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Tesla big battery is great news, but can it make money?

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ARENA chart role

 

Grid-scale battery storage projects like the Tesla big battery array – currently going through tests on the South Australian grid after charging up for the first time last week – might provide crucial services to a high renewables grid, but can they make money from it?

Quite probably not, according to Australian Renewable Energy Agency investment director, Dan Sturrock. At least, not under the current electricity market regulations.

In a presentation to the Large Scale Solar and Storage conference, co-hosted by RenewEconomy in Sydney on Monday, Sturrock said he expected ARENA to play a big role in getting grid scale energy storage projects over the line in the coming year (See graph above).

The scheme is needed not just because of the cost of the technology, but because of the high degree of difficulty of building a business case for grid-scale storage under current market rules that will attract private investment.

“You see a lot of (energy storage) projects, well designed as they might be, and optimised in many other ways, funding them can be difficult,” Sturrock told the conference.

“The only bankable revenue stream (for large-scale energy storage) is wholesale arbitrage,” he continued.

“It’s very hard to build a business case around FCAS (frequency control and ancillary services) in the long-term, because it’s a very shallow market, and very hard to model … in fact impossible to model.

He used the proposed 30MW/8MWh battery storage project known as ESCRI that is being built around the Wattle Point wind farm in South Australia.

The green highlights that funding gap after revenue from network, wholesale markets and FCAS. The installation benefits from a contracted network service to Electranet.

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“Very crudely, although we might expect the cost of battery storage to come down by a third or even a half, if all we’re doing in … three to five years is maybe market arbitrage, that’s a very untapped opportunity,” Sturrock said.

“It’s one that needs to be resolved and is being considered through the Finkel Review.”

The Tesla big battery is not getting ARENA funding, but does have a contract with the South Australia government to provide network services, particularly in the case of a major fault.

The developers of the Lincoln Gap wind farm, meanwhile, are not using any government funds to build their proposed 10MW/10MWh battery, but say it would likely not be economic yet as a stand-alone investment, but only part of a renewable-storage package,

Meanwhile, Sturrock said that the best quality of all for batteries was their ability to dispatch power as and when the market operator needs it, but that this was not being accounted for at all in current market design.

“What do batteries do best? Yes they can do arbitrage, but very fast response is really of most value, or potentially of most value, and that’s really what they’re not getting paid for,” Sturrock said.

“You can see the price of FCAS over the last three years rising … we do need, even with cost reductions, a level of value contributed to those services, and it will be interesting to see how that evolves through current reviews going on,” he said, and particularly with the AEMC’s recent discussion paper.  

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  • Steve159

    I think it would be interesting to see the “funding gap” graphs of pumped hydro, along side the batteries.

    And a comparison of new-gas vs solar with batteries, or solar with water batteries.

    • Mike Westerman

      Very true – PHES is probably about 1/3 or 1/4 batteries so some projects will be bankable now, especially if care is taken to keep capex tight.

      • Alex Hromas

        The cost of PHES is very site dependent. I suspect that Snowy 2 will cost about as much as battery storage due to the large tunneling and underground power station excavation. The one in Queensland using 2 old mine pits will probably be much cheaper per KW capacity and KWh of storage

        • Mike Westerman

          Alex the enormous but largely useless storage capacity of Snowy 2 will give it a very low cost per kWh. If you look at the storage actually sold to market a very different picture would emerge. Kidston (Qld project) will be very attractive when optimised, as will Kanmantoo in SA – both repurposed mines.

          • Alex Hromas

            It depends on how you cost the civil works. Levelising the costs over the life of the turbines and generators would make it very expensive. Since it will get federal funding some clever accounting may be done. It is still a pollie’s thought bubble and we have seen how good those have been of late

  • Power may have to be hybrid – some coal and some renewable – to be viable in short term – or startup will die very quickly with lack of cashflow and massive debt.

    • neroden

      Uh, no.

    • Alex Hromas

      You are confusing hybrid coal fired power stations with hybrid cars. Coal fired power stations are VERY expensive and take a long time to plan and build. We can go all renewable for stationary power with current technology and achieve the transition in about 10 years. The time it would take to plan and build one coal fired power station. All it needs is for the knuckle draggers for the Lib/Nat to get out of the way. All their talk of reliability and cost is nonsense. Have a look at the BZE web site re stationary power or a similar report by CSIRO and stop sprouting nonsense. We have decarbonise our economy fast to meet the Paris agreement and avoid dangerous climate change. What is even better the 2 blue prints mentioned above will not cost all that much and have downward pressure on electricity prices

  • Bob Fearn

    “Tesla big battery is great news, but can it make money?”

    What crap!! Make money #1. The future of the planet # 137??? What is wrong with you crapitalist???

    • Patrick Comerford

      Remember this is the view of AEMO. Yes the very same ones who didn’t know how wind turbine protections worked and let the lights go out in SA. No doubt getting paid heaps to make this stuff up.
      Now if this guy was saying how can we implement the planned 5 minute rule ASAP instead of it being kicked four years down the track I might be listening.

    • Mike Dill

      People forget the Tesla mission statement: “Tesla’s mission is to accelerate the world’s transition to sustainable energy.” It is NOT about making money, but that would be nice.

  • Robert Westinghouse

    Very destressing if all we think about is making money. Therefore, the people need batteries to lower their power bills. Who cares about Big Power making money…. the LNP, so let’s vote the bastards out and buy batteries for every household.

    • Mike Westerman

      Robert it’s less about “only thinking about making money” and more about how do we make decisions and who makes them for whose benefit. Markets are meant to make decision making more objective in achieving societal aims. But if significant costs, such as loss of environmental values are not included in costs, and if the “market” is rigged to bias benefits away from those providing services, then we get the wrong decision. People need to realise that prices are a way of signalling their desires: if they don’t like the way their choice is mangled by the market, they need to press politically for the market to change. The carbon tax was a way of doing that, but too many Australians listened to liars and let it get dumped. Wise up Australia!

      • Robert Westinghouse

        Thanks for the good and detailed response. Pricing cues are important. But the good of the people needs to be put ahead of profit for Big Power. I am all for Regionalising Power, whether than means regions, cities, suburbs or homes. Whatever is BEST for the people. The current situation is NOT good for the people. Gran and I will be voting accordingly….

  • Mike Dill

    Batteries make much more sense in a few years as the five minute rule comes into effect. I feel that killing most of the outrageous wholesale gouging events will make it worthwhile (to the retail customers), even if the battery is not ‘profitable’. The SA ministries basically stated as much.

  • Tom

    Tesla’s battery will make money tomorrow afternoon if the wholesale price is above $10,000/MWh for 4.5 hours as predicted. That’s $900,000 for Neoen’s 90MWh allocation.

    But seriously – I agree with the crux of the article. Dispatchable energy is more valuable than base-cost energy, whether this base-cost energy is variable (like wind & solar), or constant and non-responsive (coal or methane steamer). It doesn’t matter whether the dispatchable power comes from batteries, methane, hydro, or whatever else – it should earn a premium to non-dispatchable power sources.

    The 5-min bid 30-min settlement rule is absolute crap and needs to be fixed, but even 5-minute settlements won’t appropriately value dispatchable energy over non-dispatchable energy.

    The irony is that at the present wind and solar are very happy with this arrangement – despite their inflexibility they are being paid the same for their energy as the fast-response open cycle methane turbine and the battery are being paid for their energy (although admittedly they won’t always be generating/ supplying energy at the same time). Wind and solar would hate for dispatchable energy to be paid a premium, because it means that they themselves would be paid at a discount.

    • Mike Westerman

      That’s the tragic irony, that if wind and solar were continuously revalued at the most recent price in the market for their output, many would’ve gone broke. RECs were meant to stop that happening, but because gas prices are setting the settlement price, REC have become worthless. Post 2020 many geared RE projects may go to the wall, or be forced to fully contract to PHES to stay in business, revaluing dispatchability but at a price that itself will put gas out of business. Black coal will follow with lignite staying afloat for as long as their boiler tubes hold together.

      • Tom

        Genuine question – why is energy produced by burning lignite cheaper than energy produced by burning black coal, when lignite is a crappier fuel?

        • Peter F

          Because it costs about $8/tonne to mine. Black coal is US$95/tonne in the market or marginal mining cost of around $30/tonne for 50-90% higher calorific value. Lignite is always burned at the mine black coal often has an additional transport cost

          • Tom

            Thanks PF.

        • Mike Westerman

          Lignite occurs in thick seams and is so soft it can be reclaimed with a wheel reclaimer and feed straight to the PH. Black coal requires more expensive mining and processing, and more expensive pulverising, but recovers some of that thru higher calorific value. Lignite has no alternative use, whereas black coal can be exported on International markets where it receives premium pricing. But lignite plants are much more expensive to build, and none are being built anymore. When our fleet get a bit older they will all shut down, regardless of the inane noises out of Canberra.

          • Tom

            Thanks MW.

    • Peter F

      Wind and solar are already discounted, wind more than solar because wind is stronger at night and is paid less. peak power prices are in the late afternoon evening where generation from solar is falling away so while the prices are high, the volume of sales from solar are very low. Average daily price hierarchy would be Gas highest then hydro then probably solar and black coal about even and then wind and brown coal below them.
      When the RET is phased out and power plants compete on marginal cost including maintenance and operation, renewables will still beat gas and coal because of very low operating costs. The question is then what will replace old coal and gas plants as they die.
      At current costs the investment per annual MWhr is lowest for OC gas, then reciprocating gas then wind then solar PV, then black coal then brown coal and finally solar thermal and biomass.
      The key question is what will be the optimum combination of demand response, over generation and storage which will combine with any source of generation for the lowest annual cost. Nobody can answer that today except to say that in Australia where opportunities for diverse renewables and a vast array of storage/dispatchable renewable technologies is available there is almost no economic case that can be made for new coal even if emissions were not considered at all.

      Based on the rumoured cost of the Tesla battery and Kidston pumped storage and Solar Reserve projects we need to invest about $1.2m/MWhr for storage. so with enhanced existing hydro and extensive power to heat and other demand response we probably need about 20-30 GWhr of storage/ demand response. Probably about half that can come from demand response so we can get enough storage for $12-15bn. adding 30GW each of wind and solar PV and 4 -6 GW of solar thermal/biomass to the existing stock of renewables will generate all the power we need for the NEM . the question then is do we invest another $10bn to guarantee power in low wind drought years or keep the gas plants

      • Mike Westerman

        According to the ARENA site, Kidston PHES capex is $282M for the 1500MWh project, and according to Kidston pressers, this has been further optimised. That would suggest about $190k/MWh so 20GWh would be under $4B, given that there are other sites that are better, some worse. Firming up the solar and wind combination is not an expensive exercise, more of a red herring thrown in by those who want to bleed the last out of plants the EPA should be shutting down.

        • Peter F

          Even better in the case of Kidston, I was confusing cost per MW with cost per MWhr

  • neroden

    Tesla is not publishing their internal battery manufacturing cost — it’s a trade secret.

    There’s a reason for this and I believe I know what it is. All the leaks indicate it’s much lower than most of these agencies think. They’re making good gross margins on it. High profits.

    They cannot, however, produce the batteries fast enough, and they don’t want to get demands that they lower their sales price when they are charging “what the market will bear” for the limited quantity they are producing.