Storage continues to be touted as a technology that will solve many of the issues on the grid, from providing peaking energy, correcting frequency events and providing network support. We take a look at four battery storage systems currently active in the NEM.
So far we haven’t seen a battery proceed on a fully commercial/merchant basis (i.e. without government intervention or subsidy). This is the case even for the Lake Bonney battery, which was energised earlier this year but not included in this analysis and had ~$10mn in funding from the SA government and ARENA.
For batteries the most important commodity is the energy it procures for two reasons: firstly, a battery is a net consumer of energy (with purported roundtrip efficiencies in the range of 80-90%), so it must be able to procure energy at a lower price to be able to sell it at a much higher price; and secondly, batteries are restricted by warranties and, correspondingly, degradation in the amount of energy they can hold (warranties allow in most cases somewhere between just under one and up to two cycles per day on an annualised basis).
So then, how much is energy worth to a battery? The energy spreads range from $207/MWh for Gannawarra to $690/MWh for Dalrymple. However, for Gannawarra the “energy arbitrage” is ~100% of its revenue stream, while Dalrymple makes less than 10% of its revenues from energy trading.
What we see for the most part is that the Frequency Control Ancillary Services (FCAS) markets are much more lucrative for batteries as they are able to sell the capacity of the battery without having to provide any energy (i.e. only in a contingency event, which happens rarely). Contingency events can be due to a sudden loss of load or generation, which if we consider coal and gas trips in 2018 plus the total unplanned network outages (not all of which would have caused contingency events), this would still only amount to 3.2% of dispatch periods.
Accordingly, we find that batteries are making most of their revenue in the FCAS Raise services. Regulation Raise services are the most lucrative by $/MW with the average price received by Ballarat and HPR ranging from $72/MW/hr to $42/MW/hr. The prices received in the other Contingency Raise services are much lower and ranged from $3.3/MW/hr in 6 Second Raise to $11.7/MW/hr in 5 Minute Raise service.
Apart from Gannawarra, which plays predominantly in the energy market (likely due to its co-location with the Gannawarra solar farm), the other battery assets are using available capacity to maximise revenues in FCAS while limiting energy throughput and battery degradation.