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Disclaimer. After nearly 40 years managing money for some of the largest life offices and investment managers in the world, I think I have something to offer. These days I'm retired, and I can't by law give you advice. I do make mistakes, but I try hard to do my analysis thoroughly, and to make sure my data are correct. Remember: the unexpected sometimes happens. The expected does too, but all too often it takes longer than you thought it would.

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Monday, March 13, 2017

An amazing offer

It all started when Lyndon Rive (head of Energy at Tesla) visited Melbourne to launch the new Powerwall 2 here: 
They are only starting to gain a foothold in the Australian market, but could batteries provide a near overnight solution to the energy woes that have hit South Australia and risk spreading east? 
At least one company believes so. In an elaborate launch in a former power substation in suburban Newport, in Melbourne's west, Tesla Inc said its technology could provide a fix within 100 days. 
The Californian company's energy products vice-president Lyndon Rive said it could install up to 300 megawatt hours of grid-scale battery storage in that time frame at a cost of about $66 million per 100 megawatt hours. 
"If you had storage deployed during the blackout [in] South Australia you wouldn't have had the blackout," Mr Rive said.

[From Melbourne's The Age newspaper.  Read more here]

This news then provoked a Twitter conversation between the Ozzie billionaire Mike Cannon-Brookes and Elon Musk:


To which Musk replied:


What Musk and Rive and Cannon-Brookes have done is to break the logjam caused by the hysterical (and dotty) opposition  to renewables of Oz's right-wing ruling coalition.  The LNP coalition has (for political reasons) been extremely critical of the Labor party regime in South Australia, and has (falsely) blamed several blackouts in the state on the high percentage of renewables in its energy mix.  There is an election in SA next year.  So the SA government would be very glad to make this relentless assault from the LNP go away. 

All of the solutions mooted up to now, by either side, have involved lots of money and big delays, plus steps backward to gas and (ugh!) "clean" coal.  So this proposal -- cheap and fast -- really breaks the gridlock.  Reaction has been predictable: euphoria and praise from almost everybody, grumbles and nay-saying from the fossil fuel shills and rusted-on LNP supporters. 

Musk is determined to cause a global transition to a carbon-free economy.  It would be wonderful publicity to be able to say Tesla solved South Australia's electricity problems.  Better still, there are probably still millions of Ozzies who have never heard of Tesla cars, let alone Tesla batteries, and now suddenly Tesla is on the main pages of our newspapers and on TV.  So Tesla  wins.  But,  so does South Australia.  And so does the world, because this will conclusively show that it is possible to transition to a carbon-free economy, and that the variability of renewables can be dealt with, cheaply and efficiently.  It's a win-win for everybody except the coal dinosaurs.

What was really interesting is that Musk said the cost for one kWh of storage was now just US$250 for 100 MWh+ systems.  He means the capital cost, not the cost per kWh of output.  He's effectively more than halved the cost of storage utility-scale storage.  Again.  I said when I looked at the price declines announced for the home storage unit, the Powerwall 2, that a similar cost decline in wholesale storage hadn't been announced.  Well here it is, announced on Twitter no less.

Assuming each battery is discharged once a day, and lasts 10 years (though there should still be plenty of juice even after 15 years) I work out the cost per kWh of usage as 250/365/10 = US 6.8 cents, or US$68/MWh.  That doesn't mean you add $68/MWh to the cost per MWh of wind or solar.  You add 1/24th of that for each hour of storage.  So wind with 6 hours of storage goes from, say,$30- $40/MWh to $47 - $57/MWh.  Still far cheaper than coal.

The advantage of batteries is that they don't just store power.  They can provide grid stability.  Their extremely rapid response, within micro-seconds, is good for short term stabilisation of the grid, when for example, a major generator or a major power line goes down, and voltage and frequency "jerk". 

Daily SA electricity demand is 35.4 GWh. So one hour's demand would be 1.5 GWh, and battery storage for that one hour would cost US$375 million.   That works out at just $220 per inhabitant of South Australia.  Prolly, though, the power would be supplied by a PPA (power purchase agreement) or a reverse auction which would mean no capital outlay by the government.

My rule of thumb would be that for each 10% of renewables penetration in the grid we will need one hour of storage.  As we get to closer to 100% we will need 2 or more hours for each 10%, and to get from 80 to 100% we will likely also need long-term or seasonal storage.  The CSIRO has calculated that with a 100% renewables grid, 12 hours of storage would be needed, and the Australian National University thinks 18 hours would be enough.  South Australia has 45% renewables penetration, so it would need 5 hours of storage , but one hour would do very nicely to start with while the state builds another interconnector (with NSW this time) and also adds other forms of storage including pumped hydro and CSP.

I can't emphasise enough just what a game changer this is.  As RenewEconomy says:

Tesla founder and CEO Elon Musk has long predicted the imminent end of the fossil fuel era. But it took a couple of tweets between him and another billionaire, Australia’s Mike Cannon-Brookes, on Friday to highlight just how close this is. 

Australia’s fossil fuel “elite” – the industry, the politicians, the regulators and the media – have been kidding themselves that new battery storage technologies are “decades” away from being competitive with coal and gas. 

It’s what Australia’s energy ministers were told by the Australian Energy Market Operator at a COAG meeting last year, and US energy giant AES was stunned to find the same levels of ignorance when it spoke to ministers and regulators as recently as last November. 

As we reported last Thursday, Tesla announced that the inflection point wasn’t 20 years away. It was 100 days away. That, at least, was the time it would take to build a 100MW battery storage facility in South Australia, once planning approval and a contract had been signed.

As they say, now we're cooking with gas.

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