Cost Structure Analysis of Grid-Connected Battery Storage – Status Quo and Future Outlook

The costs of stationary large-scale battery storage systems have dropped significantly in recent years. This trend is opening up new economic opportunities, making investments in battery storage increasingly attractive.

In this project, FfE is examining the current state of the battery cell market, the key cost components of large-scale battery storage systems, and how total system costs are likely to develop in the future. The goal is to provide a clear understanding of the cost structure and its main drivers, helping stakeholders assess the economic viability of battery storage and identify promising investment windows.

Motivation

Battery cell costs are continuously falling, while the need for flexibility in the power system is growing due to the expansion of renewable energy and increasing electricity demand. As a result, large-scale battery storage systems are becoming more important—both technically and economically.

Falling investment costs and high revenue potential are making battery storage increasingly attractive. At the same time, the question arises: given the expected further cost reductions, could it be strategically wise to postpone investments?

Project Objectives

The aim of this project is to create a solid basis for investment decisions in stationary large-scale battery storage systems. To this end, FfE first provides an overview of current developments in the battery cell market. The core of the analysis is a detailed breakdown of the cost-relevant components of a battery storage system beyond the battery cells themselves. The study explores which cost elements need to be considered, where differences between large-scale systems may occur, and where there is potential for cost savings. In addition, future price developments are examined to help answer a key strategic question: When is the right time to invest?

Project Structure and Method

The analysis is based on a combination of literature review, market observation, and expert interviews. It begins with an overview of battery cell price trends and the global battery market to identify current developments and assess future outlooks.

Next, the key cost components of large-scale battery storage systems are identified—including hardware elements beyond the battery cells, as well as indirect costs such as project development, planning, procurement, and installation. The analysis also considers the impact of the energy-to-power (E:P) ratio, which reflects the relationship between storage capacity and power output, on overall cost structures.

All cost components are quantified using publicly available sources and validated through discussions with industry experts. To assess future cost developments, the study draws on forecasts from major institutions and scientific publications, evaluated across three different scenarios.

Results

Battery Cell Market

Over the past ten years, battery cell costs have dropped by around 80% (see Figure 1). This development has been driven by rapid advances in manufacturing technologies, a shift toward the more cost-effective lithium iron phosphate (LFP) cell chemistry, and intense competition in the Chinese market. Additionally, low demand for batteries and lithium—due to a weak e-mobility market—has led to falling prices for key raw materials.

Currently, the battery market is heavily dominated by China. Battery cells produced in Western countries are significantly more expensive.

Looking ahead, some of these trends may reverse: the lithium market is expected to recover, and the Chinese manufacturer landscape is likely to consolidate. At the same time, technological progress continues, suggesting that a moderate further decline in cell costs is possible—potentially offering savings of 30–50%, excluding raw material effects.

Cost Components of Large-Scale Battery Storage

Although battery cells are the core element of large-scale battery storage systems, they now account for only about 20% of total system costs. Figure 2 illustrates the cost breakdown for a sample storage system with 100 MW / 200 MWh in the year 2025.

Battery cells are first grouped into modules, which are then assembled into racks and installed in standardized battery containers to form a scalable unit. These containers include additional essential components such as measurement and control systems for optimal charging and discharging (battery management systems), temperature control, and fire protection. Battery management systems, in particular, offer significant optimization potential and can be nearly as costly as the battery cells themselves. Typical battery containers have a capacity of around 2 MW and are delivered as pre-configured units.

Grid connection requires inverters, transformers, and physical infrastructure. Transformers, in particular, represent a major cost component. Additionally, grid operators may charge fees—such as construction cost contributions and grid connection costs—which vary significantly depending on location and connection conditions.

Further costs arise from civil engineering measures such as concrete foundations or noise protection. Indirect costs include project development, detailed planning, permitting, procurement, installation, and construction.

 

 

Influence of the Energy-to-Power (E:P) Ratio on Costs

Battery cells can be configured to achieve a range of energy-to-power (E:P) ratios—that is, the relationship between discharge power (in MW) and storage capacity (in MWh). While most systems in the past were built with an E:P ratio of 1 hour, primarily for providing primary control reserve, longer discharge durations of two to four hours are becoming increasingly relevant for electricity market applications as other flexibility markets become saturated.

The E:P ratio has a direct impact on the cost structure. Some components—especially battery cells—scale primarily with storage capacity, while others, such as transformers and grid connection infrastructure, become more expensive with increasing power output. Indirect costs like planning and installation are influenced by both capacity and power.

Figure 3 illustrates how different E:P ratios affect the composition and total cost of battery storage systems. As battery cell prices continue to fall, systems with longer discharge durations are becoming increasingly economically attractive.

 

Future cost development

To estimate future trends, several scenarios were developed. Figure 4 illustrates changes in cost components under the baseline scenario.

Battery cell costs are expected to continue declining slightly. However, the sharp downward trend seen in recent years is likely to slow, as further reductions in lithium prices are not anticipated. A moderate decrease in the cost of battery containers is also expected, driven by technological advancements and economies of scale.

In contrast, costs for transformers and other electrical components are likely to rise. Demand is increasing due to the energy transition, while production capacity is not expected to keep pace until around 2030. This development has a direct impact on the overall cost of large-scale battery storage systems and should be carefully considered when making investment decisions.

Conclusion

While battery cells are a key component of large-scale battery storage systems, they now account for only a small portion of total system costs. Therefore, a comprehensive cost assessment must also include other system components as well as planning and installation efforts.

Due to the sharp decline in cell prices, storage systems with higher energy-to-power (E:P) ratios are becoming increasingly attractive—pointing to a clear trend toward longer discharge durations, such as four hours.

For operators with an existing grid connection, investing in battery storage is already worthwhile. Although further cost reductions are expected, trends future revenue potential must also be considered. These can be influenced by increasing competition and resulting cannibalization effects, as well as regulatory developments. A well-founded evaluation of both cost structures and market dynamics is therefore essential to determine the optimal timing for investment.

Literatur

[1] https://ourworldindata.org/grapher/average-battery-cell-price