What Does One Battery Cycle Actually Cost?

The basic idea

Battery arbitrage is not only constrained by electricity prices and efficiency.

Using the battery itself has an economic cost.

Every time a battery charges and discharges, it contributes to the gradual degradation of the battery. Over time, the battery loses some of its ability to store and deliver energy.

This means a battery operator is asking a bigger question than “Can I buy electricity cheaply and sell it at a higher price?”:

Is the value of this opportunity high enough to justify using some of the battery’s finite life?

To understand that, we first need to understand cycles and throughput.

1. What is a battery cycle?

Consider our: 100 MW / 200 MWh BESS

Suppose it starts fully charged, discharges 200 MWh, and is subsequently charged back to its starting state.

In simplified terms, discharging the battery from full to empty and then recharging it back to full represents one complete charge-discharge cycle.

But batteries do not always move from completely full to completely empty.

Suppose instead the battery discharges: $100\ MWh$

from its 200 MWh capacity.

That represents approximately: $\frac{100}{200}=0.5$

or half of an equivalent full cycle, before considering more detailed degradation effects.

Two such 100 MWh discharge events would therefore correspond, in simple energy-throughput terms, to approximately one equivalent full cycle.

2. Why equivalent full cycles matter

Real battery operation can involve many partial charge and discharge events.

A battery might:

discharge 20% in the morning,
recharge,
discharge 30% in the afternoon,
recharge again,
discharge another 50% in the evening.

Rather than treating every individual event as a completely separate full cycle, we can use the idea of equivalent full cycles (EFCs) to express cumulative battery use.

For this simplified example, we’ll define EFC using cumulative discharged energy:

$EFC \approx \frac{\text{cumulative discharged energy}} {\text{usable energy capacity}}$

So for a 200 MWh battery, cumulative discharge of 1,000 MWh corresponds approximately to: $\frac{1,000}{200}=5$

equivalent full discharge cycles.

This gives us a way to connect battery operation to battery life.

3. Throughput: how much energy has moved through the battery?

Another useful concept is energy throughput.

Throughput measures the cumulative amount of energy processed by the battery over time.

Suppose our 200 MWh battery completes the equivalent of one full discharge per day.

Annual discharged energy would be approximately: $200\times365$ $=\boxed{73,000\ MWh}$

Over ten years, ignoring changes in capacity and operation: $73,000\times10$ $=\boxed{730,000\ MWh}$

This matters because battery degradation is related not only to the passage of time but also to how the battery is used.

4. Cycling isn’t free

Now suppose, purely as an illustrative example, that our battery project has:

Energy capacity: 200 MWh
Battery-related capital cost: $40 million
Illustrative lifetime: 4,000 equivalent full cycles

At 200 MWh per equivalent full discharge, lifetime discharged energy would be: $200\times4,000$ $=\boxed{800,000\ MWh}$

Now suppose we allocate the $40 million battery cost across this lifetime energy throughput. $\frac{\$40,000,000}{800,000\ MWh}$ $=\boxed{\$50/MWh}$

Under this deliberately simplified approach, we could think of battery use as carrying an approximate: $\boxed{\$50/MWh}$

capital cost per MWh of lifetime discharged energy.

** This is a simplified capital-allocation calculation, not a physical degradation model.

5. Does that mean degradation always costs $50/MWh?

No. This distinction is important.

The $50/MWh above is not a universal degradation cost, nor does a battery literally incur exactly $50 of physical damage every time it delivers 1 MWh.

We have simply allocated an assumed capital cost across an assumed lifetime throughput.

Actual degradation depends on factors such as:

battery chemistry
depth of discharge
state of charge
temperature
charge and discharge rates
number and shape of cycles
calendar ageing
operating strategy

Battery capacity also changes over its life. So real degradation modelling is considerably more sophisticated. But the simplified calculation gives us an important economic intuition:

Using the battery consumes some of a finite asset life.

That means battery usage has an opportunity cost.

6. Now reconsider an arbitrage opportunity

On the previous page, we considered:

Charging price: $30/MWh
Selling price: $80/MWh
Round-trip efficiency: 90%

We calculated the effective charging-energy cost of delivering 1 MWh as: $\frac{30}{0.90}=\$33.33$

So the gross energy margin was: $80-33.33$ $=\boxed{\$46.67/MWh}$

At first, that looked attractive.

But now suppose our simplified estimate of the economic cost associated with battery use were: $\$50/MWh$

Then: $46.67-50$ $=\boxed{-\$3.33/MWh}$

Suddenly, the apparently profitable arbitrage opportunity no longer covers our simplified cost of battery usage.

7. This changes the arbitrage decision

This gives us a much better way of thinking about battery arbitrage.

The question isn’t: $P_{sell}>P_{buy}$

It isn’t even simply: $P_{sell}>\frac{P_{buy}}{\eta}$

The value created by the trade must also justify the economic cost of using the asset.

In a simplified formulation: $\boxed{ Net\ Margin = P_{sell} – \frac{P_{buy}}{\eta} – C_{deg} }$

where:

$P_{sell}$ = selling price
$P_{buy}$ = charging price
$\eta$ = round-trip efficiency
$C_{deg}$ = assumed degradation or battery-use cost per MWh

And eventually we may need to consider other costs too.

8. But there’s another complication

The $50/MWh figure above was deliberately simplified. In reality, the economic cost of using a battery is more complicated.

Degradation depends on factors such as:

depth of discharge
charge and discharge rates
SOC
temperature
cycle history
battery chemistry
how much useful life remains

This means the economic cost of one additional MWh of battery throughput isn’t necessarily constant.

And that creates a more interesting question:

How much additional value does a market opportunity need to create to justify the additional degradation from using the battery?

The battery therefore isn’t simply deciding whether an individual trade is profitable. It is making decisions about how to use a finite asset over time.

That’s where degradation starts becoming an optimization variable, rather than merely a maintenance issue.

9. Technical degradation becomes an economic decision

Battery degradation may look like a purely technical characteristic. But once a BESS participates in electricity markets, it becomes an economic variable.

Degradation → cost of cycling → dispatch decisions → revenue → asset life → project returns

An optimizer therefore isn’t simply trying to maximize electricity traded. It is trying to maximize the value created by using a battery with finite physical and economic constraints.

More cycling can generate more revenue. But more revenue does not necessarily mean more profit.

The mental model

The important idea from this page is that:

Battery life is finite, so using the battery has economic value attached to it.

Throughput gives us a way to measure how much the battery is being used. Equivalent full cycles give us a way to translate partial operation into an intuitive measure of cumulative cycling.

And degradation means that:

Not every positive price spread is worth capturing.

We now have four pieces:

Power + energy → what can the battery physically do?
SOC → how much energy is available?
Efficiency → how much energy survives the cycle?
Degradation → what does using the battery cost?

Now we can put them together and ask the bigger question: