Tesla big battery: It earned a lot more money in second quarter

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An in-depth analysis of the Tesla big battery earnings in the first six months of 2018. It likely earned more money than people thought.

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The Hornsdale Power Reserve (HPR) – “the world’s largest battery” more commonly known as the “Tesla big battery” – is capturing the attention of energy analysts, policy makers and market operators and investors.

In previous commentary drawing on indicative analysis by the Australian Energy Market Operator, Giles Parkinson discussed the profitability of the HPR’s operations in its first three months, noting that the 30MW of HPR available for wholesale market activities earned estimated net revenues of $2.5 million.

We replicated AEMO’s indicative analysis and found similar results, except for AEMO’s estimate of HPR’s income from the contingency Frequency Control and Ancillary Services. Our results are summarised in Table 1 below.

Table 1. HPR NEM revenues and charging cost, Q1, 2018 ($m)

In total, we estimate HPR did a fair bit better for the first full quarter of its existence (gross spot market margins of $3.2m) than AEMO’s initial indicative analysis suggested ($2.5m).

Extending this analysis for the first and second quarters of 2018 we find that HPR‘s 30MW of traded capacity delivered gross margins of $8.9 million.

Assuming it replicates this in the second six months of this year, we can say that HPR will have gross takings of around $18 million per calendar year. This is surely very satisfying to its investors, for just 30MW of its 100MW capacity.

Figure 1 (below) shows the results for each month of Q1 and Q2. January was the most profitable month by far, but FCAS income for Q2 has been HPR’s biggest earner over the full six months.

Figure 1. HPR Income and purchases Q1 and Q2 2018.

Daily prices and volumes

The lower chart in Figure 2 shows HPR has been charging mainly in the early morning and discharging in the evening peak.

Figure 2. HPR volumes and spot market prices (hourly average per month)

In Q1, the dominant pattern was a single cycle: charging at night and discharging mainly in early evening. This pattern started to change in Q2 where the charging/discharging cycle now has two distinct charge and discharge periods.

While primarily charging at night, a morning discharge period is observed, followed by a small recharge period around the middle of the day to be ready for the discharge in the evening peak.

The upper chart in Figure 2 shows the average spot prices in each hour over the six months. It is evident from this that HPR’s cycle followed prices as expected.Smoothing the hourly volume data presented in Figure 2, we should in Figure 3 the cycling pattern over the six months.

Figure 3. Smoothed average HPR volumes (Smoothed hourly average per month)

Figure 1 showed that HPR makes much, but not most, of its money by buying when prices are low and selling back when they are high.

What the average price between buying and selling? The data shows big differences in the average sales price compared to the average purchase price in January.

The load weighted average sales price across the six months is $191/MWh (without January it is $141/MWh). By contrast the purchase price over the same period is $79/MWh ($76/MWh without January). The results for the individual months are shown in Figure 4.

Over the six months, the buy/sell spread averaged $112/MWh ($65/MWh without January). This are impressive results and an examination of the 5 minute dispatch data shows just how valuable HPR’s ability to dash in and out of the market it.

We do wonder what the picture would have looked like if it was a large pumped hydro plant with enormous interia borne of their enormous rotating mass would have fared.

Figure 4. Load weighted average prices.

This analysis of course is based on spot market prices, which may be quite different to prices HPR receives if it has swapped these spot prices for fixed prices. Such contracts are of course confidential.

The economics of storage in all its many forms is now a key feature of electricity economics in Australia, as the rise of zero marginal cost renewables continues apace.

There is much to be learned by analysing the performance of installed batteries, in seeking to understand the economics of storage in batteries and the many possible pumped hydro proposals.

Having built the apps needed to analyse these revenues and expenditures, continued research in this area will be an important part of the VEPC’s work over the coming years.

Steven Parker is a Research Fellow and Bruce Mountain is the Director of the Victoria Energy Policy Centre. We gratefully acknowledge the assistance of Paul McArdle (NEM Review) and Farhad Billimoria (AEMO) in the preparation of this note.

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53 Comments
  1. MaxG 2 months ago

    Well, it’s just another leech in the market… while I appreciate this leech as the lesser evil compared to gas and other price gaugers, it still holds true what I said in the past: no matter what fancy technology enters the market claiming to reduce energy prices, the net effect for the consumer is the continued rise of energy costs, while profits soak up the indicated savings.
    What a wonderful world we live in. :))

    • Warwick Sands 2 months ago

      To be fair it does its bit to reduce the $14,000/MWh peaks now and again.

      • MaxG 2 months ago

        Yes, why I appreciate this leech over others. 🙂

      • Shilo 2 months ago

        Ok lets be a little serious, or lets seriously think about what you have written here. The Battery or any Battery for that matter and its operator I assume is going to do its best to reduce the 14K max price paid?????.
        ARE YOU SERIOUS?????
        If you are really, I have a special lease on the Sydney Harbour bridge I can sell to you!!!!.
        I can tell you this, people are in bussiness generally to make money, and they try to make the most they can, given all things.
        Anyone operating a battery is no diff than anyone operating a gas plant.
        If 14k is the max, GUESS WHAT, that it aim!!!!!.
        If 14K stays the max when its 99% RE, GUESS WHAT, 14K is the AIM!!!!!!!!!! (At times) Sorry to say this but its the way of the world and it always will be.

        • Ren Stimpy 2 months ago

          Nope. Ten different batteries the size of HPR in the hands of ten different owners – none of them will get anywhere near the bids of the gas peakers let alone the $14K max before they bid in. That’s competition!

          • Shilo 2 months ago

            I did not think about that!!!!. Sorry. It seems prices will be the best they can be, sheer numbers will do that. How excellent, what a great system.
            Why don’t they do that in every industry.
            Anyway at least this one can show the world how its done, so history and humans nature don’t get involved.

          • Ren Stimpy 2 months ago

            There’s a log of ugly bits in the system such as the 30 minute settlement period and the lack of competition for peaking power, resulting in price gouging and gaming by the gas peaker gentailers.

            One of the nice bits though is that suppliers must bid in quick, because if they don’t they might miss out on a high final price from the last successful bidder.

            It’s a system that will work great if there’s a lot of competition, but if not (like now) it will be subject to gouging/gaming/rorting.

            Bring on the battery era!

        • charles frogg 2 months ago

          There was a man once who fed the poor with one fish and one loaf of bread and didn’t charge a cent. He wasn’t employed by AGL or Origin..

          • Ren Stimpy 2 months ago

            I know that story – the same man drove the gentailer rorters out of the temple.

    • Andy Saunders 2 months ago

      Not sure why you call it a leech. It’s supplying power when the market needs it (and buying when the market doesn’t really need it).

      The added competition will/has reduced prices. Especially in the FCAS market.

      • MaxG 2 months ago

        Because of the rest of the statement: the consumer does not see a Cent of it.
        Yes, I understand that some of the peaks are gone; still, let’s talk again when the cost savings of whatever ‘gizmo’ translate effectively in savings for the consumer.

        • Andy Saunders 2 months ago

          Given the regulated nature of electricity retailing, the consumer certainly sees the entire cost/benefit. It’s a straight pass-through. Whether you *notice* it is another story – distribution costs tend to predominate.

          And those peaks are certainly relevant – they can significantly shift the average. An un-hedged retailer can go broke in a price spike very, very quickly.

          • MaxG 2 months ago

            Look, I am not arguing — I am all for RE and what not…
            My spreadsheet listing my energy cost since 1995 shows an increase year after year, until this very day. I simply doubt this will change. This is my key point. Nothing else.

          • PLDD 2 months ago

            Max – wise to remember that a slowing in the rate of increase of say 10c is just as much of a benefit as an actual decrease or 10c.

            I suspect half the reason we don’t see any really material changes to our power bills is that any RE efficiency is masked by the increase in the costs of distribution and retailing.

            A good example is NSW where IPART reduces the recommended FIT to 6.9c from 11.1c this year, justifying the decrease based on wholesale prices. Yet my unit cost rates from my supplier stayed exactly the same….something about hedging and other cost increase. I can in,y assume if wholesale prices had stayed that would have seen my bill rise by 4.2c a unit.

            Hopefully as more projects start to bite the cost reductions will start to translate into price reductions in bills.

          • Ren Stimpy 2 months ago

            IPART also recommended time-of-day FiTs – 11.7 cents from 3:30pm, 13.3 cents from 4:30pm, 20.9 cents from 5:30pm. In the summer months the sun doesn’t set until around 8pm.

            People with spare west-facing roof space or living on the west side of the NEM should take note.

          • PLDD 2 months ago

            Depends on the state – I think your numbers are Victoria and you get a later sunset and longer twilight. For NSW: 6.5 to 3:00pm; 7.4 to 4:00; 11.2 to 5pm; 14.1 to 6:00; 10.7 to 7:00; and 7.8 to 8:00. Also I believe NSW gave these as an “idea” rather than the core recommendation. I do only quote the low point of their range as few retailers seemed to pay much above the base FIT last year.

            My system (Sydney) will average about 7KW around midday in the summer but drop to about 1KW around 5:00 before tailing to zero by 8:00 (obviously far less and shorter in the winter). So on paper it looks OK but I suspect you can only benefit with a battery.

            Their report did say 86% of exports are between 6:00 and 3:00 and between 5:00 and 6:00 only 2%. Which looks similar to my production. So for nearly all existing exporters will see little impact by going to these tariffs unless they have a battery.

          • Ren Stimpy 2 months ago

            That’s correct they were Vic numbers not NSW. For NSW: 9.1 cents from 3pm, 13.7 cents from 4pm, 17.2 cents from 5pm, 13 cents from 6pm, 9.5 cents from 7pm. I quoted the high point of the range because there are (or will be) retailers out there who are better on FiTs if people are prepared to search for them. The more people who install west-facing solar the more the retailers will compete for their business with higher FiTs.

            What direction does your system face? Do you have any spare west-facing roof? Clearly they are sending a price signal to the market that west-facing new solar will now be the most beneficial to the market.

          • PLDD 2 months ago

            I disagree with you theory about retailers offering the higher FIT’s. From my experience they generally come with a downside i.e. higher unit costs and standing charges, or convuluted payment schemes (that have an economic cost). I priced a number of offers last year and from my usage data concluded they were dry good at giving with one hand and taking with the other.

            Interestingly though I am not seeing many NSW retailers follow the IPART guidelines (yet), I assume they don’t want to attract even more public ire. In fact my current scheme gets a 20c FIT from AGL which is a new not historical offer – the downside is no discount on their standing offer price. But the differential is such it makes sense for my useage pattern.

            My flat roof faces all directions, I get some east and west shade but based on the IPART export data it seems to parallel the rest of NSW solar systems production – I was trying to think about most users not just me.

            The westerly sun after 5:00 in NSW is getting pretty low in the sky and so not only do you need to face west but you also need 45 degree angles panels. Great for that time of day but less good for the rest of the day.

            Yes they are sending a signal of sorts but even at those rates it doesn’t seem to really improve the case for batteries as most are better used for self consumption as that is probably worth 22c minimum for most people,

          • Michael Murray 2 months ago

            Last time this was reported it was said that the FCAS savings resulted in a $35 million saving for consumers. I tried to understand then how this flows through to my bill in SA but got last on the internet reading about the NEM. Is there a good place to read up on this ?

          • Giles 2 months ago

            So, many of the consumers hit directly by FCAS are large customers. As for the rest of it, it feeds through like wholesale prices, and then there is a price estimate from the local regulators. so it aint automatic, and like changes to interest rates, usually takes a lot longer to happen when they go down, and pretty quick when they go up.

          • Michael Murray 2 months ago

            Thanks Andy and also for the reply from Giles.

    • David K Clarke 2 months ago

      I would have thought that the more facilities available to sell power into the market when the price is high the lower the peak prices will be and the less opportunity for a few generators to ‘game the system’.

      • MaxG 2 months ago

        Sure, but when/where is the reflection as price decrease for the consumer?

        • David K Clarke 2 months ago

          It may be a few steps along the line, but if storage reduces peak wholesale prices lower retail prices should come in time.

          • MaxG 2 months ago

            … and this is and remains the open question.

            What the respondents to my post do not seem to see is the perpetual news of ‘stuff’ reducing the cost of energy; however, so far it has not (and I doubt it ever will) result in lower cost for the consumer.

          • Ren Stimpy 2 months ago

            It’s simple enough to see, just pull your head out of your arse.

          • eastpole 2 months ago

            MaxG, I’m sure you’re right that retailers would like to lower the cost of their product but keep charging their customers more. This is not news to very many of us. Do you live in an electricity free market (where this will happen as you describe) or in a regulated market? If you live in a market where an arm’s-length energy board (or the government) sets energy prices according to the cost to deliver it, your argument is with the regulator, not the generator or the other market participants.

            Another thing you want to consider is what happens in a war, disaster, or serious downturn. When people are forced to co-operate on a common goal like not being conquered by foreigners, not starving, or similar, they need the most efficient and secure systems in place. Do we want to burn fuel, spin wind turbines, and ignore batteries, or do we want batteries that reduce the overall need for generation?

            Of course we (assuming risks like war or disaster) would always want to start with the most efficient and flexible system we could afford — so a giant battery bank is a net plus and we should indeed celebrate this milestone. Whether you want to hear about ‘news of stuff’ is entirely your call.

            (Where I live, my bills are going to continue going up until all 3 of our large nuclear reactors retire, are decommissioned and the waste safely in deep storage. This was the price of flexible and inexpensive power delivered over the last 40 years.)

          • MaxG 2 months ago

            Yep, your first two sentences… all I said… nothing more. 🙂

          • Phil 2 months ago

            The Grid may soon get a 2nd “goldplating” to enable better voltage regulation due the rising domestic solar panel Feed In, snowy 2 and state interconnectivity upgrades

            And a 3rd Goldplate will be needed for the megawatt feeds for high speed EV charging. “Gee we didn’t see that one coming so didn’t design for it” they will no doubt say.

          • PLDD 2 months ago

            Max – see my earlier reply to you. Unfortunately with the wholesale price making up a smallish proportion of the unit cost of electricity and decrease just gets eaten up by minor increases in other elements like poles and wires and retail costs.

            It’s an unfortunate fact and the one thing good about the ACCC report was they did highlight some of the price component issues and tried to address some of drivers.

            Maybe Frydenberg’s NEG+ That is rumored, and will focus on the gouging in the distribution market and price exploitation of some of the generators. But I suspect not – he will just target solar subsidies.

    • Ren Stimpy 2 months ago

      Batteries are excellent regulators of wholesale price because they undercut the excessive pricing of gas peaker power (while still making a healthy profit as per the article). When more batteries move into the market and start competing with each other their price regulation influence will shift up a gear from excellent to magnificent.

      • MaxG 2 months ago

        Sure, what counts for me is not a cheaper source, but the a tangible reflection as price decrease for the consumer?

        • Ren Stimpy 2 months ago

          Step 1 is to get the wholesale costs down, Step 2 yes make sure those savings are passed on to the consumer by the retailers. This is where our mate Mr Simms needs to fire up. He needs to chew each retailers arse if they are not passing on the savings, and to do that on a quarterly basis.

      • itdoesntaddup 2 months ago

        I doubt that the 30MW that has been in play makes much difference to wholesale prices. It may back out up to 30 MW of peaker generation, but there is still plenty of that required – and the battery is more than happy to reap now A$14,500/MWh prices when available. Add more capacity equal to the peaker capacity, and so long as it is in competition rather than monopoly ownership, and you might be right. The consequence would be that batteries could then struggle to earn a crust.

        • Ren Stimpy 2 months ago

          I wouldn’t worry too much about arbitrage model batteries being able to earn a crust. Instead you should worry about your inflexible big dumb coal stations being able to earn a crust.

          There will NEVER be another coal station built in Australia.

        • PLDD 2 months ago

          “I doubt that the 30MW that has been in play makes much difference to wholesale prices. It may back out up to 30 MW of peaker generation…”

          It won’t make much difference in that market because it operates in the FCAS market where it plays a pretty strong role and has lowered prices especially in undercutting the gas peakers in SA (they have no coal) who had a monopolistic position.

  2. Andy Saunders 2 months ago

    “We do wonder what the picture would have looked like if it was a large pumped hydro plant with enormous inertia borne of their enormous rotating mass would have fared.”

    Actually probably not too badly. Hydro plant can react typically in seconds to tens of seconds – better than thermal plant for sure.

    And usually hydro generators are synchronous, so they don’t actually speed up – the mechanical inertia isn’t an issue, just the lag through the governing mechanism/valving. The pumping side would probably use variable-frequency drives, but their controllers are pretty quick too.

    • itdoesntaddup 2 months ago

      Indeed: Dinorwig can go from zero to 1.7GW in just 12 seconds. That’s a ramp rate of over 140MW/second – which makes the battery look rather small, as indeed it is.

      • Ren Stimpy 2 months ago

        Only because battery hasn’t (yet) been built on that scale. But give it time and battery will blow your thing – what was it, Dinorwig? – away on ramp rate.

        • itdoesntaddup 2 months ago

          The battery ramp rate per second to full capacity as a percentage of capacity forms a reasonable basis for comparison. Do you have the figure for Hornsdale? ( I don’t) It would need to reach 100MW in under 0.7 seconds to be faster.

          What would 1.7GW of battery cost? Would it be viable in South Australia, given that that is of the same order as total demand? How much capacity in GWh would it have? (Dinorwig in about 9GWh).

          • Ren Stimpy 2 months ago

            In December testing the Tesla battery ramped from 0 to 100MW in 0.14 seconds (140 milliseconds).

            “What would 1.7GW of battery cost?”

            ~$200/kWh today, with battery cost falling by 75% every seven years.

            <$50/kWh in 2025-2030

            <$20/kWh in 2030-2035

          • itdoesntaddup 2 months ago

            So 9 GWh is allegedly a mere $1.8bn. Plus the inverters for 1.7W. I think your forward battery price projection contains a large element of Hopium. Finding the cobalt for it might be a tad difficult.

          • Ren Stimpy 2 months ago

            Hopium has recently been a much more accurate element than linoleum or projectium.

            All the energy projections have previously hopelessly underestimated renewables and storage.

            Who says cobalt will even be a part of the evolving storage picture five years from now?

          • Giles 2 months ago

            Indeed, Tesla said at the last conference call i think they intended not to have any cobalt in future batteries, and have already minimised it.

      • bruce mountain 2 months ago

        Zero to 1.7GW in 12 second – source please?

  3. Robin_Harrison 2 months ago

    Do we know what this infrastructure cost? At this rate it will pay for itself quite quickly.

  4. Malcolm M 2 months ago

    Would it be worth rewiring Hornsdale Power Reserve to have an isolated direct connection with some turbines of the Hornsdale Wind Farm, so it can be charged with otherwise-curtailed wind energy? This way it could be charged with energy at costing about -$60/MWh, calculated as the short run variable cost less the REC price.

    The Goat Hill Pumped Hydro could work the same way, being charged by otherwise curtailed wind energy via an isolated direct connection with the Lincoln Gap Wind Farm.

    • PLDD 2 months ago

      I am surprised that isn’t the case already. I thought that was one of the ideas behind storage being co-located with wind and solar capacity. Is there a reason it isn’t the case?

  5. Barry Alternative Fact Covfefe 2 months ago

    So if its making $18 million a year and cost about $50 million it has a ROI of about 33%/annum
    Not bad at all especially since part of its capacity is not used for arbitrage.

    To any non reality denying person this is an excellent investment and should be expanded.

    • charles frogg 2 months ago

      You are correct there isn’t too many investments in the world that actually use large amounts of energy and can still make a profit producing even less energy.. Im sure given time all Australia’s generation could come from batteries if everything is designed by politicians and accountants. It’s when reality kicks in there is a big problem, like right now with the more renewable electricity in the system it gets more expensive and less affordable for the masses ROFL..

      • Barry Alternative Fact Covfefe 2 months ago

        Your not making any sense.

      • Ren Stimpy 2 months ago

        You’re forgetting that Australia’s Chief Scientist is a big supporter of batteries, but science is something that you are sadly lacking or denying.

        Batteries use excess generation during low demand, that would otherwise be wasted, to charge up then sell that cheaply acquired energy back into the market when demand is high. It’s a beautiful confluence of science and economics that you just wouldn’t understand.

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