Batteries in South Australia earn $1 million over two days
December 24, 2019
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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.
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).
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.
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.
Author: Marija Petkovic, Founder & Managing Director of Energy Synapse
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Four months in, SA Tesla battery is showing mixed results in energy arbitrage
April 5, 2018
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Tesla’s big battery in South Australia was officially switched on in late November 2017. At 100 MW/129 MWh, it is the largest lithium ion battery in the world and signals the beginning of a new era in how we manage the electricity system. In this article, we take a look at how the battery has operated in its first four months.
Before we delve any further, it is important to note that the Tesla battery is really two systems:
70 MW/10 MWh is contracted to the South Australian state government for the purpose of providing grid stability services;
The remaining 30 MW/119 MWh can be used by the Hornsdale operator to trade in and arbitrage the energy market.
The economic viability of large scale batteries is largely dependent on how much revenue they are able to extract from the wholesale energy market and the various ancillary service markets. In this article, we will focus on the economic performance of the battery in the energy market only.
We use a software called NemSight by Creative Analytics (part of the Energy One group) to analyse the operation and bidding behaviour of the Tesla battery.
Tesla battery is being heavily utilised
The Tesla battery is certainly not sitting idle in the market. Figure 1 shows the operation of the Tesla battery on a five minute basis from 1 Dec 2017 to 31 Mar 2018. As can be seen, the battery is being utilised very frequently. In fact, in 63% of the dispatch intervals, the battery was either being charged or discharged. Only 37% of the time was the battery not being used in any way. Furthermore, nearly 40% of these zero utilisation periods occurred in December while the battery was still being tested.
From Dec 2017 to Mar 2018, the Tesla battery consumed an average of 116 MWh per day for charging. In contrast, it delivered an average of 94 MWh per day back into the grid. From this we can work out that the average efficiency of the battery has been 82%. As expected, the efficiency of the battery is lower under real world conditions than the spec sheet efficiency of 88%, which is calculated at 25°C.
Tesla battery made $1.4 million in the energy market, but is losing money 47% of the time
Figure 2 shows our estimate of the value that the Tesla battery received from selling electricity into the energy market versus the cost of buying electricity to charge the battery. We estimate the total net revenue from the energy market to be just under $1.4 million. The overwhelming majority of this came in January 2018 when the energy market experienced the highest volatility. In contrast, the Tesla battery barely made any money in December and March.
When arbitraging the spot market, the aim of the game is the same as trading stocks: buy low, sell high. A crucial difference is that you not only have to sell at a price which is higher than your buy price, but you also have to cover the cost of the extra energy that is needed to charge the battery (because energy efficiency is less than 100%). Therefore, the days with the most volatile pricing offer the biggest opportunities for arbitrage. Figure 3 shows that the Tesla battery made 95% of its net revenue in just five (very volatile) days.
If we exclude these five days, the average net revenue for the battery is a measly $530 per day. In fact, on 57 days (47%) the Tesla battery actually lost money in the energy market. The total losses over the 57 days add up to about $135,000. As mentioned earlier, this analysis looks at the revenue from the energy market only. It does not include any of the revenue received from providing ancillary services. Nonetheless, our numbers do suggest that the operators of the battery will need to be careful to avoid needlessly cycling the battery for little financial gain. This is an important consideration because the lifetime of a battery is strongly related to how many times it is cycled.
Furthermore, “buy low, sell high” is not as easy as it sounds. The energy market is incredibly complex. In our experience, a successful bidding strategy needs to be underpinned by advanced predictive analytics and co-optimisation. Failure to do so can result in the asset significantly undershooting revenue expectations. Some food for thought as the race to build big batteries begins.
Author: Marija Petkovic, Founder & Managing Director of Energy Synapse
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