S.A. may pick two battery storage projects as it outlines new energy policy

The South Australian government may decide to pick two new battery storage projects as it responds to the extraordinary twitter negotiations between two high profile billionaires and as it prepares to unveil its new energy policy on Tuesday.

Premier Jay Weatherill and energy minister Tom Koutsantonis on Tuesday morning will unveil the new energy policy – promised after the most recent rolling stoppages when the state’s most modern gas plant sat, mothballed, as 90,000 customers lost power.

The new policy is expected to include what the government promised would be a significant intervention into the market, and will represent its frustrations at watching high prices and outages that it believes could have been avoided.

One option being considered is “buying back” part of the grid – and the Pelican Point gas plant, or at least its mothballed unit – is the subject of most speculation.

This, in theory, could allow the government to produce power when it wanted to – to moderate prices or guarantee supply – although the flow on consequences (on other ageing gas generators) would need to be impacted.

The occasion could also be an opportunity for the government to announce what it intends to do with battery storage, particularly after the twitter exchange between Tesla founder Elon Musk and Atlasssian co-founder Mike Cannon-Brookes so galvanised the country around “competitive” battery storage.

Weatherill has had at least one long telephone conversation with Musk, which he described as very productive, but if the government was to support a Tesla initiative, it would upset several local players who have been making exactly the same claims as Tesla for many months.

That has raised the prospect that South Australia will commission not one, but two, major battery storage projects, and could even do this through a reverse auction process – although hopefully one quicker than the current tender for its own government supply contract.

Local supplier Zen Energy, chaired by Professor Ross Garnaut and partnered by Californian firm Greensmith, is seen as a favourite, and has previously outlined its own proposals for a “big battery” project in the state.

But also pitching are Lyon Soar, partnered with Mitsubishi and US firm AES, and with at least one and possibly three solar-storage projects in the pipeline, and Perth-based Carnegie, which said on Monday that it was in talks through its Energy Made Clean subsidiary. Others might also be in the wings.

The local tender and government support – it could be a combination of state and federal funding, including from the likes of the Clean Energy Finance Corporation – is needed because while battery storage is competitive with fossil fuels, it needs to be able to extract all its value streams.

Right now, the rules don’t allow that. For instance, a battery storage of the type being discussed by Tesla, Lyon, Zen and Carnegie would want to be able to run “merchant” and meet peak demand for electricity, but also deliver services such as grid stability (frequency and voltage control) and network constraints.

As the industry is noting, if those values were unlocked, along with the “ring fencing” rules that restrict the ability of networks to use battery storage as both a demand response, and to offset cost of grid upgrades, then it would be “game on”. In fact, they mean that battery storage would be unstoppable.

Of course, waiting in the wings are two other technologies – pumped hydro and solar tower and molten salt storage, both of which say they can offer storage at much cheaper cost than batteries.

SolarReserve, for instance, is offering 880MWh of storage as part of its 110MW solar tower facility proposed for Port Augusta, and has just unveiled plans for a project four times that size in Chile. EnergyAustralia is looking at a 100MW pumped hydro proposal further south on the Eyre Peninsula.

So, here’s a nice idea for a South Australia energy policy update:

Number 1: Sign contracts with two battery storage developers, with government assistance, to show what they can do at scale, and then push mightily for the change of rules that have been stalled with the AEMC.

It won’t actually cost that much. Tesla’s proposal for $US250/kWh for a 100MW battery storage plant translates into a base cost of $US50 million or $US100 million, depending on whether two hours or four hours of storage is called for. And, Musk tells us, it can be built in 100 days. Or, it’s free!

Number 2: Reach a deal – lease, off take or even purchase – with Pelican Point to maintain supply, moderate prices and give the incumbent private players some more competition in the market.

Number 3: Use the confidence gained from the Pelican Point deal – which does not need to be long term – to then contract SolarReserve to build that 110MW solar tower power plant – offering the vision, leadership and confidence that the state represents in a new energy vision.

Number 4: Accelerate plans for pumped hydro, and for micro-grids, both discrete and connected with a “thin wire” for remote and regional communities and towns.

That way, South Australia, which already sources nearly 50 per cent of its demand from wind and solar, can continue to lead the world. And it won’t feel so much like an experiment.