Know your NEM: Tesla big battery takes centre stage

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Tesla big battery highlights opportunities for utility scale batteries, and more wind and solar farms are looking hard at the technology.

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Figure 11: Baseload futures financial year time weighted average
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What’s interesting this week, Hornsdale battery

It seems there is lots of interest in 100MW Tesla big battery in South Australia. Only 30MW of it tends to be used in the market at any one time. We estimate that 30MW earned a little over $1.3 m of revenue in January todate with over $1 m being earned on the 18th and 19th January.

The median daily output is about 100 MWh and the median price $109MWh. We get this data from NEM Review ( where would we be without it?).

On 18 Jan average price received was $6,869 MWh and over $4,000 MWh the next day. $1.3 m is good money but recharging costs have to be accounted for, which we can’t see, and also relative to a 100 MW/$100m investment wouldn’t get you too excited.

However, relative to the 30 MW/$30m capex  that seems to be deployed in the spot market, $1m a month of revenue would be exciting. Still, we don’t expect too many days where prices of $6,000MWh will be available, and of course if they were expected to occur regularly we would soon see more batteries.

What it does show, though, is that the volatile South Australian market does have some merchant opportunities for utility scale batteries, in contrast to other markets. It also shows that 30 MW operating virtually every day.

Figure 1 Hornsdale merchant battery Jan 2018. Source: NEM Review

Here at ITK we never had the slightest doubt the battery would operate reliably, be installed quickly and do a fantastic job at frequency response.

However, we still think its behind the meter batteries that could make the biggest difference to the Australian market and we keep looking for some more signs of prices coming down and available quantities going up.

As noted elsewhere at Reneweconomy, wind farms and PV farms are increasingly opting to include some battery firming. Even the ability of a solar farm to push its energy two hours back to capture current peak prices in say Qld could be quite economic.

We think we will see 1 GW of batteries deployed in Australia long before we see either 1 GW of pumped hydro or 1 GW of concentrating solar. The batteries may be more expensive on a $MWh basis once you get beyond 1 hour’s storage but this is looking at them in isolation.

If you have a portfolio of batteries each with just 1-2 hours storage, quickly installed, in front and behind the meter you are going to put a lot of flexibility into the system. Behind the meter storage tends to be of relatively long duration (6-10 hours) so can dramatically impact household peak consumption and prices.

Market action – 8% higher consumption, spot prices down 44%

Electricity consumption rose 8% in the week to Jan 26 compared to the previous corresponding period, despite Australia day, which up 7% in NSW and a whopping 19% in Victoria.

These increases were driven by hotter weather and in Victoria also we expect full output this year from Portland smelter.

Despite the hotter weather across the NEM spot prices were on average down on last year mainly because this year prices in QLD averaged $91 MWh and this week last year they were over $400 MWh

Despite the loss of Hazelwood, the hotter weather, and the resumption of Portland spot prices in Victoria averaged just $80 MWh up from last year’s $60 MWh but still an excellent outcome.

Of course it’s far too early to declare that we will get through Summer without drama but so far its been as good as or better than could be expected.

Futures prices were slightly softer but not enough to indicate anything more than a lack of interest.

The 30 day moving average of spot gas prices is almost identical to last year although on the week NSW prices were up at over $10 GJ and down in Victoria and South Australia.

Figure 2: Summary

We continue to see bond yields rising, and Australian yields are rising faster than in the USA and this is helping push up the A$. So despite coal and oil prices in US$ being up 9% year on year in A$ terms its just 3%.

Figure 3: Commodity prices. Source: Factset

Share prices

Investors have reacted positively to Redflow’s communication of progress on their new factory in Malaysia and lithium shares recovered modestly from the prior weeks setback.

Origin over the past 12 months has moved from the 3rd largest utility by market capitalization to the largest at $16 bn just edging out AGL at $15.4 bn.

Yield based utilities continue to struggle as yields rise. Rising interest rates mean lower prices. Regulatory allowances which compensate investors for changes in market conditions tend to lag the real world. This worked in investors’ favour  when rates were falling but against them at the moment.

Figure 4 Selected utility share prices.

 

Figure 5: Weekly and monthly share price performance

Volumes

Figure 6: electricity volumes

Base Load Futures, $MWH

 

Figure 11: Baseload futures financial year time weighted average

Gas Prices

Figure 12: STTM gas prices

 

Figure 13 30 day moving average of Adelaide, Brisbane, Sydney STTM price. Source: AEMO

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.

 

 

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13 Comments
  1. MG 1 year ago

    Hornsdale (re)charging costs should be easy to estimate – it’s a scheduled load (HPRL1) so just take spot price * load * loss factor… or ask Dylan McConnell to calculate it for you…

    • itdoesntaddup 1 year ago

      I already did that several posts ago. No need to factor loss: grid draw is metered directly. The running loss/own use is about 19%. Here’s a slightly different way of looking at some of their charging and discharging activity:

      https://uploads.disquscdn.com/images/354b1cfc1f487dd2f78a424b77e63ffb6c5d73a80d204c014fc2f8d941bde9e8.png

      What we don’t know is what revenues they may make from providing assorted ancillary services: they have been spotted doing tests to prove they can offer Network Loading Control service (i.e. reacting to a trip on the Heywood interconnector), and they have been seen bidding into FCAS markets (though how successfully remains unknown). The battery is also well suited to providing Transient and Oscillatory service (and is capable of driving a need for it too!). Some of the activity does look a little odd if you assume that they are simply trying to buy and sell power to make a margin – you don’t sell at negative prices to do that.

  2. Ren Stimpy 1 year ago

    This SA Tesla battery is such a good catalyst. With excellent returns in even these early days it should entice plenty of other similar battery storage into the market to achieve the type of competition that is badly lacking in our electricity sector – which within a decade or two we will be almost completely reliant upon.

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    • Matty 1 year ago

      Excellent returns on what? What are you basing that statement on, because unless you know the actual total cost of the installation you can not make that statement.

  3. Matty 1 year ago

    I amazes me that they talk about good returns…based on what? No one except the key people within the government and Tesla know the actual end cost of the battery. It seems that when a government organisation purchases such an asset there is no focus on the ROI or the true cost to understand the actual value or cost of ownership.

    There are two key questions when looking at or considering energy storage. Does the technology work and the second is what is the levelised cost of storage (LCoS) which takes into account lifetime of the asset, effects of DoD, maintenance, original capex etc. which will in the end give you a A$/kWh or in the case of the Tesla battery the A$/MWh I bet you that it is not as rosey as everyone thinks.

    The cost of energy in SA is high and will remain so. They have the stability back but the prices will remain high.

    The entire Tesla battery will have to be replaced at the end of its life which is 6-10 yrs depending on DoD. It is highly unlikely that it would of paid for itself by the time it has to be replaced!

    People have to begin to wave away the smoke and mirrors about Li-ion and realise that it is a very expensive solution.

    The way forward will be with true Flow Battery technology (not hybrid e.g. Redflow). Significant advantage of Flow Batteries, Power (kW, MW etc.) is totally independent of the Storage Capacity (kWh, MWh etc) and either can be increased during the life time of the battery easily and cost effectively.

    Cheers,
    Matthew

    • Barri Mundee 1 year ago

      Just maybe your premise is inappropriate: that the South Australian government MUST earn a commercial rate of return on what is a public asset and whose primary purpose is a means of power smoothing and assisting in preventing blackouts.

      Rates of return are of course important for investment by a profit-driven enterprise.

      If “commercial rates of return” were a key factor the Commonwealth might never have rolled out the near universal copper wire telephone system we have today (and which has now reached the end of its technological life and should be replaced with fibre in the majority of cases).

      • Matty 1 year ago

        Hi Barri,
        I understand your point but ultimately where do you stop if this is your argument. Should governments just spend ridiculous amounts of money without any concern for the ROI? This is one rabbits hole that we should not go down. Governments should still be responsible for the investments in assets. Ultimately these costs are passed down to the consumer and as such if the cost is high then everyone suffers.

        Sometimes governments don’t have a choice but to put large sums of money into infrastructure for the good of the community but in this case we are talking about energy which is controlled by an organisation and they have cost pressures.

        In the case of building a copper network which is still being used today (which if you look at the levelised cost of ownership would be very low). It is still going to be used for a while in conjunction with fibre.

        I just think from this point on the respective governments need to slow down and take a big look at the technology coming online and look at the LCoS of EVERY system which should be a requirement of EVERY tender for the supply of energy storage systems

        The big difference in the argument is you are talking about infrastructure and utilities that have lasted well over multiple decades unlike a technology like the Li-ion battery.

        • Barri Mundee 1 year ago

          I think you are taking my point and extending it to an unwarranted extent.

          I will leave it at that.

    • Jonathan Prendergast 1 year ago

      You can’t assess the returns on the battery investment purely on arbitrage revenues. There are many other benefits that justify a state government investment, such as: reduction in number and duration of blackouts; reduction in number or extent of high price events; reduced wholesale and contracting electricity prices; learnings for next projects locally and elsewhere; and others.

      Will be interested to see how Flow batteries come to market. If they are that good there is nothing stopping them.

    • MikeH 1 year ago

      The entire Tesla battery does not have to be replaced. The most likely outcome if capacity of that site is still an issue in 10years is to add more Powerwalls, a point made by Musk at the launch. The installation in any event consists of much more than the pods. You don’t do yourself any benefit by bullshitting.

      • Matty 1 year ago

        With all due respect MikeH, You need to do some more research on Li-ion. The DoD significantly affects the life time of the battery (some more than others which I accept). Once a Li-ion battery does not hold charge anymore then it has reached its end of life (just like your phone battery). sure you can leave it where it is and just add more batteries…but at some point you’re going to run out of space.

        Ohh and I’ll tell you right now, that battery in S.A. will not be working at 100% capacity in 10 yrs time and each battery (as you said it, “add more Powerwalls” which are a full battery in itself) will become useless. They are investigating ways to recycle the batteries because they see this as being a significant issue.

        The other issue is that the demands of S.A. is going to continue to grow so the cost to increase the power (MW) and capacity (MWh) is expensive where with a Flow Battery you just need to add more cells for Power and more electrolyte for the capacity. Small incremental costs as opposed to a full new Li-ion battery which is what the only option is.

        The point I am making is the key metric here is the LEVELISED COST OF STORAGE. its a way that we can effectively compare every form of energy storage from a cost perspective. If we want to put some downwards pressure on energy costs then this is a VERY important metric to take into consideration. Li is increasing in cost, just take a look at the metals reports on the cost per ton.

        Li-ion will not be the solution long term for utility or distribution energy storage. Flow battery technology is now coming online and will leave Li-ion for dead from a flexibility and LCoS point of view.

        • itdoesntaddup 1 year ago

          There’s a nice question as to why King Island chose to replace their flow battery, which failed after a relatively short time, with lead acid batteries instead. Perhaps flow batteries are better now, but they have to prove themselves.

          It’s hard to establish a levelised cost for storage, because so much depends on the turnover rate. Do you drain your storage completely, and refill it completely? How often? Marginal storage you do not fully utilise is much more expensive. Things start getting really expensive when you look at storage that is for longer than a few hours at a time – seasonal storage, or storage against a 1 in 50 year event.

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