The engineer procure construct (EPC) pricing in the battery energy storage system (BESS) market was initially plagued with lean RFPs, elementary indicative schematics, and an opaque pricing market. The opacity of the pricing was driven by the novelty of the systems being installed, perpetual design iterations, and the general uncertainty around governing regulations. The days of individually loading millions of pounds of Li-Ion modules in the field appear to be over (for which we are immensely grateful), and the quantifiable metrics by which EPC pricing is evaluated are becoming increasingly definable and predictable. Much like in baseball, the renewable market attempts to measure, average, and predict every possible input to accurately forecast future project costs in what has been a relatively unpredictable market environment.
As owners have sought means to mitigate schedule and cost risks, they have steadily garnered a larger share of the procurement portion in the EPC equation. Supply-chain constraints and historically steep spikes in commodities have accelerated the transition to largely owner-procured projects. This shift in procurement is contrary to typical owner risk-mitigation strategies and has aided in making the construction aspect of EPC more predictable and, therefore, more commoditized.
In addition to owner procurement, the industry has witnessed the rapid evolution of BESS solutions from the summation of individual components and unique manufacturers to nearly fully integrated single OEM solutions through the DC block. The economies of scope realized by OEMs producing complementary products around their core competencies are yielding highly integrated BESS solutions and further demystifying project costs. These integrated systems, such as some variants of Tesla's megapack solutions, even remove the requirement for owners or EPCs to source separate Power Conversion Systems and auxiliary power distribution, which have historically constituted ~10% of project costs for a 100MW BESS deployment.
In addition to owners taking a larger role in procurement and BESS OEMs providing more efficient solutions, we also have more historical project cost data available for comparison. The ERCOT market serves as an archetypal example of a highly penetrated market where any remaining EPC pricing uncertainty can largely be attributed to geographical or topographical anomalies. The rapid accumulation of historical pricing data coupled with a highly mobile workforce has catalyzed the dissemination of industry pricing over a relatively short period.
" If historical data, owner procurement, and superior integrated battery storage systems are resulting in a commoditized construction market, akin to that of the current solar market, then where lies the remaining uncertainty, and what are its greatest drivers? "
If historical data, owner procurement, and superior integrated battery storage systems are resulting in a commoditized construction market, akin to that of the current solar market, then where lies the remaining uncertainty, and what are its greatest drivers? We should start by clarifying that commoditization, as detailed above, must be viewed through the lens of segmented markets. Just as rates vary from the NYISO to SPP markets as do construction costs also vary. With that acknowledgement aside, we believe the greatest uncertainty will continue to be driven by highly iterative preconstruction procurement processes, unique owner requirements, and rapidly evolving technologies where balance of plant design lags manufacturer innovation.
One of the most prominent early-stage issues facing developers is the need to simultaneously evaluate multiple battery supplier costs against each of their unique site density requirements, off-taker requirements, and, for our concern, their distinct construction variations. Pricing fidelity loss experienced during highly iterative procurement phases lends itself to generally higher pricing or greater post-award change-events. Through this process, the owner and EPC are dually burdened to provide rapid conceptual layouts and design calculations while racing towards submission and procurement deadlines. If there has been commoditization in the BESS market for EPC services, there has also been a tempering of this commoditization due to high-volume solicitations with exhaustive iterative pricing requirements.
As we look to the next evolution of BESS deployments there is a forecast for greater commoditization in market pricing for EPC services where the firms with greater historical knowledge will either prevail based on their historical knowledge or lose-out to the naivete of new market entrants eager to participate in the energy transition.
