Elon Musk Just “Delivered the Goods” in This Australian Energy Project

Power outages are an unfortunate reality these days.

From natural disasters like Hurricane Maria – which left Puerto Rico in the dark for months at a time – to simple power grid failures and downed power lines from a gust of wind, the list of places left without power is never short.

And in the state of South Australia, in wealthy, highly developed Australia, it’s a constant battle.

In 2016, this region’s problem with its power grid accelerated with a large-scale blackout leaving residences in some areas without power for weeks at a time.

However, some intriguing (and potentially extremely lucrative) developments have just unfolded there…

The Future of Energy Just Got Closer

A little over a year ago, I discussed an intriguing project combining Tesla, French renewable company Neoen S.A., a subsidiary of Impala SAS, and the government of South Australia.

This project involves the world’s largest lithium-ion battery, paired with Neoen’s windfarm at Hornsdale, to feed the blackout-plagued South Australia.

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As I said then, the project combines a huge system designed by Tesla with a nearby 99-turbine wind farm operated by Neoen. To add some spice to the announcement, Tesla founder and head Elon Musk pledged that he would provide the project for free if the 100-day commitment could not be met.

Well, as it turns out, Musk delivered on his bet. The project began operations on Dec. 1, 2018.

And here’s how it’s revolutionizing renewable energy for the future…

The Cost of the Largest Battery Project in the World

This 100-megawatt (MW)/129 megawatt hour (MWh) Tesla battery is located adjacent to the Hornsdale 99-windmill farm near Jamestown in the mid-north of the state, some 142 miles north of Adelaide, South Australia.

The battery will not completely solve the current power problem, as it’s designed to provide electricity for about 30,000 homes, but an initial success will allow for a rapid expansion of applications.

Now, according to a Neoen filing late last month, revenue flow is strong; the company claims that a third of the project construction cost should be recouped in the first year of operation.

In addition, the French company has filed for an initial public offering (IPO) on the French stock exchange – a tantalizing prospect for investors – but no word yet on whether depository receipts will be available for trade in the United States.

The 400-page IPO filing is important because it provided the first indication of how much the project cost and what the financial results have been – the expense in building the facility had previously been withheld as a “commercial confidence.”

The document says the world’s largest lithium-ion battery had a capital cost of $64.3 million, whereas anecdotal estimates had put the amount at between $142 and $284 million.

For his part, Musk had put the figure at closer to $30 million, while battery division head at Tesla, Lyinon Rive, had said it would only cost $36 million.

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On the revenue side, Neoen reported that the battery generated $9.2 million from network services in the six months ending June 30. Almost $1.4 million of that was from its 10-year contract with the South Australian government to provide reserve capacity for the state’s electricity network.

It also made $7.69 million from the sale of stored electricity with the remaining revenue coming from trading on the frequency and ancillary services market.

As for the South Australian government, the contract calls for 70MW of capacity with an additional modest amount of storage, leaving 30MW and the bulk of the battery’s storage capacity available to sell on the national energy market.

Australian energy experts have said that the financial returns came in better than the already high expectations for the project, but as more battery projects came online the rate of revenue growth could be expected to slow. “There’s a finite need for these ancillary services,” one said. “They are very important resources, but it’s quite a small market in the scheme of things.”

Nonetheless, it is a niche that Neoen plans to dominate.

The company has several additional Australian projects underway, including a 20MW battery attached to the proposed 194MW windfarm at the Bulgana green power hub in Victoria, 90% of which is contracted to the Victorian government. It is also proposing a 50MW storage facility at Kaban, in Queensland.

However, the Hornsdale undertaking is not without its troubles.

Unexpected Fallout from a Revolutionary Project

The official secrecy over costs and how the project was processed has become a political football match with Aussie rules. The current South Australian government is accusing its predecessor of rushing into the project in a bid to find a miracle cure to the state’s power woes after it was hit with widespread blackouts during spring and summer of 2016 and 2017.

“The information that was released by Neoen a couple of days ago… makes it very clear the previous government’s implementation and delivery of the battery was incredibly messy and overly expensive,” Energy Minister Dan van Holst Pellekaan said during an interview with ABC Radio Adelaide. “It actually costs taxpayers’ money. There’s a cost of $4 [million] to $5 million a year to have the battery in place … There are more costs than that involved.”

I have heard from sources with knowledge of the expenses involved in running the Mira Loma project in California that such operating expense figures are accurate. “Hornsdale almost certainly has residual costs that are not factored into either the construction expenses or the ongoing operations.”

Another suggests that “combining the (battery) power packs with the wind farm may allow for some creative accounting.”

Still, as a proof of concept goes, Hornsdale may just be a turning point in combining renewable energy sources.

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