Last week the energy and mainstream media was a-flurry with excitement around the social media tango between two darlings of the tech world: Mike Cannon-Brookes of Atlassian and Elon Musk of Tesla. Their “unicorns” (companies worth more than a billion dollars) give them the clout that when they say things, people stand up and take notice. And take notice we should, because the solution they’re working on could have a monumental impact on Australia’s energy “crisis”.
The bet
For anyone who missed it, Elon and Mike brokered an informal deal over Twitter last week after Tesla’s VP of Energy Products, Lyndon Rive said Tesla could provide the 100–300 MWh of storage needed to solve South Australia’s energy security problem in only 100 days. When Mike caught wind of this he checked in with Elon who, in quintessential Musk style, put a bet on the delivery time.
The exchange, and the ensuing media coverage, even caught the attention of our top politicians:
Value for money
Since the announcement, utilities and battery storage providers have announced alternative offerings which match Tesla’s commercial terms. And those terms are exceptionally competitive. For the 100–300 MWh of storage offered in the deal, Tesla has quoted $250/kWh — half the $500/kWh figure quoted on the previous day!
In October last year, James Martin wrote in One Step Off The Grid that battery prices would need to reach $300–$500/kWh to be a “no brainer” investment. Whilst James was writing about home-scale batteries (as opposed to grid-scale) we can see that we’re fast approaching “no-brainer” territory.
Ownership and control
But… is a big battery for South Australia the panacea we all want and need? One concern is the question Mike, our utilities, and our state and federal leaders are working through: who is going to pay for (and own) the asset? And in whose interests will it be operated?
This answer will have far-reaching implications. A report released yesterday by the Grattan Institute presents research which shows that power prices have almost doubled over the past decade. This so-called “Price Shock” is despite widespread retail contestability (designed to foster competition to put downward pressure on retail offerings) and asset privatisation (hailed as a means of harvesting greater utility efficiency). The report points to blatant price-gouging by the major electricity retailers and, back in 2014, the Institute also investigated network “gold-plating” as a significant contributor to our bloated electricity bills.
Hence, the question of who will own South Australia’s battery is important. Yesterday, the South Australian government released its $550m Energy Plan which includes the battery, a new $360m gas power plant (for back-up) and gas exploration activities. Apart from the fact that the South Australian rate payer may be funding the assets — which, in the case of the gas plant will be heavily under-utilised — we must carefully consider on whose terms the battery will be operated. Generators have already come forward offering land to house it and a grid connection, so their role is still to be determined. If the battery is operated by a generation company, the current state of the National Electricity Market (NEM) might incentivise usage behaviour which could serve to increase wholesale prices. If owned by a retailer, it may add to reliability but there is little to no incentive to use the battery to reduce customer’s bills, and could even facilitate further “price-gouging”. And if owned by a network business it might be added to that company’s regulated asset base, serving to drive costs up for all consumers.
Another facet to the argument is that the battery promises to improve the reliability and security of the grid. Will it, though? A centralised facility, like that under consideration, will be subject to the same limitations as coal, gas and wind generators in the event of a storm like the one experienced in South Australia in September last year. That’s because it was the transmission infrastructure which failed and if there are no poles and wires to connect capacity to load, there is no benefit in a big battery.
Is there another way?
So how might we solve the challenges of asset ownership and reliability whilst driving costs down? One option is a distributed solar+storage grid — which Elon Musk has said he wants to build — one which ‘empowers individuals to act “as their own utility”’. Whilst this might seem at odds with his strategy of offering utility-scale storage in this circumstance, Tesla also offers a home-scale battery, the Powerwall 2, which has a pre-installation price of $570/kWh. This is not far off the original quoted price for South Australia’s battery farm, so perhaps Musk would be willing to halve the cost of the Powerwall 2 if 100 MWh worth were on order? With such attractive economics of home (or “behind-the-meter”) batteries, and the resultant reliability benefits, it almost seems like a “no-brainer”. And at these price points, which approach grid-parity in almost all jurisdictions, the assets can be owned by individuals rather than government or industry.
All we need to complete the picture is an economic system which ties the benefit of solar, storage and other “distributed energy resources” together in an equitable way. Many close to the issues say our existing market, the NEM, is ill-equipped to facilitate the distributed energy revolution we’re seeing. If this is true, there’s a real need for a market designed just for distributed energy resources — the very thing I, and the team at Nexergy are working on.
Research released late last year by the CSIRO and Energy Networks Australia shows that such a “transactive” grid could reduce the average network bill by almost a third whilst returning power to the people. The research also points to the reliability and security improvements facilitated by such a system. What’s more, a distributed transactive energy system with customer-friendly control of behind-the-meter resources delivers asset ownership back to the community, leading to greater energy equity.
The next steps our leaders take to solve the South Australian energy crisis will be critical in determining the shape of our system for decades to come. Has the answer been found on Twitter? One thing’s for certain — the world is watching.
Posted by: Darius Salgo, CEO of Nexergy.
