Levelized Cost of Storage (LCOS): The Key Cost Metric for BESS

Anyone who makes or evaluates investment decisions for battery energy storage systems (BESS) cannot avoid one key metric: the Levelized Cost of Storage (LCOS). Unlike the pure purchase price per kilowatt-hour, LCOS reflects the actual total costs of a stored and discharged kilowatt-hour over the entire lifespan of a system. This makes different storage projects, technologies, and operator models truly comparable for the very first time. For investors and bankers, LCOS is therefore what the Levelized Cost of Electricity (LCOE) is for photovoltaic or wind projects: the common basis of comparison on which financing decisions can be soundly justified.

What is LCOS and why is it crucial for investors?

The LCOS describes the average total costs incurred per megawatt-hour (MWh) of stored electricity over the entire lifespan of a battery storage system. It takes into account not only the Acquisition costs (CAPEX), but also all Operating costs OPEX Cost of capital of the financing as well as the actually usable energy throughput over the lifespan of the system.

The decisive difference compared to a simple price-per-kWh consideration: Two storage systems with identical purchase prices can have completely different LCOS values – depending on how many cycles they perform over their lifespan, how high their efficiency is, and how quickly they degrade. Exactly for this reason, LCOS has established itself internationally as the standard metric for evaluating storage projects, especially in the context of project financing and due diligence audits.

The LCOS formula in detail

In simplified terms, LCOS can be calculated as follows:

LCOE = (CAPEX + Σ discounted OPEX over lifetime) / (Σ discounted energy throughput over lifetime)

A bit more detailed, taking the cost of capital into account:

The following applies:

• t = operating year
• r = Discount rate (WACC, Weighted Average Cost of Capital)
• n = Storage lifespan
• FUEL = Cost of charging energy per year
• Capital expenditures = CAPEX including any replacement investments (augmentation) during the lifespan
• Operating costs = OPEX incl. maintenance, insurance, land lease, grid fees
• E Out – Energy supplied = actually usable energy per year, depending on the number of cycles, depth of discharge (DoD), and efficiency

This final variable – the amount of energy discharged – is the point where Round-Trip-Efficiency (RTE) and State of Health (SoH) directly factor into the LCOS calculation. How these two key metrics determine the usable energy throughput over the lifespan of a system, we have covered in detail in our article on Round-Trip Efficiency (RTE) and State of Health (SoH) in BESS described. Anyone who wants to improve the LCOS of a project must therefore focus precisely on these two adjustment screws

The most important influencing factors on LCOS

Cellulose chemistry and round-trip efficiency

Every percentage point of additional RTE increases the amount of usable energy per cycle and thus directly lowers the LCOS. Modern battery systems with LFP cells achieve RTE values of around 90 to 98 percent today – a significant leap compared to older battery generations with around 85 percent. Details on the technical background and ongoing measurement can be found in our RTE/SoH contribution.

Cycles, lifespan & degradation

The lifespan of a system – measured in usable full cycles – goes directly into the denominator of the LCOS formula. Expensive and heavy LTO cells currently achieve up to 20,000 cycles and the commonly used LFP cells Depending on the application profile, 4,000 to 10,000 cycles or a service life of 12 to 20 years. Older NMC systems often only achieved 1,000 to a maximum of 3,000 cycles. A longer service life distributes the fixed costs of the system over a larger amount of energy and noticeably reduces the LCOS – regardless of the pure cell price.

Financing costs (WACC)

An often underestimated lever: The cost of capital flows directly into the formula via the discount rate. If a project's financing costs fall from 10 to 7 percent, for example, this can translate into an impact of several euros per MWh on the LCOS—an effect that gains importance in project financings with clearly structured, predictable revenue models (such as through auction mechanisms or long-term contracts), as these reduce the perceived project risk and thus the cost of capital.

Augmentation and End-of-Life Costs

For longer contract periods, operators frequently need to retrofit capacity (augmentation) in order to maintain the promised performance despite degradation. These costs belong in the CAPEX consideration just as much as a potential residual value of the cells at the end of their life, for example through second-life utilization in less demanding applications. Both effects have opposing impacts on the LCOS and should not be omitted in a thorough project calculation.

LCOS Benchmark 2026: Utility-Scale vs. C&I Storage

Caution is advised when classifying LCOS values: market reports cite very different figures because they are based on different market segments, system sizes, and CAPEX bases. For a reliable assessment, therefore, a clear separation by plant class is worthwhile.

Important classification noteThe frequently cited global utility-scale figures of around 65 US dollars/MWh (source including Ember analysis, October 2025, and BloombergNEF) refer to large-scale projects outside the US and China with favorable procurement conditions. German C&I projects are structurally above this value due to lower economies of scale, higher individual grid connection costs, and smaller batch sizes—therefore, a direct comparison of the bare figure without considering the plant class is misleading. For investors, it is generally recommended to compare LCOS values only within the same segment class.

Nevertheless, the historical development shows a clear direction: while global LCOS was still above 300 US dollars/MWh in 2015, it is estimated at around 65 US dollars/MWh in 2025/26—a decline of over 78 percent in ten years, driven by falling cell prices, longer lifespans, higher efficiencies, and decreasing financing costs.

LCOS in the context of multi-use and revenue stacking

The LCOS exclusively reflects the cost side of a storage project. Whether a project is economically viable is only decided by comparing it with the achievable revenues – and in the case of modern large-scale storage systems, these rarely stem from a single revenue source. Through multi-use strategies that combine FTM revenues with BTM savings, the value of a storage system can be significantly increased well beyond pure cost consideration. Read more in our article on Revenue Stacking & Virtual Cycling.

For investors, this means that a low LCOS alone is not a meaningful or sufficient criterion for economic viability. Only by comparing LCOS with realistically achievable revenues per MWh—taking into account marketing fees and forecast deviations—does a reliable picture of project profitability emerge.

Buy, Contracting, or CPFS – LCOS as the key value

The LCOS is always an extremely important metric for whoever owns, finances, and operates a storage system—because only the owner bears the CAPEX, OPEX, and investment risk that flow into the formula. It is used as part of the Open-book accounting of a battery storage system is determined each time and plays a decisive role in planning, design, and sizing. In the case of a classic purchase, the value is for the client and for Contracting extremely interesting for CUBE CONCEPTS itself as well. Even with CPFS (CUBE Profit Flex Solution®), a Contracting variant, the LCOS calculation is a key step. This step determines whether a project is viable and under what conditions, and it forms the basis for structuring the profit-sharing model.

For the client itself, however, the LCOS for CPFS is not a directly relevant metric, as it does not tie up capital and bears no operational risk. They are interested in other factors: the elimination of the CAPEX burden, the contractually agreed revenue share, and potential exit options.

For investors and financing partners of CUBE CONCEPTS, on the other hand, LCOS is indeed a central key figure—after all, they use it to evaluate whether the underlying projects are economically sound and whether the expected revenues sustainably exceed the storage costs.

Calculation example: LCOS of a C&I storage system (5 MW / 10 MWh)

To illustrate, here is a simplified calculation example for a larger commercial system with 5 MW of power and 10 MWh of capacity (a 2-hour system, without discounting, for intuitive classification):

Variant A – linear scaling:

• Investment: 10 MWh system at €450/kWh → €4,500,000 CAPEX
• Usable cycles over lifetime: 6,000 cycles
• Depth of Discharge (DoD): 90 percent
• Usable amount of energy over lifetime: 6,000 × 0.9 × 10 MWh = 54,000 MWh
• Ongoing operating costs over lifespan: estimated at 15 percent of CAPEX, which is €675,000

LCOS = (4,500,000 € + 675,000 €) / 54,000 MWh ≈ 96 €/MWh (≈ 9.6 ct/kWh)

Variant B – with realistic economies of scale:

In practice, the specific CAPEX for a 10 MWh system decreases noticeably compared to a smaller system, as the costs for power electronics (PCS), grid connection, planning, and construction are distributed over a larger capacity. A realistic value is closer to around €390/kWh instead of €450/kWh:

• Investment: 10 MWh system at €390/kWh → €3,900,000 CAPEX
• Ongoing operating costs: 15 percent of CAPEX → €585,000
• Usable amount of energy over lifetime: unchanged 54,000 MWh

LCOS = (3,900,000 € + 585,000 €) / 54,000 MWh ≈ 83 €/MWh (≈ 8.3 ct/kWh)

The pure scale effect reduces the LCOS in this example by around 13 percent – a figure that is also consistent with the 10–15 percent LCOS improvement mentioned in our RTE/SoH article resulting from better system design. For comparison: utility-scale systems (starting at around 100 MWh) benefit from even stronger scale effects and lower financing costs and, with the same number of cycles, can be well below €70/MWh. This difference illustrates why both system size and segment affiliation are crucial for classifying an LCOS figure.

FAQ: Levelized Cost of Storage