Tesla big battery revenue dips in second quarter as FCAS market shrinks

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Neoen’s Tesla big battery increases revenue in second half, but last three months clipped as other batteries grab their share of the FCAS pie.

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The Tesla big battery at the Hornsdale Power Reserve in South Australia has delivered increased revenue for its operators Neoen in the first half, although there appears to have been a dip in the second quarter compared to the same period a year earlier due to reduced opportunities in the frequency and ancillary services market (FCAS).

The Tesla big battery – installed in less than 100 days by Elon Musk’s company in a blaze of publicity in late December – remains the biggest lithium-ion battery in the world, and its performance at both the grid level and its financials are keenly watched.

Neoen’s latest revenue figures, released overnight in France, show revenue from battery storage at €8.4 million ($A12.2 million) for the first half of the calendar year, up from €8.1 million in the same period a year earlier.

The battery delivered revenues of €4.2 million ($A6.1 million) in each quarter, but while the first quarter reflected a 21 per cent jump in revenue over the same period a year earlier, the second quarter revealed a 9.1 per cent fall over its corresponding period.

Neoen said the overall 4 per cent rise in revenue for the first half was powered by “still favorable conditions for the sale of network services (FCAS) as well as for arbitrage activities” – (buying at low prices and selling at high prices).

The dip in the second half was explained by an exceptionally strong market for FCAS in the second quarter of last year.

“The slower pace of growth compared to the 21 per cent increase recorded during the first quarter of 2019 (vs. Q1 2018) was primarily attributable to the high base effect related to specific market conditions observed in the second quarter of 2018 in Australia, which were highly propitious for the sale of network services.”

The Tesla big battery has already laid down its technology credentials for its fast response, accuracy, versatility, and its contribution to mitigating major events, including keeping the lights on  in a major network separation last August that saw outages in all other states.

It has also had an impact in markets, clipping the peaks of wholesale prices, and completing changing the dynamics of the FCAS market which had been rorted by local gas generators.

Its own financial performance is a point of fascination for the rest of the industry, both for the wind and solar developers looking to install storage – battery or pumped hydro – next to their projects, and to battery developers around the world anticipating massive growth in coming years.

Their key questions relate to the amount of money available in the FCAS market, the amount of arbitrage that can be sourced – particularly as prices fall to near zero more often – and whether this can support storage of longer durations. More developers are now looking at battery configurations with four-hour storage, rather than just one hour.

That may have to be their target because the fall in revenue from FCAS suggests that increased competition – ironically from other batteries such as the Gannawarra, Ballarat and Dalrymple North – is eating into a limited market pie, and more batteries are on their way; Lincoln Gap, Lake Bonney, Bulgana and others.

In 2018, the 100MW/129MWh Tesla big battery, which cost $96 million to build, pulled in revenue of €18 million ($A29 million), and its margins were excellent, delivering earnings before interest, depreciation, and tax (EBITDA) of €14.2 million ($A22.8 million at then exchange rates).

The Tesla big battery gets a base revenue of around $A4 million from the state government for “grid security” services, and earns the rest of its money from FCAS and arbitrage. The company’s battery storage earnings also include a small battery at the Degrussa copper mine in W.A. and a small unit in France, but these only contribute a minor amount.

Neoen also noted that solar has now overtaken wind as its major contributor to revenue, following the completion of its Colleambally, Parkes, Dubbo and Griffith solar farms in Australia over the past year. It also commissioned its Numurkah solar farm in Victoria in mid July, which will add revenue in coming years.

Meanwhile, revenue from wind assets such as the Hornsdale wind park in South Australia, adjacent to the battery, declined as the revenue model switched from merchant to delivering output to the ACT government, as agreed under the terms of its power purchase agreements.

“That confirms the Group’s ability to develop and operate intrinsically competitive assets (i.e., “at grid parity”) and to deliver the benefits to its long-term customers, while harnessing additional revenue during these assets’ first few months in operation as and when opportunities arise,” the company noted.

Neoen sources just over half of its revenue from Australia, where it ranks at, or near, the biggest independent producer of renewable energy. It has a global portfolio of nearly 3GW and intends to lift that to around 5GW by 2021.

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