US Energy Storage Costs Expected to Decrease in 2025, Balancing Previous Pandemic Increases According to Lazard

Lazard Reports on US Energy Storage Cost Reductions in 2025

According to Lazard, the levelized cost of storage (LCOS) for battery storage in the United States has recently decreased enough to counterbalance the increases observed between 2021 and 2024. Lazard, an investment bank and financial advisory firm, has released the 2025 edition of its annual levelized cost of energy (LCOE) analysis report.

This report, now in its 18th year, indicates that renewable energy has become the most cost-competitive generation method on an unsubsidized dollars-per-megawatt-hour basis compared to gas, nuclear, and coal. Key takeaways from the LCOE report can be found on PV Tech, including the influence of investment tax credit (ITC) incentives on standalone solar photovoltaic (PV) and solar-plus-storage technologies in utility-scale and commercial and industrial (C&I) sectors.

In the 2025 analysis, Lazard noted significant declines in the LCOS for utility-scale and C&I battery energy storage systems (BESS). The primary factors contributing to these declines include market dynamics, such as lower-than-expected electric vehicle (EV) demand resulting in an oversupply of battery cells, as well as technological advancements in energy density and increased cell capacity. BloombergNEF also highlighted the role of larger cell sizes and more energy-dense BESS containers in reducing costs in its early 2025 analysis of global BESS costs.

The reduction in costs is occurring alongside rising electricity prices in several regions of the US, which is accelerating energy storage adoption in states where municipal utility procurement and data center expansion are common. This marks a shift from previous years when activity was mostly confined to independent system operator (ISO) and regional transmission operator (RTO) wholesale markets, where battery storage could compete effectively.

Lazard’s 2025 analysis revealed that the LCOS for a 100MW utility-scale standalone BESS with a 2-hour duration ranged from US$129/MWh to US$277/MWh, while a 4-hour duration 100MW project had an LCOS ranging from US$115/MWh to US$254/MWh. For C&I standalone BESS (1MW, 2-hour), the cost fell between US$319/MWh and US$506/MWh. In the 2024 edition, the LCOS for a 100MW/400MWh unsubsidized standalone BESS ranged from US$170/MWh to US$296/MWh.

However, these costs do not account for the impact of the investment tax credit (ITC). Lazard’s 2024 report highlighted the transformative effect of the ITC on LCOS. The ITC significantly reduces costs, with 100MW, 4-hour utility-scale standalone energy storage projects costing as low as US$83/MWh in designated ‘energy communities’ (regions historically reliant on coal and conventional energy) and reaching up to US$192/MWh at the higher end.

The future of the ITC remains uncertain, as it is contingent on the outcomes of ongoing tax budget reconciliation discussions. A version of the bill that passed the House of Representatives to the Senate in late May proposed ending the incentive scheme much earlier than the 2032 phaseout date established by the Inflation Reduction Act (IRA) signed into law in 2022. The Senate Republicans are currently debating the bill and are expected to finalize details for a version to be sent to the president, potentially by July 4, though likely within the third quarter.

Another significant factor influencing future BESS costs is the potential effect of US import tariffs. While the final policy direction regarding tariffs is still pending, recent analyses from Clean Energy Associates (CEA) and Wood Mackenzie Power & Renewables indicated that tariffs could substantially raise BESS costs and complicate decision-making. Wood Mackenzie projected potential increases in utility-scale BESS costs of between 12% and 50% based on three scenarios. Meanwhile, CEA noted that Chinese original equipment manufacturers (OEMs), which supply the majority of components for US BESS projects, might absorb tariffs to a certain extent. However, restrictions on using materials from certain prohibited foreign entities (PFEs), which may include China, could introduce additional challenges to the market.