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Battery-charged disruption risks leaving fossil industry – and Australia – in its dust

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When Liberal Senator James Paterson was asked on ABC TV’s Q&A on Monday night when the federal Coalition government would accept “once and for all, that the energy system has to change, and start to lead that change rather than standing in the way of it,” his response was essentially: technology will do the job for us.

“I’m really positive about technological change and evolution, and I’m really positive that the innovation that we’re already seeing, and that we’re going to see over the next few years is going to help us meet the challenge of climate change,” the Victorian Senator said in response to the audience question, which happened to come from The Australia Institute economist Jim Sandford.

“I think, for example, that Tesla, the electric car, is a wonderful innovation and a really exciting thing and the sooner that that is commercial viable and can be adopted on a wide scale, the better,” Paterson added.

It’s a familiar refrain from the Turnbull government’s “innovation nation” songbook. And it is almost always followed up with a disclaimer along the lines of: but we can’t rush the shift to renewable energy technology, because costs and jobs and economic impact.

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But there is a big hole in this logic, in that it relies on technology keeping the same slow-and-steady pace as federal government policy. And as a new report from global credit ratings agency Fitch Ratings has neatly illustrated, that’s not the way things are shaping up.

The report, Disruptive Technology: Batteries, notes that one of the key technologies that will be a major factor in how quickly the energy transition unfolds is already on the fast-track – and showing serious potential to “displace current technology far more rapidly than anticipated.”

And this leaves all sorts of industries – particularly those centred around the extraction and burning of fossil fuels, and the jobs attached to those industries – exposed to huge risk.

“Greatly accelerated adoption of battery technology would be disruptive for sectors accounting for just under a quarter – $US3.4 trillion – of corporate bonds outstanding globally,” the report notes.

“An acceleration of the electrification of transport infrastructure would be resoundingly negative for the oil sector’s credit profile,” the report says. “And it could change the economics of ‘peaker’ power plants currently used to meet short periods of peak loads.”

As the report notes, these “peaking” plants have traditionally been gas, and oil fired, with the ability to ramp up and down relatively quickly to meet changing loads.

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“These units may dispatch infrequently in some markets but may be economic due to high peak power prices that offset maintenance costs for upkeep,” it says.

“‘Peak shaving’ resulting from battery storage of energy would reduce the peak to off-peak price differential and could eventually lower clearing prices to a point where traditional peakers can no longer compete. Mitigating grid reliability concerns will be the main focus of battery technology but the possibility of disruption among peakers is high.”

For Australia, this has serious implications not just for the nation’s gas peaker plants, but for its LNG industry, which as Forbes oil market analyst Tim Daiss reported on Monday, is already on shaky ground having undergone a project development frenzy based on “what looked like would be years of increased demand amid exorbitantly high prices.”

This includes the massive Wheatstone LNG project, on the Western Australian coast, whose estimated output of the 8.9 million tons per annum (mtpa) have been valued at $A29 billion.

Already, thanks to an oversupplied market and collapsing demand in Asia – oh, and climate change – these projects are looking more and more like overpriced carbon bombs. Add to that the existential threat from battery storage and the picture looks even worse.

But the fallout doesn’t stop there. “For electric utilities and the automotive sector it would be disruptive, potentially polarising the market into winners and losers,” the Fitch report says.

In Australia, we have seen this play out to some degree already, with last week’s news about the March 2017 closure of Victoria’s Hazelwood coal power plant; and then the launch of that other exciting Tesla product, the Powerwall 2 home battery storage system, which has effectively doubled in capacity while halving in cost, all in little more than nine months.

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Meanwhile, says the report, most forecasts – including those favoured by the Turnbull government – assume incremental improvements in battery and other renewable technologies, “which still leaves significant room for fossil fuels.”

This gradual change, the Fitch analysts write, allows companies – and governments – to slowly adapt and monetise most of their investments to date.

“But the possibility remains for more rapid improvements.”

Meanwhile, in Australia, the Turnbull government seems determined to put up as many speed humps to progress as it can, in efforts to prolong the energy status quo.

As fellow Q&A panellist Naomi Klein pointed out, this not only looks like a “middle finger to the world” in terms of the Paris climate pact, it also puts Australia embarrassingly behind the pace of technology, and at odds with the world’s leading innovators, in whom our government is placing so much faith.

“You raised the Tesla,” Klein said to Paterson. “Just yesterday there was a piece, quoting Elon Musk, inventor of the Tesla, saying we need a popular uprising against fossil fuels. I can’t do it alone… It isn’t enough just to invest in the new technology, we need that, but we also have to stand up to the extraordinary power of coal, oil and gas.”  

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  • David leitch

    How much battery storage would it have cost to solve the SA problem and how much would it cost? Well the answer is simple. Battery storage at utility scale is about A$500 KWh. Every Mw of storage for frequency control can replace about 10 MW of gas. So 50 MW of batteries would replace 500 MW of gas and be available within 2 seconds of an under or over frequency condition. 50 MW of batteries for 1 hour would cost just $25 m and could be installed by February. Stay tuned for the evidence.

    • Chris Fraser

      A good summation, and hopefully not not too much to digest for the dead hand of energy bureaucracy.

    • MikeH

      The UK National Grid has purchased (Aug 2016) 201MW of fast (sub second) battery storage for frequency control for £66m.

      They say that “use of new technology will result in over £200m of savings”.

      http://media.nationalgrid.com/press-releases/uk-press-releases/corporate-news/national-grid-brings-forward-new-technology-with-enhanced-frequency-response-contracts/

      More detail here – https://www.ft.com/content/bc4c70c2-6b98-11e6-ae5b-a7cc5dd5a28c

      • David leitch

        Yes I think this is a big deal. See also for a slightly different but still important application in response to the Aliso Canyon gas leak. 94 MW procured and deployed within 12 months. I think the AES 37 MW 4 months from letter to proceed to installation.

      • David leitch

        also its the 10:1 ratio that really caught me by surprise. That varies market by market apparently but it makes storage so cheap. 1Mw of battery = 10 or even 15 MW of gas for frequency control. Giddy up!

        • Andy Saunders

          Hmmm, not exactly. It depends on the time-scale. And it depends on the gas plant that you’re comparing with – ramp rates are the key metric. OCGTs are (a lot) faster response than CCGTs. It’s not just frequency response at the few-second level, it’s spinning reserve at the minute or two level – then it’s more MW for MW.

        • taiyoo

          Where does this ratio come from?

      • brucelee

        Do you think this could be Crowd funded so we can have tactical competition to the incumbents?

    • Mark Diesendorf

      David, the basis for your statement — “Every MW of storage for frequency control can replace about 10 MW of gas” — is unclear. In comparing different types of energy storage system — e.g. batteries and gas turbines — we must consider MW and MWh separately. We could assume that both technologies have the same MW. However, in the economic comparison of MWh of batteries with MWh of gas, the price of gas and the capacity factor of the gas turbines must be taken into account.
      For frequency control, the speed of response of each type of energy store provides an additional complication. So, comparing different types of storage is not “simple”.

    • Ian

      David, for the armchair engineers amongst us you might explain the different roles that grid battery storage can have. You mentioned frequency control as one highly efficient role batteries could have. Another is load shifting, that is storing electricity at times of abundance and releasing this at times of reduced renewable energy supply. A third would be a back-up or standby function for prolonged energy supply shortages. Neither batteries nor gas are good at the back-up function, simply because the investment needed is large and it’s usage is occasional. In the past generators were paid top dollar for capacity even though their plants were seldom used. That is my understanding of the Western Australia grid. How viable are batteries for this standby function?

      In a distributed generation and storage grid scenario where the grid provides a transport or highway function, would there be a need to provide next to perfect energy supply reliability? Our road network is designed to provide reliable highways and roads but is not bothered with the availability of vehicles, that part is entirely up to the road user. On the other hand public transport aspires to providing reliable vehicles. Shouldn’t we be reassessing the role of the grid as an energy marketplace or highway system, robust in transporting and moving energy but maybe not so reliable at supplying energy.

      • Les Johnston

        Reliability of supply needs to have a price in the market. Consumers may chose to turn off equipment rather than pay the price of emergency 100% guaranteed supply. The market rules do not allow for this price to be flexibly set. Market rules need to be changed.

        • Ian

          Market rules for generating electricity should be equitable for all players including the distributed home solar and storage generators.

    • Kenshō

      How bout a post-election analysis on Tesla Motors?

  • Kenshō

    The American election appears a litmus test on how unhappy and roused into anger and outrage the American people are. If they mobilise to voice their wrath on conservative governments, we may see all sorts of unanticipated changes in government policy, whether they be of an evolutionary or involutionary outcome. Manufacturers like Tesla who have storied their own trickle down effect, may find themselves operating in a very different policy environment. The American people are becoming restless and impatient, allot like nature. Despite misconceptions, evolution doesn’t lead with any class or people, it suffers a collective inertia. The biggest failure of neo-liberal economic theory, is the economy is faster and better when every living being are included as contributing to the whole. We may yet see Tesla clubbed, by the force of their own myopic class based approach to renewable energy implementation. Instead of dropping the price of Powerwall 2, Tesla Motors chose to double kWh and leverage consumption of the few. Tesla Motors ideology of an energy utopia, is using a green image to justify a beast magnified by the power of intellect. If I look into any Model S owner’s private affairs, I’d find the same appetites and sense gratification, as any other human being, merely a greater variety and complexity of them.

  • Brunel

    Good line by Mr Jim! “jihad against clean energy”