As Battery Prices Drop, Performance Takes Center Stage in Energy Storage Evolution

With the global oversupply of lithium-ion battery materials—especially lithium iron phosphate (LFP) cells in China—energy storage system prices have plummeted. In 2024 alone, the industry shipped a record 330 GWh of battery energy storage systems (BESS), driven by aggressive cost-cutting and expanding manufacturing capacity.

Edward Rackley, head of the energy storage division at CRU, highlights that while low prices have propelled growth, manufacturers are now entering a critical phase where simply cutting costs is no longer enough to remain competitive.

A Shift from Cost to Capability

The BESS industry appears to be transitioning from a phase of rapid cost reduction to one focused on performance enhancement. This mirrors the shift seen in the solar industry from multicrystalline to monocrystalline PERC technology between 2015 and 2019. For batteries, the pivot is from nickel-manganese-cobalt (NMC) chemistries to LFP, with an emphasis on squeezing more value—measured in dollars per kilowatt-hour—out of each system.

To stay ahead, producers must improve energy density, enhance durability, and deliver more kilowatt-hours per square meter—an essential metric for space-constrained utility-scale projects.

The End of the Cost Curve?

Lithium-ion battery production costs have dropped dramatically since their introduction in the 1990s, largely due to economies of scale in mining, material sourcing, and manufacturing. With global battery production now reaching the terawatt-hour threshold, further cost reductions will hinge on technological advancements rather than scale alone.

From this point forward, improving the energy capacity per unit of space or weight is vital to achieving continued gains in affordability and efficiency.

Driving Toward Higher Performance

Manufacturers are increasingly focusing on technologies that extend system lifespan or increase energy per charge. Next-generation BESS platforms promise higher storage capacities and improved operational performance, but the key challenge lies in balancing innovation with cost-efficiency and long-term reliability.

Future developments will likely center on cycle life and performance efficiency, rather than purely on energy density. The real test lies in improving the levelized cost of storage (LCOS)—a metric influenced by factors such as capital investment, operating costs, battery longevity, and system efficiency.

To succeed in the market, any new storage technology must enhance performance or reduce costs without compromising the overall lifespan or safety of the system.

The Weight of Progress

LFP chemistry, having undergone nearly three decades of refinement, is approaching its theoretical capacity limits. Nevertheless, the shift away from EV-focused cells has allowed utility-scale battery systems to significantly scale up. Over the past six years, the energy capacity of containerized systems has grown from 500 kWh to as much as 8 MWh per unit.

This leap in energy density allows for more compact installations, saving on land use and infrastructure costs, though it does introduce additional complexities in thermal management and system safety.

However, physical limitations may cap future growth. In regions like North America and Europe, the weight of today’s high-capacity, 20-foot containerized systems is approaching maximum transport thresholds. CRU forecasts that these logistical constraints may limit container capacities to between 8 MWh and 11 MWh in the near term.

What Comes Next?

New innovations—such as high-compaction-density LFP—are boosting energy density without requiring radical changes in design, making it more difficult for alternative chemistries to gain a foothold. Technologies like sodium-ion batteries must offer competitive performance at a viable cost, along with a clear pathway to future improvements, to challenge the dominance of LFP.

For now, LFP continues to lead due to its maturity, reliability, and affordability. Any contender aiming to disrupt this market will need to match or exceed LFP’s performance while maintaining cost competitiveness and manufacturing scalability.