RenewEconomy/Sophie Vorrath & Giles Parkinson: The stunning numbers behind success of Tesla big battery

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The stunning numbers behind success of Tesla big battery
By Sophie Vorrath & Giles Parkinson on 11 May 2018
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The Tesla’s big battery in South Australia has already taken a 55 per cent share in the state’s frequency and ancillary services market, and lowered prices in that market by 90 per cent, new data has shown.

The stunning numbers on the economics of the country’s first utility-scale battery were presented at the Australian Energy Week conference in Melbourne on Thursday by McKinsey and Co partner Godart van Gendt.

Speaking as part of a panel on the leading technologies and strategies that will help manage the transition to renewables of Australia’s, van Gendt said the data was more evidence that battery storage would “play a very big role.”

He said that a lot of discussion around the success of the big battery – the biggest of its kind in the world, to date, and delivered at break-neck speed – had focused on the fact that “we did it,” and not on the economics.

“So, I thought I’d give you a few numbers from the market data,” van Gendt said.

“In the first four months of operations of the Hornsdale Power Reserve (the official name of the Tesla big battery, owned and operated by Neoen), the frequency ancillary services prices went down by 90 per cent, so that’s 9-0 per cent.

“And the 100MW battery has achieved over 55 per cent of the FCAS revenues in South Australia. So it’s 2 per cent of the capacity in South Australia achieving 55 per cent of the revenues in South Australia.

“So that’s great for the first battery in the market,” he added, “but if you’ve already had 55 per cent of the FCAS that are now gone, right… and a 90 per cent drop in price, then the business case for the second battery, of course, is a bit less attractive.

“So I wish the second battery in South Australia a lot of luck!”

Van Gendt’s calculations are just the latest in a series of assessments that show that how the Tesla battery – despite being mocked by detractors for its small size compared to the overall grid – is having an impact on the market.

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.

That’s a pretty good bang for the buck for the estimated $50 million investment by the South Australia government. South Australia is the only state that has experienced a decline in FCAS prices over the past few months.

The fact that the Tesla big battery has been able to puncture the FCAS pricing bubbles created by the gas cartel illustrates how even small additions to capacity – and new dispatchable technologies – can change the equations and market dynamics.

Tesla is doing more than that: It is also changing the way the market operators and participants are thinking about the grid, and underlying the case for new rules to be developed to ensure that their assets are properly recognised by the market.

The Australian Energy Market Operator has praised its performance, noting how it can respond to faster than any conventional generator, and with more accuracy.

AEMO has also supported the push for new rules that would recognise very fast response, which it is now using as a front-line defence against any further grid-scale blackouts.

As van Gendt suggests, the development of new rules, and markets that place a value on its speed and accuracy, is critical for the next wave of batteries that will join the main grid over the coming months and years.

This will starting with the new battery at the Wattle Point wind farm (now due in June), and then at the Lincoln Gap wind farm in South Australia, and three different projects in Victoria.

Tesla Energy’s regional manager of business development Lara Olsen also spoke to the conference about how the value of the battery’s contributions to the South Australian grid could also be seen in its impact on bidding practises across the market.

Tesla’s observations are that for a thermal generator, often what decides what and when it bids will depend on fuel costs and O&M (operation and maintenance costs).

Renewable energy doesn’t have that fuel cost, and very low O&M, and battery degradation occurs only over time, so bidding became a matter of an opportunity cost.

Would it get a higher price if it bid 10MW into this five minutes or not, and would it get a higher price if it held on and bid in an hour’s time?

The same goes with charging. Should the battery operator hold off and will there be a lower price at which it can charge, even when it can’t charge from a renewable energy generator?

Olsen presented a graph to the conference showing the amount of re-bids into the SA market for the first couple of months of the Hornsdale system. We can’t reproduce it, although energy wonks can find the data here.

Imagine, though, two very very big balloons (representing the Tesla battery bids from charging and discharging), and numerous smaller different coloured balloons, representing hydro, coal and gas generators. Something like this above.

One of the two big bubbles represented the Hornsdale Power Reserve load, and the other the Hornsdale Power Reserve generation (charge and discharge). Both activities – load and generation – need to be registered, rather than the single facility.

The smaller balloons represented the bidding of coal assets, gas generators, hydro plants, and even an  aluminium smelter. But it was the speed and versatility of the battery that enable it to provide so many more bids than its competitions.

Tesla says the fact that the fact that it is always looking at opportunity costs that you can respond in 200 milliseconds – so the battery is happy to discharge, charge, discharge, charge, as it doesn’t affect the battery degradation.

And because it can use its software and take this into account and change its bids, means that it’s starting to participate in the market in a different way. And that will start to impact how generators also start bidding into the market. 
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Battery storage • Featured • Governments • South Australian Government

    Pedro

    Will that price drop in the cost of energy translate directly into lower bills for residential customers?
        DJR96

        In time yes. The retailers are getting the benefit of these lower wholesale prices now, but they don’t adjust their retail prices very often, once a year for many. With a bit more margin to play with they SHOULD be offering lower prices next time they adjust.
            Pedro

            So I guess the new SA LNP will claim they were the ones to reduce power prices for SA.
                John Saint-Smith

                Not if the redoubtable Turnbull has anything to do with it. He’ll claim that energy storage was his idea in the first place, only he was talking about pumped hydro.. well it’s kind of the same.
        Ray Miller

        As DJR has said yes, each state goes through a process of setting the basic rates using averages over the previous 12 months including all the other costs. So while one area, FCAS in one state has shown a reduction it is but one cog in the very much delayed and distorted customer price wheel.
            MaxG

            And since SA is now a LNP state, they will pocket it before passing it on to consumers.
                Joe

                …and I’m betting that the Marshall will take all the credit for lower power prices in SA.
    DJR96

    Once Australia gets a few more of these big batteries in each state, synchronous generators will not be getting any auxiliary services income. Good thing that, they were never any good with it anyway.
    Tim Forcey

    NAILED IT

    It’s sort of like a builder who always used a hammer. And then he/she finally got hold of a nail gun…
    Carl Raymond S

    Wow. Great news for Tesla and the battery industry. Every grid now has an open and shut case for at least one big battery. That gives battery makers the business case they need to fund rapid expansion. This means they will be close to ready by the time the auto industry is clamouring for batteries trying to keep up with Tesla.
        Carl Raymond S

        …and as Leigh Sales might say: “Suck on that Josh Frydenberg”.
        Hettie

        Hmm. And what will it all do to Tesla’s notorious inability to keep production up to its promises?
        How many Tesla 3s coming off the line this week?
        Anyone?
        5,000?
        No. I didn’t think so.
        No, I don’t have a link, but wouldn’t Elon be yelling it from the rooftops if they had hit the target?
            Carl Raymond S

            Watch the yellow dots on the Bloomberg tracker. It’s the most exciting page on the internet. When the weekly rate hits 4000, Tesla have succeeded in becoming profitable. As it climbs higher, it’s jam and cream.
            https://www.bloomberg.com/graphics/2018-tesla-tracker/
                Hettie

                Hmm very interesting, but nowhere near the target yet. Don’t hold your breath.
                I am aware that car lines and big battery lines are not quite the same, but it does not seem, shall say wise, to order a Tesla product if you want prompt delivery.
                The HPR was a one off, a vanity project. Great publicity, and it works brilliantly, but at the expense of every other Tesla customer.
                Once they are meeting production targets, I’ll give them loud applause.
    Chris Fraser

    Looking forward to development of super capacitors for use in FCAS, that charge and discharge quickly. That would leave more room in the Hornsdale Power Reserve for taking up more of the real energy load, for longer periods of time.
    Ad van der Meer

    As more renewables come online, there will be more room for other batteries to join on the grid, even in South Australia.
    Ian

    It’s a great story for the nightly news and other mainstream media.
    I wpuld hope the Labor party gets the credit it deserves though.
    Cooma Doug

    Bidding of batteries on load and supply side will be rapid, automated, dynamic and always active. Trader/ customer intervention will be rare and the process, a normal part of the battery inclusion on grid.
    It doesnt matter what you do at home the process will be absorbed in the constant bidding adjustments. I expect that a large number of load shifting products will imerge and function in the market in the same way.
    It is becoming obvious that synchronous base load gens will have a back seat in this product evolution.
        Chris Fraser

        The technology is beyond reproach so it seems – so it’s goodnight to the synchronazis.
    Paul Surguy

    More batteries Please
    Tom

    This is great news for smashing the corrupt FCAS market. Well done Weatherill and well done Neoen and Tesla.

    Unfortunately, and absolutely predictably, the numbers will not stack up as well for new players as it will for the incumbents (and if a new player enters, it will bugger up the numbers for the incumbents equally as it will for themselves).

    One reason why the whole network should be government owned (and I don’t mean the Singapore government and the Chinese Communist Party, as the late John Clarke might have pointed out).
    George Michaelson

    And yet Wetherill lost political power. Shows how people can succeed in economics terms and lose in other ways.
        Grpfast

        Jay was too far ahead of the voting population. And knew it was unsellable as most were to ignorant.

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