Why the Utility Sector Cares More About CapEx Than Cycle Life

A practical look at what really matters when deploying storage at grid scale, from one of the country’s largest utilities

Real Safety Lessons from Real Incidents

In the utility world, reliability and safety are critical for power and energy storage systems. Kieran Claffey, Senior Research Engineer at Southern Company, knows this well, which is why he co-authored a peer-reviewed study that reexamines battery spacing requirements for Li-ion (including risks of hydrogen buildup), offering guidance utilities can act on today. His research found that improperly spaced lithium-ion containers can enable an explosion in one unit to breach an adjacent container — a risk that was underappreciated until more recently.

Claffey knows this space well — not just from his role at Southern Company, the second-largest utility in the U.S., but from his early career as employee #2 at a solid-state battery startup. That dual perspective gives him rare clarity on both the promise of storage innovation and the demands of grid-scale implementation.

This post is based on Episode 24 of the Beyond Lithium podcast, where Claffey joined host Nate Kirchhofer to share what matters most to utilities — and what many startups get wrong.

Here are 5 takeaways from the episode that energy innovators, vendors, and policy leaders can use to build safer, more practical grid storage systems:

1. Utilities prioritize capital cost over cycle life — full stop.

“There’s a lot of effort being spent on cycle life and volumetric energy density,” Claffey said. “But what we really need is lower capex — upfront cost is what determines if the technology even gets considered.”

He cautioned that some high-performance technologies are chasing the wrong optimization targets. For example, a battery with 50,000 cycles may look great on paper — but if it’s too expensive to buy and install, it won’t make it past utility procurement. “You may have the best cycle life,” Claffey added, “but that may not be as important as cost or safety.” This makes sense when we think about the levelized cost of storage (LCOS) which is essentially a net-present-value (NPV) calculation of the $/kWh of energy delivered over the life of a battery system — energy in the future is a LOT less guaranteed than now, and has less impact on the bottom line.

2. Levelized cost of storage is misleading — especially for low-cycle, high-reliability assets.

The U.S. Department of Energy (DOE) has a 2030 goal to bring the LCOS down to $0.05/kWh. But Claffey cautioned that on paper LCOS can disadvantage technologies that are otherwise a good grid fit.

Some storage systems may only be cycled a few hundred times per year, but offer extreme reliability — and utilities value that. “Reliability is more important than cycle life,” Claffey said. “If the energy is there when we need it, even if it’s only 400 cycles, that’s fine.”

3. Lithium-ion batteries aren’t unsafe — but spacing matters.

Claffey’s team conducted explosion analyses and found that tight packing of battery enclosures can create real risks. “If you put them in like sardines, you’re looking for trouble,” he explained. Their research recommends specific spacing requirements to prevent a localized deflagration from spreading — a key lesson for both developers and AHJs (Authorities Having Jurisdiction).

And what about fire risks? “People like to say battery systems aren’t safe,” he noted. “But that’s like saying driving isn’t safe. It depends how you do it — with the right management systems, lithium-ion can be safe enough for utility-scale.”

4. Not every storage job is about energy — sometimes it’s just power.

One of the biggest learning curves Claffey experienced when moving to the utility side was reframing what “capacity” means. “In a utility, capacity means power capacity — not energy capacity,” he said.

That distinction helps explain why lithium-ion batteries are so dominant in 2–4 hour applications. “They’re great power batteries,” he added. “But we also need energy batteries — like flow or iron-air — for durations beyond 10 hours.”

5. Long-duration storage needs more than hype — it needs cost-effective solutions.

Claffey laid out a clear vision: “A 10-hour battery that’s half the price of lithium-ion and safe? That would solve 90% of our problems.”

He’s optimistic about flow batteries, pumped thermal, and iron-air systems for medium (6–24 hour) and long-duration (24–100 hour) needs. But the economics have to work. “Lithium-ion is too expensive for delivering energy, not just balancing the grid,” he said. “That’s why we need something beyond lithium.”

His “Rule of 17%” puts it in simple terms: for every 100 gigawatts of renewables, a grid needs about 17 gigawatts of storage. And while most of that will be in 4-hour formats in the near term, utilities will also need longer-duration assets for events like the “Dunkelflaute” — the German term for a multi-day period when both sun and wind renewable resources are scarce.

Catch the full episode at the link below:

Listen here: https://open.spotify.com/episode/2dTO2tqKUvqiXcdmK9p7Df?si=5cbf04aea5c3494f