Solar 2.0: PV and storage deals show signs of rapid energy transition

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China, Gupta, storage. This past week has seen landmark developments that signal the pace of the energy transition is gathering speed, with huge implications for consumers (mostly good) and incumbent utilities (mostly not so good).

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Josh Frydenberg might have been right when he said that the Coalition’s proposed National Energy Guarantee would not stop investment in wind and solar:

It probably doesn’t matter how big a wall of policy and regulatory inertia is built, the plunging costs of renewables and rise of storage solutions and smart business models means it can’t actually be stopped.

Slowed, maybe. Stopped, no.

This past week has seen several landmark developments and announcements that signal that the pace of the energy transition is gathering speed, with huge implications across the board for consumers (mostly good) and incumbent utilities (mostly not so good).

First of all is the plunging cost of solar. In the corridors of the Energy Networks Australia conference in Sydney last week, the talk was of the cost of large-scale solar falling to the low $A40s/MWh, at least in the eyes of the banks who would finance it.

If that seems a little starry-eyed to some – because it is about 50 per cent below the assumed cost and less than half the price of grid power – then the prospect of some 30GW of excess solar module production over the rest of the year would seem to confirm it.

The bombshell delivered last week by Chinese authorities – thanks to an about-face on incentives for new generation (both renewables and fossil fuel, given that country’s over-supply – should make it obvious that more price falls are on the way.

Bloomberg New Energy Finance predicts that the cost in modules will plunge by one third – from just US37c/watt to US24c/watt, and the impact will be global. That should lead to price falls in Australia for a complete solar installation of at least 10 per cent – and balance of systems costs and financing costs are also falling.

Battery storage is the second part of the equation, because intense competition – and the growing understanding of its role in the market – is causing a massive re-think about both the cost of that storage, and its value. It is now both cheaper, and more valuable, than previously thought.

We are seeing that play out in the market place – with both Mars Australia and University of Queensland signing up for “firm solar” contracts for 100 per cent of their electricity needs that offers a significant discount to their current supply from the grid.

The biggest of them all, however, was from Gupta’s GFG Alliance, and its deal to deliver its own version of “firm solar” power to five big mining and industrial energy users in South Australia, and slash their electricity bills by up to 50 per cent along the way.

Let’s just contemplate the significance of these developments.

Effectively, what this means is that corporate Australia is now doing what households and smaller businesses have been doing for the past few years – and in increasingly greater numbers – turning to solar, and now storage, to slash their bills.

Gupta’s ambition is to boost this investment five-fold in South Australia – both for his own and for third party electricity needs, and then replicate this model around the other states, with an ambition for up to 10GW of large scale solar satisfying his expanding manufacturing business and others.

Those with the most to worry about this stunning development – and the emergence of what Gupta and UQ refer to as “gen-sumers” – are the big retailers, or “gen-tailers”, particularly those over-invested in base-load coal generation. This development represents a fundamental threat to the business model of the big incumbents.

The defection of household load has already caused serious issues for the big incumbents – and increasing concern about who gets to compete in a shrinking pie, as networks begin to shake their tree and wonder if there is a place for traditional gen-tailers in the future grid.

It was interesting to note Ausgrid CEO Richard Gross raising this issue at the Energy Networks Conference last week, just as Ron Stobbe from SA Power Networks did some years ago. The only thing that separates these businesses are “ring-fencing rules”, but networks are keen to break down the barriers.

Some big gen-tailers can see what’s happening. In others, there is a complete state of denial.

I talked last weekend to the former head of new generation for one gen-tailer, and was told that this utility did not want to offer solar and storage packages to existing customers, for fear of losing “volume”. It beggars belief. Kodak anyone?

The fact that the corporate sector is now defecting to new entrants that can offer, or broker, cheaper renewable energy supplies, with “firming”, means that they no longer have to go through a major retailer.

In a series of recent reports, Morgan Stanley analysts note the potential disruption. Big consumers can buy the output, and solar plant developers can land a contract, from and for large-scale solar with the need for an incumbent integrated utility, they note.

In effect, the drawbridge has been lowered, and the renewable energy hordes, and their storage Sherpas have broken through the defences so carefully erected by regulatory and policy fiat and market dominance over the past few decades.

Morgan Stanley says it sees disruption at every point in the value chain for incumbents like AGL, which with the largest, dirtiest and most inflexible of portfolios (coal), remains most exposed, but ironically most aware of their vulnerability. They could hardly get out of Liddell quickly enough.

The Morgan Stanley analysts say product innovation and price transparency may facilitate the disintermediation of incumbents, e.g., commercial and industrial (C&I) customers who are now able to procure renewables under contract and hedge the intermittency, without the need for an incumbent gentailer.

On the other hand, the disaggregation of intermittent and dispatchable power prices could help gentailers to better earn returns on dispatchable plant, without the need to write long-term contracts against renewables.

For instance, Origin may be able to generate a return on its gas-fired generation by selling firming products, while C&I customers write separate power purchase agreements (PPAs) to renewables developers, Morgan Stanley says.

But this pre-supposes that gas-fired generation can compete with other forms of storage, and the storage developers say they can’t.

Brian Perusse, a vice president with Fluence, the battery storage joint venture between global energy giant Siemens and storage specialist AES says gas cannot compete with solar and storage.

Fluence plans to build a series of “solar peaking” plants in Australia, that will compete head to head with gas peaking.

“This is the lowest cost source of energy,” Perusse tells RenewEconomy. “It is dispatchable, it is flexible, and it has no emissions.”

Peruse says solar prices are dropping under $A50/MWh, and batteries – at a cost of $A15-$A35/MWh – can provide three to four hours of storage. At those price, gas peaking plant cannot compete.

“No other resource can deliver that sort of pricing,” he says. (You can here his interview in our latest Energy Insiders podcast here).

And batteries, and other forms of storage, are going to be essential as more renewables enter the grid.

It is quite likely that prices in the middle of the day in Queensland could fall into negative territory as the amount of large scale solar expands exponentially, and rooftop solar continues to grow.

That will require flexibility and dispatchability. What will provide that? Well, Fluence says it knows what it won’t be: “My view is that you don’t build gas peakers. “

The corporate PPA market in Australia, like most things in the energy industry, is opaque, with only vague references given to the price of contracts.

That’s not the case in the US, and two deals in the last couple of days show the stunning fall in costs there. Berkshire Hathaway signing up for 1GW of wind and solar at an average price of US2.39c a kilowatt.

In Arizona, a new deal for a 30MW solar plant is priced at just US2.49c/kWh. The significance of that is increased by the fact that it will help replace a coal plant that was costing US5c/kWh. Solar came in at less than half the price.

Even more stunning is a deal by Warren Buffett’s Nevada Energy, the state utility, to buy more than 1GW of solar – some at prices as low as US2.15c/kWh, and rising with inflation (2.5 per cent). One 300MW solar plant agreed to sell its output at 2.37c/kWh – flat for 25 years.

That is an extraordinary low price. And ironically, it comes as the state market becomes open to competition, a shift triggered by the decision by major users MGM Resorts, Wynn Resorts, Walmart, Patagonia and Tesla to break their contracts and seek independent supplies.

As Mark Leslie, the head of Fluence in the Asia-Pacific, told the Smart Energy Conference, in Melbourne on Tuesday, what’s happening here in Australia is not foreign to what’s happening in other markets.

“We’re starting to see solar and wind contracts, you know, that are in the 1 and 2 and 3 cents in different jurisdictions in part of the world, and that’s just a lot lower than the cost to produce the same MWh from coal or from gas,” he said.

So, is it all an open house? Well, not so fast. Just as new wind and solar is being threatened by Donald Trump’s plans to subsidise coal and gas-fired power stations in the US, Frydenberg may also be able to slow the transition, even if he can’t stop it.

And that’s through the NEG, because without any effective emissions target – the 26 per cent reduction will already be largely met by 2020  – then there is no incentive for new generation on that front.

Tristan Edis, from Green Energy Markets, suggests that the corporate market could slow down considerably because of falling prices caused by the build out of renewables.

But that is where the likes of Gupta and others could become critical. Competition is king, and not having an ageing and increasingly expensive and unreliable fossil fuel fleet will be an advantage.

And the final gatekeeper? That would be Frydenberg and the federal Coalition. Given that the emissions target is met, and the price of solar, wind and storage is cheaper and better than anything that fossil fuels can provide, there is really no excuse for a lack of ambition.

For a start, it wouldn’t cost anything above BAU and would very likely be significantly cheaper. In an era when bills are soaring, and the evidence of climate change becomes more compelling, and disturbing, the case for trying to shut the door as the horse is bolting looks untenable.

Note: Please tune in to our latest Energy Insiders podcast to hear interviews with Fluence, Frydenberg, and ENA chief executive Andrew Dillon.

 

 

 

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46 Comments
  1. Joe 6 months ago

    “….the final gatekeeper”…Joshua and Two Tonguer Turnbull taking all the credit for $Billions of dollars being invested whilst at the same time they do all they can to boost the Coal and slow the RE. When do I stop laughing at them?

    • Nick Kemp 6 months ago

      When you finally break down and start crying because they are a very sad spectacle

      • MaxG 6 months ago

        Good response… but it is very sad after all.

        • Nick Kemp 6 months ago

          One comforting thought – they will never escape their stupidity. In generations from now all their idiocy will be happily stored in the cloud for their grand children, great grand children and great great grand children to look at and wonder how they could be so wrong and Tony Abbott will be remembered forever as the deluded prime minister who missed the boat. What a legacy!

          • Coley 6 months ago

            And yet they will be still on a much higher income level than that of the average wage earner, corruption takes many forms.

      • Ren Stimpy 6 months ago

        Politicians like MT and JF are like furniture. Their ilk will always be there in our system. Just don’t plan your day around what the furniture thinks or does.

    • MaxG 6 months ago

      Laughing may be the better option for you; but these tossers remina criminals in my mind. They are dead before the planet goes under; they simply do not care!

      • Coley 6 months ago

        Because they will be deid and buried long before their ‘crimes and corruption’ become the focus of National anger, not just in Australia but across the world.
        The average FF CEO/politician knows their fortune will be secured years before they will be called to account.

    • Coley 6 months ago

      Laughing? Crying in my beer at their ability to con a large proportion of the Australian electorate would be nigher the mark?

  2. Tom 6 months ago

    “On the other hand, the disaggregation of intermittent and dispatchable power prices could help gentailers to better earn returns on dispatchable plant, without the need to write long-term contracts against renewables.”

    In my opinion, this statement is key. I believe that NOT all electrons are created equal – that dispatchable power IS of greater value than non-dispatchable (let’s call it base-cost) power, and it should be valued as such.

    For example, if 2/3 of a state’s energy was being supplied by wind but the other 1/3 had to be from “dispatchable” methane (gas) or storage, then the dispatchable component should be paid a greater amount per unit energy than the base-cost component. The final price for energy for the users should be a weighted average of what the dispatchable and base-cost components are earning.

    But what do you call “dispatchable”? Is coal dispatchable, because it can predictably be dispatched with a week’s warning? Is combined cycle methane dispatchable even though it takes a couple of hours to reach full production?

    And what if a wind plant knows that it’s going to be windy – could they pull their bids from the “base-cost” market and bid on the “dispatchable” market instead?

    Should “base-cost” energy be paid a percentage of the dispatchable price (such as 60%)? Or should they be bid on completely separate markets? If separate, how would this work, given that all the power is mixed in together on the grid? And how is a price set when greater than 100% of demand is base-cost?

    These challenges are not insurmountable, but they certainly are challenges.

    • Nick Kemp 6 months ago

      I understand your point but I don’t think coal fits anywhere in the final make up and other fossil fuels should only be tolerated until they are no linger required

      • Tom 6 months ago

        Sorry – it does sound like that doesn’t it. I totally agree that coal-fired energy is just as useless as variable renewable generation in guaranteeing power when required. However, one can be certain that if dispatchable energy ever started receiving a premium, that the coal-fire companies would have their hands out.

    • Mike Westerman 6 months ago

      An interesting insight to how to overcome the problem and pull thru more intermittent generation while taking away irrational “supply anxiety” came at the recent hydro conference in Da Nang VN. A Chinese presenter indicated that their contract pricing meant most of the capital risk was covered by fixed availability payments. This meant that they could contract to firm intermittent generation at very thin arbitrage margins, making RE more attractive. Of course the main driver from the Chinese authorities point of view is probably the network constraints many RE generators are facing, which has led to the severe drop in planned installations, but it potentially applicable to Australia. It overcomes the perception by financiers that firming installations like batteries and pumped hydros are “unbankable”.

      • Tom 6 months ago

        That’s really interesting – thanks. I’d love it if you posted a link (I can’t read Chinese I’m afraid). But this appears to be one really good way around this problem.

        • Mike Westerman 6 months ago

          The paper is in English – I’ll find it tomorrow and share a link

          • Tom 6 months ago

            Awesome! I love your contributions MW – you share some really interesting stuff. Keep it up – we’re all better off for it.

        • Mike Westerman 6 months ago

          The paper is behind a firewall – I’m not sure how to up load a file on this blog – anyone?

    • MacNordic 6 months ago

      Very valid points and I do agree with you on the higher price point of dispatchable electricity – which is remunerated accordingly in many markets.

      As to the dispatchability:

      A rather promising way to work this is the bidding/ fixed offer of dispatchable capacity, in my view. This way, the gas peaker can offer dispatchable supply in around 80% of the hours of a year, the battery can offer that in around 50% of the hours (accounting for charging time) and wind/ solar can offer that around 10-20% of the hours of the year (trials are underway in Europe with this, mostly with offshore wind).
      The key is available capacity for bidding: gas and batteries can offer 100% of their rated capacity in long term (fixed) contracts/ timeframes; wind and solar can offer around 10-20% of their rated capacity in short term (day before, same day) contracts via downrating their standard production output by the bid capacity. In order to offer accurate and full bid capacity once called upon, very good weather forecasting is required, of course…

      • Tom 6 months ago

        I just had a thought. Please don’t call me a Red Commie Bastard, but all of this would be unnecessary if the government just built, owned, and operated all of the generation, transmission, and retail networks; built them to be as cheap as possible whilst being reliable; and levied residences and industries such that they cover the cost of the grid.

        • Coley 6 months ago

          Listen, you pinko socialist product of a mixed heritage alliance-;) most Western democracies did just what you suggested, along with most other essential utilities.
          Then along came the ‘neo liberals’ who want to flog (and have done, to a large degree) your utilities to the private sector, arguing ‘competition would provide lower prices and better services’
          We have all seen how well that worked, soaring prices, gouged out of a captive consumer base, more often than not, by foreign venture capitalists.
          While I’m rah rah the massive moves to RE energy/electricity production, it bothers me that the same “foreign venture capitalists” are still in charge of the ‘game’

        • MacNordic 6 months ago

          Far from it;-)
          Would be a great idea in a perfect world. Unfortunately, state monopolies do tend to get rather lame over time (not to say lethargic) – they simply have no incentive to be competetive, on the tech edge or even just customer friendly.
          Having grown up with state owned rail and post/ telecoms monopoly, I definitely can attest to that. Want a new land line connection? Fill out this stack of forms and wait 8- 12 weeks.
          Even worse in the former Eastern Block nations.

          Some form of competition is obviously galvanising – not to mention the state ownership would put the sector squarely at the whims of the ruling politicians of the day. Just think of the current lot and what they would do, if they owned the market….

          Wouldn´t just be the lump of coal in session, I bet!

          That said, a certain public influence on the sector can be rather helpful: either through public utilities (under regional ownership) or through cooperatives, owning parts of the grid or generation. An open market for generation and retailing definitely helps, if done correctly.

          The German market is reportedly rather open and competitive, even if saddled with high taxes and fees.
          There, ownership of the local grids is with local utilities, transmission grid is highly regulated with three owners, each for a certain region (and foreign owned), generation is from several thousand entities, power price is settled via the EEX (power exchange). Each consumer can select the supplier of choice, internet comparison sites make looking for the cheapest easy.
          RE feed in is via fixed FiT (20 years) as per connection date; lately the larger generation assets (>750kW) have to enter a reverse auction in order to get a FiT agreement. Auction volumes are decided by politics, and there you start getting interference and problems, with the current crop limiting the build- out to ~7.5GW/a.

    • Peter G 6 months ago

      A complimentary approach would be to send price signals on the demand side.

      Low tariff off peak hot water heating was introduced to support inflexible coal and nuclear supply (In France meters had 2 disks that facilitated a universal rollout of nuclear powered off peak resistance hot water heating).

      Ripple control was a great technology to make some demand dispatchable. If ripple (or another type of responsive load control) was reintroduced consumers could opt in to an additional tariff that would reflect the “base cost” price for part of their load – thermal storage, battery charging etc.

      • Tom 6 months ago

        Totally agree – haven’t heard it called “ripple control” before though.

        Every hot water storage should have two thermostat switches – one at 60 degrees to heat it up at any time that it falls below 60 (so you’ve always got hot water), and one at 80 degrees to heat it from 60 to 80 only when base-cost power is abundant.

        • Mike Westerman 6 months ago

          Also called Zellweger relays coz in Qld they were originally supplied by that company. SA generally used time clocks which is why it’s such a headache to change.

          There are a few proprietary devices around that optimise HW consumption vs export. I’m building one around a Raspberry Pi

      • Greg Hudson 6 months ago

        In a similar vein…
        Have a look at AGL’s $1 all you can eat price for powering your EV.
        What they don’t tell you is how much it costs to power your house.
        My guess is that it would be a lot.

  3. MaxG 6 months ago

    Sorry: “Peruse says solar prices are dropping under $A50/MWh, and batteries – at a cost of $A15-$A35/MWh – can provide three to four hours of storage.” these numbers make no sense. @Giles: what am I missing?

    • MacNordic 6 months ago

      Max,
      from what I read, the product is offered by a combined solar+ battery storage as “peaker” (same as gas) for a price of below $A50+ $A15-35= <$A65- <$A85/MWh.

      Due to the size of the battery, the possible running time is limited to 3-4h.
      Like the following theoretical setup: 10MW of single- axis tracking PV, 20MW/ 80MWh battery for four hours of peaking capacity, to be recharged during the day, offering services in the evening& morning peaks.

      Same as those projects in Arizona and that now famous Xcel RFP in the US…

      • MaxG 6 months ago

        Thanks for taking the time to reply… Understand what you’re saying…
        I listened to the podcast to go to the source (Peruse). Giles was asking for 3-4 hours coverage by batteries; Peruse ‘flex peaking’, which (for me) is in the second and minute market. What does a e.g. a 100MW battery do? Not much for 3-4 hours.
        Am I wrong? What am I missing.
        [edit] the example you gave make sense on a smaller scale, but not so much to be a player?!

        • MacNordic 6 months ago

          Always a pleasure;-)
          Haven´t got round to the podcast yet (next tab…), but the question you pose for the 100MW is easy to answer.

          Depending on the aim, it could be for FCAS and gaining from short periods of high prices. This usually is associated with a similar or smaller MWh rating, e.g. the HPR at 100MW/ 129MWh. It can only provide full nominal power for a bit over an hour (1.29 hours, to be exact). Bit like a short track sprinter…

          For a peaking plant, you would typically see a much lower power rating in relation to the energy holding capacity, like: 100MW/ 400MWh, which can provide full power at 100MW for 4 hours.

          More like a marathon runner…

          If you would like to be a big player in the peaking game, just add a few zeros to my example: 100MW PV, 200MW/ 800MWh battery.
          Scaling is usually more a question of grid constraints than lack of possibilities in Australia;-)

  4. Cooma Doug 6 months ago

    Products are appearing now but still not recognised by most people. The stand out point now is that Coal and Gas plant dont have many of these products.

    You go shopping and there are various brands of a product you seek.
    Some brands have to be used in one way. There is another brand that can be used in many different ways and is cheaper.

  5. Simon 6 months ago

    I could clearly see the writing on the wall when I had a major utility last year suggest they should be able to provide 10MW firm (solar-battery-diesel) to a proposed non-grid connected electrolysis plant for somewhere in the range of 8-13c over a 10 year PPA on a BOOT basis i.e. transfer of ownership of assets at the end of the contract period.

  6. Phil NSW 6 months ago

    A pleasing outcome specially after so much interference. Given the LNP policies of BAU etc etc have been an attempt to support the incumbent gen-tailers, Mr Gupta has now put them on notice.
    It is well accepted we will make the weak target set by the LNP within two years for the electricity sector which I believe to be about on quarter of our total energy consumption. BAU for the transport and other heavy industry sectors have seen them hardly bump off zero. We need a similar disruptor for EV’s.

  7. luke sidewalker 6 months ago

    “It is quite likely that prices in the middle of the day in Queensland could fall into negative territory as the amount of large scale solar expands exponentially, and rooftop solar continues to grow.”

    Well then….free

    • MaxG 6 months ago

      Free for the retailers, not for the customers 🙁
      … though expected.

      • Umbrella Man 6 months ago

        That’s typical, and unfortunate.

    • Mike Westerman 6 months ago

      Well then…cheaper then free: the generators would pay if they want to be dispatched. It really means their average price is very low, so that a firming contract from pumped hydro or batteries is very attractive

  8. MaxG 6 months ago

    One conclusion can be drawn from all this is that there will be eventually so much solar that the consumer-type contributors will end up having their FiT slashed due to oversupply — and most likely requested by the retailers (wanting to keep their profits). In essence: the businesses exit the market with their own agreements, while ‘Joe Public’ gets screwed even harder.

    • neroden 6 months ago

      Plan your solar system as a grid-assisted off-grid system: use your solar yourself, store it in your battery and use that yourself, and draw from the grid only when that runs out.

      • Nick Kemp 6 months ago

        That’s how I will be thinking about it but also planning to add a battery or two at some stage and either disconnecting from the grid completely if they intend charging me a grid fee

      • solarguy 6 months ago

        Works well for me I’m happy to say.

    • Ren Stimpy 6 months ago

      Or buys powerwalls which are getting cheaper by the year.

      • Greg Hudson 6 months ago

        Actually, the PW2 has increased in price. However with the cost of cells decreasing, I’m not sure why…

        • solarguy 6 months ago

          Cobalt has increased in price.

          • Greg Hudson 6 months ago

            True. $90,000/Kg is what I heard lately. Maybe wrong though…

  9. john 6 months ago

    Lets look at a PPA in the USA copy and paste below.

    On June 7, the directors of the Project signed a 20-year power purchase agreement with AZ Solar 1, a 30 megawatt (MW) solar power plant. The deal calls for the delivery of 83,500 megawatt-hours (MWh) of electricity at a the lowest price yet recorded in the US — 2.49 cents per kilowatt-hour (kWh).

    Note this price is below any other kind of energy supply.

    Even more astounding are these figures below.

    Tesla is bidding on a plan by Colorado’s Xcel Energy to add grid-scale battery storage to an upcoming solar project in that state. The cost of electricity in that proposal from various preliminary bidders ranges from 2.3 to 2.7 cents per kWh. What is really interesting is that adding battery storage only increases those numbers between 0.5 and 0.8 cents per kWh — still less than the wholesale cost of electricity from the Navajo Generating Station. The age of electricity from burning fossil fuels is really coming to an end at long last.

    I think there figure for Tesla storage should be 5 to 8 cents per kWh, I am expected to be advised on that.

    • Ren Stimpy 6 months ago

      $25/MWh achieved in 2018. Extend the declining cost of solar trend line from this cost point out to 2028 and the cost of solar power will be just a few bucks/MWh in ten years’ time. Even with some added cost of storage nothing else newly built (except maybe wind if it keeps improving on capacity and installation factors through R&D) will be able to compete.

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