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Battery Energy Storage System ROI: 3 factors for profitability

15 Nov 2023

By Matthew Sachs

Battery energy storage systems are a great way for manufacturing facilities to reduce costs and even generate additional revenue. However, these projects come at a high cost and have a lengthy and involved deployment process. Fortunately, there are strategies to protect the return on investment of these projects at every stage. Financing and deal design can curb costs from the start, an operational strategy can optimize savings and revenue, and reducing battery degradation ensures longevity of the project.

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Financing a battery energy storage system 

The cost to purchase and deploy a battery energy storage system (BESS) can vary widely depending on several factors, including the size of the system, its intended use, location, and the specific technology and components chosen. The cost of purchasing and installing an industrial-scale BESS could range from $450 to $600 per kilowatt-hour (kWh) of capacity. Three of the most common ownership structures include:  

  1. Self-ownership allows the facility owner to retain full savings and revenues, but requires substantial upfront investment and expertise. Additionally, if the system doesn’t perform as expected or if there are regulatory changes that impact the value of operations, the facility owner is on the hook for all costs. They are also responsible for sourcing suppliers to manage procurement, project development, installation, and permitting. 
  1. Third-party ownership involves a separate company financing the battery project and sharing the savings with the facility owner. The financier often works with partners that will manage the procurement and installation of the battery. These agreements have terms of 10-15 years to allow the financier to ensure their return on investment.  
  1. A hybrid model combines aspects of both structures and offers shorter-term agreements, but may be less cost-effective.  

For all these options, the Investment Tax Credit (ITC) and Modified Accelerated Cost Recovery System (MACRS) provide financial incentives, tax credits, and accelerated depreciation schedules that significantly reduce the upfront capital costs and improve the overall return on investment. 

Optimizing value streams

Working together, a wide network of distributed energy resources (including batteries) can create a cleaner and more resilient electricity grid. For this reason, governmental bodies and utilities have created a vast network of financial incentives to power their adoption. 

Demand Response Battery charge and discharge is managed to help balance electricity supply and demand in real-time. This reduces strain off the grid, preventing blackouts and the need for expensive infrastructure upgrades. These programs can be managed by the Independent System Operator (ISO) or utility who send you notifications to operate your battery. 

Coincident Peak Reduction Many ISO regions identify specific hours of the year where demand is at its highest as Coincident Peaks, and your contribution to the system load during these hours is reflected on your energy bill for the following year. This program brings significant cost reductions.  

Frequency Regulation The electricity grid’s frequency must be kept within a tight range to ensure its stability and reliability. When the frequency drops, the battery releases stored electricity into the grid, and when the frequency rises, it absorbs excess energy. This helps to keep the grid's frequency within acceptable limits. 

Reserve Markets These exist to ensure there’s a cushion of available power to respond to unexpected imbalances in supply and demand. Batteries are operated to inject or absorb electricity within milliseconds to ensure a stable power supply. 

Energy Arbitrage The battery charges when electricity price is low and discharges when the price is high. This practice not only generates cost savings, but also helps balance the grid by shifting electricity consumption to more economically and environmentally advantageous times. 

Peak Shaving Sometimes referred to as "demand charge capping", this refers to using a battery to reduce your facility’s monthly demand charges. Demand charges are typically based on a 15-minute monthly peak. Software that forecasts when to discharge the battery ensures the peak reduction is optimized for the battery capacity. 

The energy market your facility is in will determine the value of these programs. Their value can also fluctuate throughout the day, week, and year and compete with one another. A great battery operator monitors these markets closely to maximize the value of the investment. 

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Maximizing the battery’s lifespan

Batteries degrade over time. Depending on their chemistry and usage, they might need replacement anywhere between 5-15 years. Continuously monitoring battery health is vital for preserving long-term performance and reliability, as early detection of degradation or faults can help prevent costly downtime, ensure consistent energy delivery, and safeguard the investment in energy storage. The following are some factors to consider when operating a battery. 

  • State-of-charge limits Monitoring and adhering to state-of-charge limits prolongs battery life and ensure the availability of stored energy when needed, preventing over-discharging or overcharging that can damage the battery. 
  • Maximum and minimum discharge/charge times Efficiently managing the battery's discharge and charge times is crucial for optimizing energy value streams, as it allows users to align energy storage with electricity pricing patterns, grid conditions, and energy market opportunities. 
  • Charge/discharge rates Properly configuring charge and discharge rates enables precise control of the energy storage system, facilitating rapid response to market signals, grid requirements, and load variations, ultimately maximizing economic benefits. 

Like a car or phone battery, constant charging and discharging can affect its effectiveness. Battery health should be factored in with value streams as part of a BESS operation plan, since the cost of degradation needs to be considered in the operational strategy. 


A battery energy storage system can be a low risk, high reward solution for a facility to reduce operating costs and support net zero initiatives. There are several factors to consider, such as the facility’s region, electricity consumption patterns, and internal knowledge resources. Fortunately, there are companies and consultancies that specialize in BESS financing, development, and operation. Partnering with experienced third parties can bridge knowledge gaps, and ensure a smooth and profitable project.


Matthew Sachs is the CSO and Co-Founder of Peak Power, which deploys, operates, and optimizes battery storage, grid-interactive buildings and electric vehicles using a single software platform, helping customers and partners to pursue net zero goals, cut operating expenses, and unlock new revenue opportunities. 

Peak Power |

Author: Matthew Sachs
Volume: 2023 November/December