems
When evaluating an energy storage system, the first question is almost always the same: how many kWh do I need?
Immediately after, the battery cost, inverter power, expected savings, and payback period are considered. But there is a variable that should enter the economic calculation right from the start: battery degradation.
Every charge and discharge cycle, temperature, State of Charge (SOC), and depth of discharge can affect the system’s useful life.
A recent scientific review dedicated to optimizing Battery Energy Storage Systems highlights this exact point: advanced battery management, degradation analysis, and optimization strategies are key elements in improving efficiency, lifespan, and economic sustainability of a storage system.
The question, therefore, is not only how much a battery costs per kWh, but how much each MWh of energy actually used during its operational life will cost.
A 100 kWh BESS battery is not simply a 100 kwh asset
Consider two identical storage systems, both with a nominal capacity of 100 kWh and the same cell chemistry.
The first system is used every day without specific optimization strategies, experiencing deep cycles, high currents, and sub-optimal temperatures.
The second system instead uses a Battery Management System (BMS) and an Energy Management System (EMS) that consider:
- State of Charge and State of Health;
- temperature and depth of discharge;
- charge and discharge currents;
- operational history;
- availability of solar energy and consumption profile;
- energy prices and power demand of the system.
After several years, the two systems could exhibit different remaining capacities and performance levels.
Intelligent management can help reduce stress on the battery, slow down degradation, and preserve economic value.
Not all charge and discharge cycles have the same value
Consider an energy arbitrage application: the battery is charged when energy costs less and discharged when prices rise.
However, economic margin depends not only on price differences. Energy losses and the cost of degradation associated with the cycle must also be considered.
A more comprehensive analysis must therefore evaluate: Revenue or energy savings − cost of purchased energy − conversion losses − degradation cost = economic value of the operation. This is where software plays a strategic role.
Degradation models, also based on operational data analysis, can support more efficient management strategies.
In some cases, the most economically convenient cycle might be the one the system decides not to execute.
Applications of BESS systems: not just solar storage
Storage systems are no longer used exclusively to store solar power for evening use.
Today, a Battery Energy Storage System can support various applications:
- Self-consumption: using locally generated energy.
- Peak shaving: reducing peak power draw.
- Backup: powering critical loads during outages.
- Demand response: adjusting consumption to grid conditions.
- Energy arbitrage: taking advantage of energy price differences.
- Grid services: supporting grid flexibility and stability.
However, these functions can conflict with one another.
Keeping the battery fully charged to guarantee backup, for example, reduces available capacity to absorb solar energy.
A BESS must therefore manage not only when to charge and discharge, but also when it is beneficial to use energy and when to conserve it.
The role of BMS in Lithium Battery management
The Battery Management System (BMS) is fundamental to lithium battery safety.
It monitors voltage, current, temperature, and State of Charge, managing primary protection functions.
In more advanced systems, however, the BMS can also provide valuable information for performance optimization.
Available data points include:
– cell voltages and current;
– temperature and SOC;
– cycle count and depth of discharge;
– protection events;
– operating hours;
– charge and discharge history.
This information reveals actual operating conditions and supports diagnostic activities.
From monitoring to predictive maintenance
Monitoring BESS systems allows analysis of how batteries age over time during operation.
Degradation mainly manifests through two phenomena: capacity fade (progressive loss of capacity) and increased internal resistance, which can reduce performance and efficiency.
We also distinguish between:
– Calendar ageing: time-based aging, even without cycling.
– Cycle ageing: degradation associated with charge and discharge cycles.
Analyzing operational history helps identify anomalies such as high temperatures, cell imbalances, or unusual performance drops.
In advanced systems, these data support predictive maintenance strategies, helping pinpoint critical issues and plan interventions.
Cost per kWh or delivered MWh: how should you evaluate a BESS?
Cost per installed kWh is one of the most common parameters for comparing storage systems, but it does not always represent true cost-effectiveness.
Two batteries with the same initial cost can deliver different amounts of energy over their operational lifespan.
A useful metric is the Cost per Delivered MWh, calculated as:
Total System Cost / Energy Delivered Over Lifetime
This metric indirectly considers factors like lifespan, efficiency, cycle count, operating conditions, and system availability.
An efficient management strategy can therefore help lower the cost of delivered energy and improve the investment’s economic sustainability.
More data can mean more value from the same battery
Nominal battery capacity is obviously important. But capacity alone does not determine the economic value of a storage system.
Value stems from the interaction between: hardware + BMS + software + data + operational strategy
Two systems using similar cells can produce very different economic results if managed differently.
This concept will become even more crucial with the spread of:
- industrial BESS systems;
- microgrids;
- energy communities;
- solar plus storage installations;
- Virtual Power Plants;
- flexibility markets;
- dynamic energy tariffs.
Batteries will increasingly move from passive components to dynamically managed energy assets.
Questions to ask before installing a BESS system
When analyzing a storage project, we shouldn’t just ask how many kWh are needed.
It is also important to consider:
- What is the energy profile of the facility?
- How frequently will the battery be used?
- What depth of discharge is required?
- What thermal conditions will it face?
- How much capacity should be reserved for backup?
- Are there peak shaving opportunities?
- How do energy prices fluctuate?
- Is it possible to dynamically optimize the operational strategy?
The central question remains: which strategy allows maximizing the battery’s value throughout its operational lifetime?
How to optimize a BESS system with Archimede Energia
At Archimede Energia, we develop lithium battery systems, BMS, and monitoring solutions for industrial applications and energy storage.
Starting from real plant data, we can analyze required capacity, peak shaving potential, expected cycles, depth of discharge, and potential optimization strategies.
Do you already have your facility’s consumption data?
Send us your load profile, even in CSV format, and together we can evaluate the most suitable storage strategy for your application.
