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Why grid based battery storage is already a no-brainer in Australia

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Have you heard the line recently that grid-based battery storage is “coming”, but is not quite “commercial”, but might be in a few years time, or even a decade or two?

It’s a common misconception. But if you wondered about the overwhelming response to the recent tenders by South Australia and Victoria for the country’s largest battery storage installations, here’s why: The technology is already in the money.

That, at least, is the estimate of Bloomberg New Energy Finance analyst Kobad Bhavnagri, who says that battery storage is not just in the money, it is a long way into the money in states like South Australia, already with a high level of wind and solar and volatile wholesale electricity prices.

kobad storage viable

“We’ve seen the price of battery packs as fallen by 75 per cent by 2010, and our calculations show that will fall by a further 75 per cent by 2030,” due to technology innovation and manufacturing scale, Bhavnagri said.

That means that large-scale battery storage is already viable in large parts of Australia. In South Australia, it is offering internal rates of return of around 30 per cent (even without new market rules that will further encourage them), and in Queensland they are also profitable due to that state’s price volatility. NSW and Victoria will follow soon enough.

“That is a  great story for integrating renewables,” Bhavnagri said. (And we should also point that this value stack for storage does not include network benefits, where battery storage is already seen to reduce cost of upgrades of poles and wires by around 30 per cent).

So, what does this mean for the grid? The CSIRO and the Energy Networks Australia gave some insight into this in their report last week, in which they outlined their pathway to a zero emissions grid based around solar, wind and storage, and why it would be much cheaper, cleaner, smarter and more reliable than the current iteration.

AGL Energy gave its own version of the future this week in a presentation to a Macquarie Group conference. As we reported earlier, the company once known as Australian Gas Light no longer sees gas as a transition fuel.

AGL says the economics of gas-fired generation don’t stack up, because wind and solar and storage are cheaper, and major gas producer Santos this week gave us an insight into why gas has little credibility on the environment front.

In his presentation, AGL chief financial officer Brett Redman provided this graph illustrating what has been presume to happen on the left – renewables with gas filling in the gaps – and what will happen with storage.

agl gas solar

Redman describes this as a “game-changer.”

“Fairly quickly, a drive to more renewable energy becomes a conversation about how to time-shift energy using storage,” Redman says. “And once we have the storage capacity to get us to 50 per cent (renewable energy), we will have the technology to go to 100 per cent (renewable energy).

“It is just a question of cost and the rate of adoption.”

Redman even invited his audience to imagine a 100 per cent renewable energy scenario in the year 2050, just a year or so after AGL closes its last brown coal generator, Loy Yang A. (AGL is working on the assumption that its generator is the last one standing, but the reality is – and it knows this – that Loy Yang A will close well before then).

agl mix

“What we’re starting to think more and more about is, what does such a world look like,” Redman said.

Using this table above, Redman suggested that around 200 terawatt hours of renewable energy would be needed for 100 per cent renewables scenario in 2050, which would require around 90GW of renewable generation – around 75GW more than what we have now. And by his calculations, that would require some 350GWh of battery storage.

The sums he cited are huge – $150 billion of new wind and solar and $100 billion of battery storage. There would be so many batteries that they would fill some 350,000 44-foot storage containers, and if laid end to end would stretch from Sydney to Perth with plenty to spare.

Now, it’s important to note that this is for illustration purposes only. It’s not going to work out like that for a bunch of reasons.

Firstly, as Redman admits, the renewables cost estimate is based on today’s prices (of around $2m per MW installed), and these costs will continue to fall dramatically.

The second issue is that we may not need that much large-scale wind and solar because we are likely to get a lot more “behind the meter” solar on the rooftops of homes and businesses, paid for by consumers who can save on their bills, as well as a lot of “distributed” storage.

Indeed, AGL’s calculations assume only 15GW of rooftop solar by 2050, whereas CSIRO and ENA predict 80GW, providing nearly half of all energy demand. The answer will surely be somewhere in between.

The other issue is that we may not need that much storage, let alone battery storage. Demand is likely to shift to meet supply, as new AEMO chief Audrey Zibelman and others have predicted.

And while batteries might be good for short-term storage, BNEF’s Bhavnagri notes that it is not so cheap for longer time periods, and so that service will likely come from providers such as pumped hydro, solar thermal, or even hydrogen or ammonia storage for longer time frames.

Still, this marks a major turning point in the thinking about the future. Hitherto, the major players were debunking renewables and essentially “talking their book,” which were full of fossil fuels.

The stunning cost falls in solar in particular and storage – and the fact that they are now demonstrably and significantly cheaper than new coal and gas – has put the writing on the wall.

Now we have the network owners and the major generators and retailers working out how to adapt their business to the inevitable – a switch to 100 per cent renewable energy. It used to be only the environmental NGOs and the think tanks that talked about this – now it is the mainstream energy industry.

“The introduction of big storage fundamentally changes the market for electricity and enables the transition to big renewables,” Redman says, adding that the closure of coal will be matched by the building of storable renewable energy.

“The bow wave of that change will be all about the cost of storage,” he said.

And we can bet it will happen much faster than he is saying.

 

   

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  • Tim Buckley

    Great that AGL has starting talking about when and how this happens, rather than debating if it will. With technology change coming rapidly, the costs will come down and the implementation will happen way before 2050. Better we start now, and do a planned transition rather than run lemming-like off the cliff and then realise we couldn’t hold back global innovation. Better to dream and plan for change, rather than act like Turnbull, deny reality and give yet another taxpayer subsidy so as to build yet another stranded thermal coal mine neither Australia nor India needs.

  • Jon

    Wow, 30% returns in SA already. Looks like the SA govt should just scrap their tender and let the projects roll in…..!
    Unfortunately no-one in the industry except BNEF believes this analysis.

  • MaxG

    The problem with a no-brainer is that a no-brainer doesn’t get it!

  • Warwick Forster

    A 30% IRR is phenomenal in the utility business. Can BNEF explain their assumptions? When I analysed SA in 2016 a perfect arbitrageur (impossible) with 90% round trip efficiency would earn $124K on a 1MW(1MWh ) ~1C battery. FCAS is even harder to predict across the eight markets and BNEF should provide detail on this calculation. How were the FCAS revenues forecast? What allowance for the additional cost of a 1C were considered? Can BNEF tell readers what batteries have been installed in SA subsidy free to get these great IRR’s?

    • Mark W

      BNEF are talking their book. What do you expect for a fund that is dedicated to a certain kind of investment? If you pull apart their statements you can usually find numbers that have been misstated by a factor of 2 or even more. Doesn’t mean their conclusions are necessarily wrong, but caution is advised.

  • BushAxe

    AGL did state they’d thrown their business model out recently didn’t they? I’d be amazed if they aren’t crunching the numbers now to replace TIPS A with storage next year – can’t see how it can survive after 2018.

    • Chris Fraser

      Yes, AGL’s 2048 prediction for getting out of coal seems to be lacking in ambition. The advertising strategy seems to be one of under-promise, but over-deliver.

  • Nigel

    Hi Giles,
    I struggled with your first sentence..
    “BNEF says grid-based battery storage already very much in the many in Australia.”
    until I read more of the article and realised that it was a typo: for many read money
    Thought you’d like to know
    Nigel
    PS. I’m disappointed to find that you aren’t going to be speaking at Renewfest. Seems a glaring omission. Perhaps you are away

  • Mark Roest

    It’s only going to be USD $100/kWh for storage by the time this plays out (I think under 5 years from now), and it will therefore only cost (USD?)$33.3 billion for the batteries.
    Do you have any more explanation for how the assumptions were developed for the battery quantity calculations?