Australian energy utility AGL says the falling costs of battery storage puts the technology at a “tipping point” in the Australia market, but has warned that “only the best” large-scale renewable energy projects are likely to go ahead in coming years because of the increased costs and complexity around connections.
AGL has made two major battery storage announcements in the last two months – first a ground-breaking contract with Maoneng for 200MW/400MWh of big batteries in NSW, and another for a 100MW/150MWh battery in Queensland with Vena Energy.
Another two are on the cards – at Broken Hill, near the heavily constrained solar and wind farms it part owns, and another at Liddell, where the company aims to close the ageing and increasingly decrepit coal fired generator by 2023, despite enormous pressure from the federal government not to do so.
CEO Brett Redman said the market for batteries is changing quickly, with prices coming down and the business case changing. He noted that early battery installations had grabbed a big share of the FCAS market (frequency control etc), but newer batteries will be involved in time shifting renewable output and arbitrage and will be competing with gas peaking plants
Redman also noted that big batteries were easier investments than pumped hydro – modular, quicker to build and a less convoluted process. AGL is involved in two pumped hydro possibilities, one at Kanmantoo in South Australia and another in the Hunter Valley, but batteries could get to market much quicker.
Redman noted that there were less large-scale wind and solar projects getting to market, or even construction, not so much because of the economics of the technology itself, but the costs and economics of connection.
“It’s moved beyond the normal talk of market prices,” Redman said. “There is a struggle for new projects, there is a struggle to get on, and they are struggling to maintain forecast loss factors.
“That’s introducing a large amount of uncertainty into their business cases …. and only the best projects are making it through investment committees,” he added, noting that previously even “average” business cases for wind and solar projects were getting the go-ahead.
That is being borne out in the market, with a dramatic slump in new investment, constraints and delays on connections, and warnings to some developers that they should not bother until more grid connections are being delivered. Major contractors such as Downer Group have also exited the renewable construction market, saying the connection risks were too big.
” A lot of renewable energy is getting choked,” he said. Redman noted that less new renewable energy supply, meant less downward pressure on prices, although he also noted the price of gas had fallen too.
AGL is being affected by this, with the output from the 50MW Broken Hill solar farm and the nearby 200MW Silverton wind farm heavily constrained by network issues in the West Murray region of the grid, where they are located. For that reason, the 50MW Broken Hill battery proposal was likely to be made soon, so some of the output could be stored rather than spilled.
“Broken Hill is an example where we have got a bunch of renewable generation at the end of a long stringy line that is struggling with loss factors,” Redman said. So the battery project would be “partly stabilisation, and partly time shifting energy in different parts of day.”
Meanwhile, AGL says it is also expanding its offerings of rooftop solar, battery storage, demand response and “virtual power plants” to its customers, all part of what Redman calls developing a “more modern and nimbler energy supply” as traditional baseload fleet approaches the end of its life.
This gradual re-setting of its business model is being driven by technology, and also by climate imperatives. AGL says it is now modelling several scenarios including a “1.5 degree limit” scenario aligned with Paris Agreement goals that extends out to 2040, rather than just 2030.
This will look at the IPCC data, and the Australian Energy Market Operator’s Integrated System Plan, which lays out a pathway to 90 per cent renewables under that 1.5°C scenario by around 2041. It will also test the resilience of its business to the physical risks of climate change.
AGL, though, has a very long way to travel in its own path decarbonisation. It remains the biggest polluter in the country, and in the last six months, more than 80 per cent of its generation came from its fleet of coal plants, the largest in the country.
It is still trying to work out how to navigate that exit while maintaining earnings, and customers, and Loy Yang A is not due to officially close until 2048, although it is likely to do so well before then if climate action is taken seriously.
The first one to go will be Liddell. A leaked report from the joint federal-NSW “Liddell task force” confirmed AGL’s previous estimate that it would be prohibitively expensive to keep it open – some $100 million a year for just two units for three years. Redman said AGL did not want to comment on that report but stood by its assessment to close it due to economic and safety issues.
“Nothing has really changed in where we see that plant sit,” he said.
In the latest half, underlying earnings fell by 19 per cent to $436 million, meaning it will be unlikely to break the billion dollar profit line this year, as the 7-month closure of a Loy Yang unit cost between $80 to $100 million. AGL noted that insurance costs for ageing coal generators were getting more expensive.
AGL also noted falling wholesale prices, thanks to the influx of renewables, both large-scale and rooftop, and falling gas prices (largely due to falling international market), along with lower renewable energy certificate prices. But its results were buoyed, ironically, by the federal government.
The price controls that removed some of the expensive so-called “standing offers”, but also removed – as predicted – some of the deeper discounts has results in less “market churn”. Fewer customers are leaving to seek better deals elsewhere, because there are not so many better deals to be found. Churn is now down to around 15 per cent.
At the same time, AGL’s margins have increased significantly, despite the lower wholesale prices. They were up $43 million in the latest half, the only bright spot in the company’s accounts, apart from a lower tax bill.
In short, despite the rhetoric from energy minister Angus Taylor and his colleagues about costs being lowered for the people too lazy to look beyond the market offer, the price controls have reduced competition and increased margins for the biggest utilities. Well done, Angus.