Battery storage revenues fall as Hornsdale takes time off to expand

revenue for the handful of large scale battery storage fell to its lowest levels in nearly two years in the September quarter, a result of time off taken by the Hornsdale Power Reserve – aka the Tesla big battery – as it commissioned its new added capacity, and the reduced margins for frequency control services and energy arbitrage.

The battery storage sector is still to find durable market signals in the Australian market, partly because there are no market signals, and therefore no revenue – for many of the services they offer. This could change with the rewrite of market rules, and the change to five minute settlements, now delayed until this time next year.

Still the Hornsdale big battery in South Australia – built in less than 100 days as promised by Tesla CEO Elon Musk – has been a path-finder for the industry, establishing its credentials with speed and versatility, playing key roles in keeping the lights on in its home state, and delivering spectacular returns to its owners Neoen.

Most of its revenue has come from the FCAS (frequency control market), where the Hornsdale battery has undercut the traditional incumbents in that market, the coal and gas generators. Energy arbitrage, buying power at low prices and selling them at the peak, has offered some additional revenue.

The Australian Energy Market Operator, in its September quarter Quarterly Energy Dynamics reports, says battery storage revenue – to the fleet of batteries that comprise Hornsdale, Lake Bonney, Dalrymple North, Ballarat and Gannawarra – fell to just $6.1 million, its lowest level since the December quarter of 2018, driven by the lowest FCAS prices since early 2018 and reduced activity at Hornsdale during the commissioning of its expansion.

Hornsdale is expanding its capacity from the once world-leading 100MW/129MWh to 150MW/194MWh, and adding new strings to its bow such as the provision of synthetic inertia, providing yet another service that was once the exclusive domain of fossil fuel generators in South Australia, and boosting its share of the FCAS market from 11 per cent to 17 per cent.

AEMO’s new report shows that the energy arbitrage market continues to supply a minor role in battery storage finances, just 21 per cent of total revenue for batteries in the last quarter, mostly because of lower spot prices, and even bigger falls in the morning and evening peak prices, which reduced the arbitrage value from $55/MWh to $31/MWh.

See also: Negative prices: South Australia solar farms had to pay to produce in September

Australia’s grid will need more storage of one form or another as the share of wind and solar increases, and as more coal and gas generators exit the market due to old age and poor returns.

Batteries are one option, increasing its storage duration to two and four hours and maybe beyond, but it will need a combination of lower costs and bigger arbitrage margins, and the opening of new revenue streams, to deliver sufficient returns to encourage more investment.

Pumped hydro is favoured for long duration storage, but the country’s existing pumped hydro facilities – despite having vastly bigger capacity than the battery fleet – delivered net revenue of just $5.5 million in the September quarter.

That was despite more pumping by Queensland’s Wivenhoe pumped hydro facility, now owned by the newly formed CleanCo and busy trying to act as the state’s “solar sponge”. However, falling wholesale prices also reduced its profit margins. (Pumped hydro facilities also have a much lower “round trip efficiency” than big batteries).

In NSW, the state’s pumped hydro facilities didn’t pump as much, but managed to make more money because average energy arbitrage values increased from $28/MWh to $42/MWh.

Added to increased construction costs, which has scuppered possible projects such as the Shoalhaven expansion, this could make the case for new pumped hydro plants more difficult, and the federal government and ARENA have still to settle on details of their proposed support for various pumped hydro projects in South Australia, and questions remain over the viability of vast Snowy 2.0 project.