From the magazine
When lithium prices started to rise in late 2025, headlines warned of runaway battery inflation, threatened project pipelines and a storage market on the brink.
Then something unexpected happened. Despite lithium carbonate prices rising more than 102% in six months and lithium ferrous phosphate cell costs rising 15% to 30%, total investment in BESS projects in the United States, Germany and China increased less than 15%. Even if battery cell price increases are fully passed through the supply chain, they are barely registered at the system level.
This disconnect reveals a deeper truth about the current cost structure in the storage market. BESS capex no longer behaves like a technology cost curve because storage now functions as infrastructure rather than a modular technology. That shift started years ago, when the balance between system and soft costs became greater than cell costs.
This has now become decisive. Batteries and hardware costs continue the downward trend in overall project costs, while soft costs (i.e. permitting, interconnection, compliance and execution) increasingly influence the BESS cost gap between regions. The result is a market where costs feel unstable, not because batteries are getting expensive, but because building them has become harder, slower, and more limited.
Battery price inflation is attracting attention because it moves quickly and appears in the headlines. Lithium prices rise, cell prices rise and the assumption follows that storage projects will have to become more expensive. But in 2026, that logic no longer applies.
Battery cells are still important, but no longer dominate cost trends. By 2026, cells and modules will account for 25% to 45% of total BESS investments, a sharp step back from the early 2020s as the balance between system, interconnection and execution costs have taken a larger share. As soon as these are included, the price shocks for mobile telephony lose their force.
System design is also evolving in ways that mitigate inflation. Larger cells and higher capacity racks reduce internal system complexity, offsetting some of the pressure from higher material prices. The result is not cheaper projects, but surprisingly stable projects.
Compliance, speed, execution
BESS’s economy is no longer determined by who buys the cheapest batteries. In the United States, Foreign Entity of Concern (FEOC) requirements related to tax credit eligibility have shifted supply chain strategy from a procurement decision to a factor determining project viability. Developers must now prove compliance at the facility level, more explicitly manage component procurement and align suppliers with financing requirements.
The cost impact is rarely reflected in higher capex for line items. In fact, the recent moderation in battery prices reflects China’s VAT export rebates, which are now being abolished. As these discounts diminish, it becomes clear how little hardware prices alone determine project viability. The real costs consist of delays, additional risk premiums and slower access to capital.
This shift is most pronounced in mature systems with limited capacity. But in emerging markets in Southeast Asia, South America and parts of the Middle East and Africa, price sensitivity remains higher, and low upfront investment continues to drive purchasing decisions.
For hyperscale data centers, this shift is even more pronounced. AI-powered loads require extreme reliability and rapid deployment. Storage is treated as essential infrastructure and not as a price-sensitive addition. In this context, speed and certainty are more important than marginal cost savings. As a result, data center operators are much less resilient to higher BESS prices – and are poised to become a major demand driver in the coming years, especially in the United States, where restrictions on grid access are increasing the need for on-site storage.
The result is a widening gap between developers. Those with vertically integrated platforms, compliant supply chains and enabling expertise can move quickly and secure financing. Those optimized for low-cost hardware are more exposed to redesigns, renegotiations, and execution risks. The batteries may be the same. The results are not.
On one side are the execution-oriented developers. They invest early in FEOC-compliant supply chains, cultivate diversified supplier relationships, and treat permitting and interconnection as core capabilities rather than administrative hurdles. They are willing to accept modest increases in nominal capital investment to reduce risk and financing uncertainty.
On the other side are price-driven players, still optimized for the lowest possible equipment costs. They are more exposed to short supply windows, supply bottlenecks and policy-induced disruptions. In a market where slowdowns can wipe out returns, that exposure increasingly separates the winners from the losers.
This gap helps explain why BESS deployment continues to accelerate despite rising battery prices. Global energy storage demand is expected to grow by 7% between 2025 and 2026, with installations expected to expand over the next decade. The market is not stagnating because batteries are more expensive, but is consolidating around players who can manage the complexity.
Capital cost curve
S&P Global Energy’s vision is that batteries will become increasingly better, cheaper and more standardized. If you build them on time, on budget and in compliance, that may not be the case. While the marginal impact of battery price fluctuations may seem manageable for developers at the project level, it can be much more consequential for suppliers upstream.
As the BESS market matures, the traditional learning curve logic is breaking down. Hardware costs will continue to decline in the long term, but project investments will increasingly be determined by regulations, grid constraints and implementation risks. The average storage cost will matter less than the variance between projects. That difference also changes who absorbs the volatility: Developers may see only modest shifts, but system integrators without in-house cell production could see profitability drop if battery prices rise 20% to 30% in a short period of time.
The next phase of energy storage will be won by those with diversified and resilient supply chains, flexibility in execution, and the strength of the balance sheet to reliably deliver projects in a constrained and politicized environment. In practice, that advantage will increasingly apply to more vertically integrated players, as they are better positioned to manage input cost volatility, protect margins and absorb policy-driven price changes across the value chain.
About the author
Paola Perez Peña is a senior principal research analyst in S&P Global’s Clean Energy Technology group, focusing on technologies and supply chain research, analytics and insights. Perez Peña has several years of consulting and research experience in the energy sector, focusing on emerging technologies and strategy development for utilities, oil and gas companies.
The views and opinions expressed in this article are those of the author and do not necessarily reflect those of the author pv magazine.
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