AGL says batteries are coming, but coal is uninvestable

AGL says no private investor would invest in new coal plant, but says battery storage is coming and will be major game changer as costs fall – which may not be far away.

Several days after formally rejecting federal government requests that it invest hundreds of millions of dollars to keep the ageing and increasingly decrepit Liddell coal generator open, AGL held an “investor day” where it said no private money would support a new coal generator.

“We do not believe that any private capital will invest in new coal plants,” CEO Andrew Vesey told the assembled analysts. “Someone may say they want to, but that does not mean they will.”

AGL over the weekend unveiled plans to replace Liddell, which include 653MW of wind farms, currently under construction, 300MW of new solar farms, a 250MW gas peaking plant, and small amounts of demand management.

The later stages of the scheme – depending on what else happens in the market, and the make-up of energy policy – could see another 650MW of wind and solar, 250MW of battery storage, or pumped hydro, and possibly more gas peaking plants and more demand management.

The AGL plan made it clear to the government that the cheapest way to provide reliability, and reduce emissions, was to shift from coal to renewables, something the Coalition is finding hard to accept.

But Vesey’s comments were unequivocal, and appeared deliberately aimed at the lingering push from many in the conservative arena to build a new coal-fired generator. “The government may say it wants to … but it is becoming an increasingly risky proposition.”

Instead, AGL used the investor presentation to talk about the significant change that would take place in energy markets, driven by zero marginal cost generation such as solar and wind (and their falling capital costs), and the emergence of battery storage.

AGL noted that all current battery storage installations required the support of government funding (which is not quite true, but true enough of the Tesla big battery and the Wattle Point installation being built near AGL’s wind farm of the same name on South Australia’s Yorke Peninsula.)

AGL will operate the Wattle Point battery storage, mainly as a provider of grid services, with the ability to “island” or use local wind and solar supply to create a micro-grid, if there are major outages elsewhere.

Richard Wrightson, he is the head of wholesale markets at AGL, said the company had deliberately put battery storage at the “back end” of the plans to replace Liddell from 2022, because that is when they will become economic.

“They’re not quite there yet, but they are coming,” Wrightson said. He said the economics of battery storage would change, driven by the electric vehicle sector rather than the power industry. “That will change, and it will be a game changer,” he said.

Wrightson pointed to North Brown Hill wind farm north of Adelaide, often referred to as Hallett 4. Often, its output is contained because of network limits (see graph above, and the difference between potential generation in blue and actual generation in red.)

“That is wasted energy,” he said. Wind – with a value of zero at this time – could be stored and put back into the grid when prices rose. “That would make good arbitrage,” he said.

Of course, it’s not the only opportunity. Like the Wattle Point facility, it can provide frequency and other network services, and provide islanding services.

AGL also saw opportunities for its household batteries, and learning how to deliver a return on the capital invested in “behind the meter” applications to provide services to the grid, such as flattening demand and smoothing peaks.

For the moment, however, AGL saw the best opportunity in reciprocating dual fuel (gas and diesel) gas generators of the type that it is installing in South Australia, and it has planned for NSW.

These are fast reacting, are not wholly dependent on the ability to source gas in Australia’s “opaque” market, and are cost effective, and best placed to deal with the transition to 5-minute settlement periods.

AGL said it would continue to invest in “agile” assets until the layout of future policy became clear. It also reiterated it supported the proposed National Energy Guarantee, and was playing a prominent role in consultations on the policy’s design.

In the meantime, AGL also put the case for an LNG import facility in Victoria, saying it was possibly the best way to deal with a domestic gas market that lacked competition, was opaque, and where obtaining supply was difficult. It will make a final decision in 2019.