Batteries in South Australia earn $1 million over two days

December 24, 2019

Big battery south australia tesla

Grid-scale batteries in South Australia earned almost $1 million from the energy market over two days from 19-20 December 2019 (see Figure 1) as the nation sweat through an extreme heatwave.

This revenue is just from arbitraging the wholesale energy market and includes the cost of charging the batteries as well as marginal loss factors (MLFs). It does not include revenue from frequency control ancillary services (FCAS) or any bilateral contracts.

Energy market revenue South Australia batteries

These earnings will be especially welcome news for Infigen’s new 25 MW/52 MWh Lake Bonney battery. The Lake Bonney battery, which cost $38 million, was only recently energised (October 2019) and appears to have started commercial operation in late November (see Figure 2).

Infigen Lake Bonney Battery

The 100/129 MWh Hornsdale Power Reserve (HPR) has been operating the longest (since late 2017). Despite being a bigger battery, the HPR earned similar revenue to the Lake Bonney battery. This is because the HPR has only 30 MW/119 MWh available for commercial operation in the energy market.

We recently published a comprehensive 21 month analysis of how the Hornsdale battery has been operating, bidding, and earning revenue from energy arbitrage and all eight FCAS markets. Our independent analysis is supported by the Australian Energy Storage Alliance and has proven to be a very valuable resource for developers and investors of battery storage. In 2020, the HPR will be getting 50% bigger and will be demonstrating a range of new grid services, including fast frequency response.

Batteries seize opportunity as Australia sweats through three hottest days on record

The very high daily revenue earned by batteries last week coincided with the first price volatility of the season. The spot price in South Australia hit the market cap of $14,700/MWh for an hour on Thursday 19 December (see Figure 3). Tuesday, Wednesday, and Thursday of that week were the three hottest days ever recorded in Australia.

South Australia December 2019 electricity generation spot price

Figure 3 shows that the high pricing also coincided with low electricity generation from wind and solar. As a result, expensive gas and diesel generators were needed to meet demand. Being both dispatchable and fast responding, batteries were well placed to take advantage of this volatility in pricing.

This highlights a broader economic challenge for wind and solar farms. Wind and solar farms have a marginal cost of zero. As a result, they put significant downward pressure on electricity prices at the time at which they are generating electricity. However, because they are weather dependent, their operators cannot ramp up production to take advantage of high prices.

As the uptake of variable renewable energy grows, the earnings gap between renewables and other market participants will continue to increase. Energy storage is of course, one of the solutions to this problem. Thus, we can expect renewable energy projects to increasingly incorporate storage to help manage this risk.


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Author: Marija Petkovic, Founder & Managing Director of Energy Synapse
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National Electricity Market year in review part 2/2: Changing energy mix

January 18, 2019

National electricity market changing energy mix

In the second installment of our National Electricity Market (NEM) Year in Review series, we will be looking at how the energy mix has evolved over the past year.

If you missed part one, we examined the major events that shaped wholesale electricity prices during 2018.

Figure 1 shows the percentage of electricity generated in the NEM by each fuel type. This data has been compiled using NemSight, a software developed by Creative Analytics (part of the Energy One group). Note that we have included generation from small scale solar (≤ 100 kW) as it is increasingly becoming a significant source of power in the NEM. But strictly speaking, rooftop solar is treated as negative demand rather than generation.

National Electricity Market energy mix 2018

During 2018, electricity generated from variable renewable energy (wind, small scale solar, and large scale solar) accounted for 12.6% of total electricity generation in the NEM. This is approximately a 30% increase on 2017, when variable renewables represented 9.8% of generation. Fossil fuels, and in particular coal, still dominate generation in the NEM, accounting for almost 80% of all generation.

Exponential growth in large scale solar

Figure 2 shows the percentage change in electricity generation for each fuel type in 2018 compared with 2017. The data in both Figures 1 and 2 is based on GWh generated rather than capacity. As can be seen in Figure 2, 2018 was the year of large scale solar. Generation from large scale solar almost tripled in 2018, completely eclipsing the growth in any other fuel type.

Change in generation by fuel type

Large scale solar still only represents a very small portion (1%) of NEM generation. However, it has experienced extraordinary growth in the second half of 2018, as new capacity has come online (see Figure 3). The biggest growth has been in Queensland. In 2018, the electricity generated from large solar in Queensland was more than 14 times higher than in 2017.

electricity generated from large scale solar national electricity market

Small scale solar has also seen strong growth, with the generation from these systems increasing by 21% in the NEM (see Figure 2). Queensland leads the nation in terms of both installed capacity of small solar (2220 MW) as well as having the highest percentage of dwellings with solar PV (33%) (Source: APVI). Furthermore, the statistics for 2018 will continue to grow as more systems are officially registered over the next 12 months.

The high growth in solar (both large and small scale) is already having a profound effect on wholesale electricity prices. In a previous article, we used Queensland as a case study to demonstrate how solar is pushing down daytime wholesale electricity prices. We are seeing daytime prices fall out of the top quartile of pricing and into the bottom quartile. This has big implications for developers of future solar projects, as they may see returns diminish.

Renewables (including hydro) are displacing higher priced gas generation

Figure 4 shows the change in electricity generation by each fuel type, but this time as a GWh change rather than percentage. The left hand side shows the fuel types that had an increase in generation. The right hand side shows the fuel types that had a decrease in generation. The difference between the two charts (approximately 1800 GWh) is the load growth in the NEM.

GWh change in electricity generation from 2017 to 2018

We can see that in absolute terms, gas generation was the biggest loser in the energy mix in 2018. Electricity from gas decreased by 5660 GWh (27%) across the NEM as a whole. The overall capacity factor for gas generation fell to just 16.6%, compared with 22.6% in 2017. There are several reasons for the reduction in gas generation:

1. Gas generation was less available throughout 2018.

2. The gas generation that was available, was bid in at higher prices to reflect the higher pricing in gas markets.

3. Existing hydro generation, especially in Tasmania, offered its capacity at much lower prices as we explained in part one. This is the main reason for the growth in hydro’s capacity factor from 17.3% in 2017 to 22.3% in 2018.

4. Wind and solar have a zero marginal cost and hence tend to bid into the wholesale market at ≤ $0/MWh. This means they are at the very bottom of the bid stack. The growth in renewables combined with hydro offering lower prices, meant that any available gas was increasingly squeezed out of the market.

Brown coal decreasing with closure of Hazelwood

Hazelwood, a 1600 MW brown coal fired power station in Victoria, was closed at the end of March 2017. As a result, brown coal generation fell by 18% in 2017 compared with 2016, and again by 6% in 2018.

Following the closure, existing coal fired power stations have picked up some of the slack. Even though total coal generation is down, the capacity factor for brown coal has increased from 72% in 2016 to 81% in 2018. The capacity factor for black coal has also increased from 61% in 2016 to 65% in 2018.

As more ageing fossil fuel generation exits the market, and more renewable energy comes online, we can expect the energy mix to keep evolving. Stay tuned for part three of our series…

Author: Marija Petkovic, Founder & Managing Director of Energy Synapse
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