The Weekend Wonk: Big Battery Update

September 29, 2018

Nice explainer on current battery tech above.

Meanwhile, Tesla’s giant battery in Australia is proving to be a super profitable game changer.

WHEN a pair of tech billionaires starting going back and forth on social media, it ended up putting South Australia at the centre of an unprecedented renewable energy project.

We now know the true cost of that project and just how much of a financial success it has proven to be in its first 10 months of operation.

The huge lithium-ion battery in South Australia built by tech giant Tesla is on track to make back a third of its construction costs in its first year of operation, according to financial documents.

It started with a $50 million bet over whether Tesla boss Elon Musk could build the battery facility within 100 days. He came good on the bet — and in terms of performance, so too has the giant battery.

The huge 100-megawatt lithium ion battery near Jamestown in the state’s mid-north was switched on at the end of last year but the full cost of the battery (some of which was funded by South Australian taxpayers) was not made public because it was “commercial in confidence”.

However Neoen, the French renewable energy company that owns and maintains the battery, applied to become a publicly traded company this month and as part of the process filed a supporting document which reveals financial details about its assets.

It shows that at today’s conversion rate, the construction price of the South Australian battery was about $90 million, roughly around the expected cost with estimates ranging from $50 million to just over $100 million.

The financial documents also revealed that the facility generated $13 million in revenue from network services in the six months to June 30, 2018. Almost $2 million of that was from its 10-year contract with the SA government to provide reserve capacity for the state’s electricity network, which is worth $4 million a year.

The filing also purported a total revenue of $A14 million in the first six months of 2018 — a number advocates said was higher than many expected.

“It may turn out to be the best value investment that the South Australia Labor government ever made, although their political opponents may be reluctant to admit it,” industry analyst and renewables advocate Giles Parkinson wrote in Renew Economy, where he works as an editor.

“The Tesla big battery is making money that promises a quick return on investment, something not thought possible when the battery was built.”


True market disruption happens when existing or incumbent technologies can only improve their performance or costs incrementally and industries focus on achieving those incremental improvements, while an entirely new technology enters the market with capabilities incumbents can’t dream of with exponentially falling costs incumbents can’t approach.

As energy storage continues getting cheaper, it will increasingly out-compete other resources and change the mix of resources that run the grid.  Recent contracts for new solar-plus-storage projects signed by Xcel Energy in Colorado and NV Energy in Nevada will allow solar production to extend past sunset and into the evening peak demand period, making it competitive against existing fossil fuel resources and new natural gas.

In fact, energy storage can increasingly replace inefficient (and often dirty) peaker plants and gas plants maintained for reliability.  This trend isn’t limited to utility-scale power plants – behind the meter (i.e., small-scale or residential) energy storage surged in Q2 2018, installing more capacity than front-of-meter storage for the first time.

Energy storage’s economic edge will accelerate in the future. Bloomberg New Energy Finance forecasts utility-scale battery system costs will fall from $700 per kilowatt-hour (KWh) in 2016 to less than $300/KWh in 2030, drawing $103 billion in investment, and doubling in market size six times by 2030.

But energy storage won’t disrupt power markets simply because of its continued cost declines versus resources it could replace, but also because of its different deployment and dispatch characteristics.  It won’t merely replace peaker plants or substation upgrades, it will modify how other resources operate and are considered. This will require a change in regulations at all scales for the power grid, as well as in power market rules.

Consider the Hornsdale Power Reserve in South Australia, otherwise known as the “Tesla Big Battery.”  This 100 megawatt (MW)/129 megawatt-hour (MWh) project is the largest lithium-ion battery in the world.  Through South Australian government grants and payments, it contributes to grid stability and ancillary services (also known as “FCAS”) while allowing the associated Hornsdale Wind Farm owners to arbitrate energy prices.  A recent report from the Australian Energy Market Operator shows that in Q1 2018, the average arbitrage (price difference between charging and discharging) for this project was AUS $90.56/MWh.

This exemplifies “value staking” where the Hornsdale Power Reserve takes advantage of all three ways storage can earn revenue in organized markets with a hydrid compensation model under its single owner/operator (French company Neoen).  Hornsdale is already impacting FCAS prices in Australia, with prices tumbling 57% in Q1 2018 from Q4 2017.

Value stacking for reliability contracts plus market-based revenues (or “Storage as a Transmission Asset”) is also actively being debated by California’s CAISO market.

Because energy storage provides countless benefits at both the local and regional level, in ever-more overlapping combinations, it will create contentious debates and innumerable headaches for power market regulators in coming years.   In 2014, observers were treated to a family feud, as Luminant (generation utility) and TXU (retail power provider) argued against battery storage being installed by Oncor (poles-and-wires utility) for competitive reasons.  More recently, Luminant has argued against AEP building energy storage to relieve transmission bottlenecks to remote communities in southwest Texas because they are “tantamount to peak-shaving and will result in the distortion of competitive market signals.” In California, policy makers are struggling with how to adjust rate structures so behind-the-meter storage projects can meet the state’s emissions reduction goals tied to the subsidies they receive.

Meanwhile, batteries are being combined with more than transmission, wind, and solar projects.  In Germany, a recently closed coal-fired power station is being used simultaneously as a grid-tied storage facility and “live replacement parts store” for third-generation electric vehicle battery packs by Mercedes-Benz Energy.  German automotive supplier Bosch and utility EnBW have installed a storage battery at EnBW’s coal-fired Heilbronn plant to supply balancing power market when demand outstrips supply.

Today, inflexible coal plants often receive these type of “uplift” payments when they are committed by power markets to meet demand or for reliability reasons, but can only offer resources in much bigger chunks then economic dispatch would warrant.  This puts billions of dollars at stake the eastern U.S., where power market operator PJM is considering dramatic changes in rules to pay higher prices to these inflexible plants.  What if in the future, these plants might be required to install or sponsor a certain amount of energy storage capacity in order to set marginal power market prices?


For the first time ever, the U.S. saw more home energy storage than front-of-meter storage deployed in a single quarter.

According to the latest U.S. Energy Storage Monitor from the Energy Storage Association and Wood Mackenzie Power & Renewables (formerly known as GTM Research) 156.5 megawatt-hours of energy storage were deployed in the second quarter of 2018, triple what was deployed in the second quarter of 2017. The residential segment led the way, growing tenfold year-over-year.

Residential deployments were concentrated in two states, California and Hawaii, which together account for 72 percent of megawatt-hours on the quarter. Wood Mackenzie Power & Renewables senior analyst Brett Simon notes that there are no signs these two states will relinquish their residential market lead; however, he posits that there is an exciting race for the No. 3 spot. Simon points to both Massachusetts with its new SMART program and Arizona, which may see some new tariff structures, as key contenders.


Since switching on in December, Tesla’s massive battery in South Australia has already drastically lowered prices in the region’s frequency and ancillary services market (FCAS) and has taken a major share of that market, Renew Economy reported.

During Australian Energy Week, McKinsey and Co. partner Godart van Gendt boasted about the stunning efficiency of the 100-megawatt Powerpack system, which is connected to Neoen’s Hornsdale wind farm.

“In the first four months of operations of the Hornsdale Power Reserve, the frequency ancillary services prices went down by 90 percent, so that’s 9-0 per cent,” van Gendt said Thursday, as quoted by Renew Economy.

“And the 100 megawatt battery has achieved over 55 percent of the FCAS revenues in South Australia. So it’s 2 percent of the capacity in South Australia achieving 55 percent of the revenues in South Australia.”

The Australian Energy Market Operator calls upon the FCAS to provide back-up energy whenever generators fail or fall short. This service has typically relied upon costly gas generators and steam turbines, with electricity rates up to $14,000 per megawatt during these outages.

But Tesla’s big battery, which was designed to feed South Australia’s unstable power grid, has changed the game. Whenever it has needed to discharge its power to the grid, costs have hovered as low as $270 per megawatt, as The Guardian noted.

As Renew Economy noted, “various estimates have put the cost savings to consumers from the FCAS market alone at around $35 million, just in the first four months of its operation.”

What’s more, the Powerpack system has responded much quicker to power outages (within milliseconds), with the benefit of no greenhouse gas emissions.




17 Responses to “The Weekend Wonk: Big Battery Update”

  1. lracine Says:

    “The filing also purported a total revenue of $A14 million in the first six months of 2018 — a number advocates said was higher than many expected.”

    You all understand the difference between total revenue and net revenue???

    If your total revenue, everything you earn is $10 but your total expenses are $12, than your net revenue is -$2……. not good…. just saying.

    In an other article Giles Parkinson says “”We don’t know what the profit margin of that is but we can probably estimate it’s a fair profit margin,” Please define “fair”…lol

    I did not see the any mention of NET Revenue….. nor any mention of the total expenses, (currently they have to purchase energy generated via base load fossil fuel plants to charge the batteries).

    I don’t feel like wading though Neoen’s IPO to find the Net Revenue/Profit margin for this project.. Further, I an doubtful that the profit margin on this project is available for public review but that is the one that really matters… the Net Revenue.

    I once again call bullshit on this kind of hype, other than to say the project is up and running, which is good.

    By the way what is it’s carbon footprint???????? More so considering they will be charging these batteries (for the next 5 years) via fossil fuel generation… most likely coal.

    Hmm I wonder why that question isn’t being asked and considered in these Faux Green articles…. lol

    • Brent Jensen-Schmidt Says:

      Hear what you say! Finding real figures, and ones not pushing an agenda, is seriously problematical. Company profits get reported as ‘savings’ for example. As for this specific battery, it is almost certainly charged by wind/solar. This state of South Oz is big on wind and HUGE on solar having first hit 100% renewable s years ago. Ergo, power price head down, often negative, recharge battery. This battery is in an extremely positive/unique situation.

    • mikeh7 Says:

      Your call of bullshit would be more impressive if you actually knew something about the state of South Australia.


      >they will be charging these batteries (for the next 5 years) via fossil fuel generation… most likely coal.

      There is no coal generation in SA & the state is now a net electricity exporter.
      SA is also currently at ~50% renewables and heading higher. Even the current Energy Minister from the conservative Liberal Party who are now in government expects that to be at least 75% by 2025. Tne grid operator, the AEMO BAU modelling expects SA to be even higher at a net 100% renewables by 2025 when the Riverland interconnector to NSW promised by the Liberals as part of their winning state election campaign will be complete.

      And as a couple of those articles above note, the battery has saved the consumers of SA (and RE developers) a shedload of $ (up to $35 million in first 4 months) by breaking the cartel that controlled FCAS services. The battery now has 55% of the FCAS services market. 70MW/30MWh of the battery 100MW/129MWh was contracted for FCAS leaving 30MW/90MWh for arbitrage via the Hornsdale wind farm where it is co-located.

      And the state now has other 30MW battery at Dalrymple at the edge of the grid go through trials and more utility battery storage is planned along with 5 separate PHES projects.

      • rhymeswithgoalie Says:

        I’m probably a little obsessive about the issue of water, but–carbon, shmarbon–I am happy that effective power generation is available which doesn’t depend on water the way that steam turbines and their cooling infrastructures do, and many parts of Australia are getting drier.

        • dumboldguy Says:

          Unless I’m mistaken, nearly ALL of Australia is getting drier. Maybe Mike knows something I don’t, but droughts there over the past couple of decades have been extreme. The level of solar penetration in the energy market won’t matter much if there isn’t any water and food can’t be grown.

          It has been said that Australia is the most vulnerable to climate change of the developed nations. Yet they still mine all that coal (4th. largest producer after the US, Chine, and India?). I have some difficulty with the idea that the right hand is erecting solar while the left is mining coal.

    • Gingerbaker Says:

      “Faux Green articles”

      So, you are criticizing RE infrastructure uptake, because there might still be FF power plants. Not exactly brilliant reasoning.

  2. lracine Says:

    Here is a link to Australian Government 2017 Electrical Energy generation Capacity and Output by fuel source.

    Please note the difference between capacity and output for 2017. Take a good look at solar and wind numbers….

    • Bryan Ackerly Says:

      I think that graph is misleading. It’s for the whole country and is skewed a lot by old generation capacity in NSW and Queensland. The same site also shows that South Australia has ZERO capacity of either black or brown coal.

      However there is also no mention of solar capacity which is at odds with the previous (100% renewables years ago) comment. Unless that was talking about residential solar. I’d like to see a reputable source for this.

      • Brent Jensen-Schmidt Says:

        Also wonder how output can be higher than capacity. Another set of data words that mean…not much. The state of SA has no coal generation. Brown coal sourced electricity was/is sourced from neighboring Victoria. Think there are some solar plants around. Rooftop solar is fitted to (around) 30% of buildings now. The 100% renewable s was trumpeted by the media at the time, and the lack of reputable sources provides a high content of these threads

      • Gingerbaker Says:

        Australia is one huge sun-baked desert, with virtually zero population density outside of its rim. It is infested with most of the most venomous snakes and spiders in the world, saltwater crocodiles, and has great white sharks patrolling its perimeter.

        Its chief asset appears to be virtually unlimited solar potential and plenty of space to put it in. They have a government that doesn’t believe too much in AGW. They are slow on the uptake.

        So, when some forward-thinking utility managers DO add some RE tech, maybe you could refrain from telling us how fucked up that is?

    • mikeh7 Says:

      Do you know where the state of South Australia (SA) is? Do you have a copy of Google Maps handy or should I provide a link?

      And do you anything about the politics of Australia? Australia is currently ruled (and has been since 2013) nationally by a conservative coalition of the Liberal and National Parties whose claim to fame is that they abolished a working carbon price. They also aggressively oppose renewable energy and up until now it has only made significant progress in RE friendly states like South Australia although that is changing fairly quickly as other states like Victoria and Queensland follow SA’s example.

      South Australia currently gets ~50% of its electricity from wind, utility solar and rooftop solar. On some days 40% of demand can be me from rooftop solar alone which is not even on the chart you link to.

      This is what the AEMO, the grid operator thinks will happen in SA (home of the Tesla big battery) under its neutral or business as usual modelling scenario. They are the organisation that do the modelling that allows the network & generation companies to plan their investments.

  3. lracine Says:

    Life cycle, battery degradation and age are major considerations in the “expense component of a project like this”.

    Real world conditions are very rarely duplicated in lab test. AKA, there are known knowns: there are known unknowns: and there are unknown unknowns.

    There is not enough time and life cycles on Tesla’s batteries in field operations of this type to prove that they will live up to the claims made in the lab tests.

    That is going to take a few more years of operation to establish.

    Just to be clear, by no means am I saying that these efforts should not be undertaken, I am stating that it is premature to herald them as a “success’.

    “The proof of the pudding is in the eating”…. and the cook is still mixing the ingredients of the pudding….

  4. Brent Jensen-Schmidt Says:

    Hear what you say! Finding real figures, and ones not pushing an agenda, is seriously problematical. Company profits get reported as ‘savings’ for example. As for this specific battery, it is almost certainly charged by wind/solar. This state of South Oz is big on wind and HUGE on solar having first hit 100% renewable s years ago. Ergo, power price head down, often negative, recharge battery. This battery is in an extremely positive/unique situation.

  5. redskylite Says:

    As we advance through the 21st century batteries are here, highly scale-able, decreasing in cost and part of our tool-set to reduce carbon emissions.

    Q & A: Why Switching to Renewable Energy Sources is No Longer a Matter of Morality, But of Economics.. now we can use batteries that store energy. Battery prices have also gone down by 80 precent.

  6. Canman Says:

    This battery update missed what might turn out to be the most significant battery development of the week. The billionaire owner of the LA Times, Patrick Soon-Shiong, is claiming to have a new zinc air battery breakthrough:

    Hat/tip goes to Mark Jacobson, whose tweets can still be read by the more determined of his multitude of blockees.

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