Hornsdale triples battery storage revenue, but FCAS market shrinks

French renewable energy and battery storage company Neoen has reported a near three-fold increase in battery storage revenue in the first half of 2020, even as money flowing in contracted sharply in the second quarter because of less favourable conditions for the sales of network services such as FCAS.

Neoen reported that its battery storage revenue in the first six months – almost entirely sourced from the Hornsdale Power Reserve, the world’s biggest lithium-ion battery, jumped to €24.6 million ($A40.4 million) from €8.4 million.

This jump was attributed to the one-off event in February when tornadoes tore down the main transmission line between Victoria and South Australia left South Australia operating as an effective energy island and the Hornsdale and other big batteries playing a critical role in providing network services and keeping the lights on – and getting paid handsomely for it.

But the second three month period told a different story. That one off revenue was not repeated, and Neoen notes that the FCAS market, which provides the bulk of Hornsdale’s revenue to date was no longer delivering the same premium. Battery storage revenue for the second quarter fell to €3 million from €4.2 million in the same quarter a year earlier.

This tallies with the recent assessment from the Australian Energy Market Operator in its recent Quarterly Energy Dynamics report, but it also highlights the growing challenge for battery storage installations and developers in Australia.

There is no doubt that Hornsdale – also known as the Tesla big battery – turned the FCAS market on its head when it entered the market in late 2017, upending the cosy cartel enjoyed by the small group of gas generators in that state. But as more big batteries have entered the market, the FCAS pie is showing its limitations and other revenue opportunities are not yet clear.

Batteries can also make money from energy arbitrage, buying low and selling high, but need market volatility to make that work. They can also provide a myriad other valuable network services, but most of these aren’t available in Australia as the market structure ascribes no implicit value to those services.

Hornsdale is now trying to make a case for a market for synthetic inertia through the expansion of its battery from 100MW/129MWh to 150MW/194/MWh. And proposals are also being put forward to use batteries as  replacement for traditional network upgrades – such as the 600MW Victoria big battery – but this is a slow process.

Overall, it was a strong first half for Neoen, lifting revenues by one third to €152 million. The biggest contributor was solar, up 34 per cent to €73.4 million – thanks to new projects coming on line in Australia, Zambia, Jamaica, El Salvador and France. However, the Australian revenues were trimmed by slightly lower solar conditions, and a network upgrade that affected output at an unspecified solar facility.

Wind revenue was up 12 per cent to €58.8 million, thanks to new assets in Ireland, France and Finland, and despite lower revenue from Australia – again from lower wind conditions, but also because Hornsdale 3 wind farm in South Australia switched from the highly profitable merchant sales to its less generous long term contract with the ACT government.

On the plus side, the long delayed Bulgana wind farm, which will also feature a new Tesla battery in the north-west of Victoria, partly to power a new agricultural facility, finally delivered its first power to the grid.

The lengthy delays to that project has caused losses for both Neoen and its contractors, but the company now expects full commissioning later this year for the project that has been caught up in the massive connection delays that have affected that part of the grid.

Another highlight of the quarter was the contract landed with Queensland’s CleanCo to build the 460MW Western Downs solar farm, which will be the biggest in the country when completed.

Neoen also reiterated its global target of having more than 5GW of capacity in operation or under construction by the end of 2021, with this capacity fully operational by year-end 2022.