Recently, Energy Developments made a final investment decision on “the Coober Pedy Project”. Coober Pedy (also known as “white man’s hole”) is a smallish town in South Australia about halfway between Adelaide and Alice Springs. It’s off the main grid and EDL is the main supplier of off grid power supply in Australia. EDL’s dominant technology is reciprocating engines, both gas and diesel powered.
ARENA will provide up to $18.4 m of funding to switch Coober Pedy from 100% diesel to 70% renewable. The Coober Pedy project is important for at least 3 reasons:
- If it’s technically feasible at Coober Pedy it’s probably technically feasible for the National Electricity Market [NEM];
- If it’s technically feasible at Coober Pedy it’s probably technically feasible for EDL’s many other remote power stations;
- If the project works as well as expected it will likely show several areas where costs can be reduced in the (near) future so that a few projects down the road won’t need ARENA support. In the remote area market this will depend on longer term views about the price of diesel fuel.
The Project’s assets
The existing 3.9 MW diesel generation is retained. To this is added 4MW of wind, 1 MW solar, 1 MW/500 KWh lithium titanate battery, UPS for the diesel, and integration and control systems. There is a 20 year power purchase agreement [PPA] between the Coober Pedy Council and EDL which is backed by the South Australian Govt. The project is expected to be commissioned in before the end of next year.
Components of the system and design choices
ITK asked Keith Barker, EGM Technology at EDL, what underlay the design choices. He explained that with a 70% renewable objective either 4 MW wind / 1 MW solar or 3 MW wind / 2 MW solar gave similar results. Taking cost into account, the 4:1 choice was optimal at the time.
The function of the battery is not so much to provide energy although it does a bit of that but mainly to provide power during periods of wind and solar variability. For instance wind output can drop 50% in 10 seconds and more over 1 minute. The battery means the diesel doesn’t need to be switched in and out as often.
The system is expected to run 100% renewable about 50% of the time but also 100% diesel will be required on some occasions, while a significant part of the wind generation, maybe as much as 50%, will be shed, even then the wind is providing a spinning reserve. All of these factors require integration management and control to ensure reliability of supply and power quality.
EDL is well know for its capability in supplying the microgrids of off grid mines and communities and has a record of successfully adapting technology to become one of Australia’s leading players in distributed generation. Starting with land fill gas then waste coal mine gas and delivering LNG to the West Kimberley towns, EDL is well placed to progress the development of renewable hybrids.
The load and energy
The Maximum load in Coober Pedy is about 3 MW, minimum of 0.7MW and average of about 1.5 MW. The annual average energy consumption is about 12 GWh. The expected generation shape over average Summer and Winter days (who knew there was Winter in Coober Pedy) is shown below:
We think the first priority of this project is to demonstrate its technical feasibility. We expect that the work put in here will mean that almost certainly, yes, it can be done. And our view is if it can be done at Coober Pedy it can be done for Adelaide. If it can be done for Adelaide it can be done for Sydney.
From a straight economics point of view we would compare the cost of the diesel saved compared to the investment required. We doubt if that would look all that great in the first instance. Still, a 2013 analysis by ITP in 2013, indicated that PV was competitive with diesel up to certain load sizes. Diesel generators costs about $0.45 watt, and have O&M costs of about $70-$80 an hour for 1000 kW scale. The existing Coober Pedy diesel system is 8×500 KW. We think the kWh per litre of diesel is about 3.6 and on that basis calculate annual savings from moving to 70% renewables as about $2.5 m per year at a diesel price of $1.1/litre.
The ARENA website puts the full investment for the project at around $37m. As the capital costs continue to fall in this space the actual total investment could actually end up less. A $36m investment compared to a $2.5m inflation indexed annual saving for 20 years provides an IRR of 6.7%. If there were no technical risks in our view that is an acceptable IRR (ie almost worthwhile without ARENA funding). We estimate a low risk (beta of say 0.7 project) 50% debt funded has a pre tax hurdle rate (WACC) of 7.25%.
The above calculations assume that the saved diesel maintenance costs broadly offset the maintenance on the PV and wind. As stated at the outset there is scope for the capital costs of the renewables components to come down if it all works properly.
We imagine the grid transmission and distribution costs in Coober Pedy are very low so we don’t learn much about the relative savings of distributed power compared to centralized generation from this exercise. Also as compared to setting up a new remote area system or micro grid this system doesn’t have to allow for the diesel capital costs.
A further increase in renewables percentage could easily be achieved by using some of the “shed wind energy” to charge storage. The financial advantage of doing that depends on the diesel cost avoided compared to the cost of the storage. We estimate storage costs about $400 MWh at utility scale right now, so almost in sight of the variable cost of diesel at $300 MWh.
The broader context
Keeping global warming to what the world has signed up for in Paris of say 2C to 2.5C basically requires reducing CO2 emissions by about 80% by about 2035. This will require every country’s electricity grid to get to 70-80% renewable by that time, or alternatively some hitherto unforeseen advance in carbon capture. Remote area micro grids which have to be self sufficient provide an excellent example of where the broader system can head over the next 20-30 years, faster rather than slower.
David Leitch is principal of ITK. He was formerly a Utility Analyst for leading investment banks over the past 30 years. The views expressed are his own. Please note our new section, Energy Markets, which will include analysis from Leitch on the energy markets and broader energy issues. And also note our live generation widget, and the APVI solar contribution.
David Leitch is a regular contributor to Renew Economy. He is principal at ITK, specialising in analysis of electricity, gas and decarbonisation drawn from 33 years experience in stockbroking research & analysis for UBS, JPMorgan and predecessor firms.