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Concentration of CO2 in the Atmosphere

The Disruption has Begun

Batteries are starting to wreck the hopes of fossil fuels

By George Harvey

The Hornsdale Power Reserve (HPR) is a big battery in South Australia. At any given instant, it can provide 100 megawatts (MW) of power. It can keep up a discharge of 70 MW for about ten minutes, and 30 MW for another three hours. Its energy storage is rated overall at 130 megawatt hours (MWh).

The Hornsdale Power Reserve. Source: Tesla.

HPR started making headlines quite a while before it was built. Elon Musk challenged the government of South Australia, saying that Tesla could build the battery in 100 days, or they would get it for free. Of course, they had to open the process for bids, which they got from ninety organizations. But in the end, Tesla won both bid and bet; the battery was built in a little less than a hundred days.

While that is a remarkable story, it is really only the introduction to what may be a historic turning point. The battery, which was installed late in 2017, has now been operating for six months. The numbers on its performance have come in, and those months have been a watershed period.

Before we go further, we should review how electricity is sold in the wholesale market. There are long contracts, some of which lock in prices for decades. For example, the Vermont Yankee nuclear power plant (VY) had a 20-year contract with the state of Vermont to supply power at 3.5 cents per kilowatt hour (kWh). This was a big advantage to the state, which ended up saving a lot of money as prices rose, but, in the end, it may have cost VY more to generate the power than it was paid.

Power is also sold under futures contracts range from year-ahead down to day-ahead. These contracts are for the supply of a specified number of MWh of electricity, at a fixed rate, during a given period. They benefit utilities by offering assurances that the power they need will be there. If a utility or large company can see, for example, that there will be a heat wave starting five days hence, it may buy extra power on the appropriate market to cover the amount it will need to supply customers.

There is the spot market. It operates for times sometimes as short as five minutes. For example, if a baseload power plant suddenly fails during a heat wave, there is loss of generating capacity combined with a high demand, and it must be met, regardless of price.

During really high demand periods, if there is not enough power, the actual frequency of the AC power sometimes has to be changed to keep the grid going. This creates a market for what is termed frequency control ancillary services (FCAS). The FCAS market, which usually operates on the spot market, has the highest prices.

Baseload plants are very inflexible and can take many hours to change their output. So on a mild spring early Sunday morning, when nobody needs much power, the plant may be producing more than it can dispose of. In such a case, the spot market can go into negative pricing, and the power plant will have to pay somebody to take the power it produces.

Power producers have to be competitive when they bid for long-term contracts, but that means they cannot make a huge amount of money on them. What some of them have done is to sell some percentage of their power at a low price under a long-term contract, guaranteeing a steady income, with the rest going to short term or spot markets, where they hope to make the money then need to make a profit.

You might ask what the differences in price are. In Australia, where HPR was built, there is a law capping the price of power on all markets at $14,000/MWh. (Australian dollars are about $0.75 U.S.) It is clear to see why some companies would risk having to pay 10¢/kWh to get rid of power from time to time, when they can get upwards of $10/kWh once in a while.

During the first four months of operation, HPR took up 54% of the South Australian FCAS activity, driving prices on that market down 90%. The $50 million that South Australia put into the battery saved the state $35 million in four months.

While this speaks to a remarkable return on an investment, it tells another story with worldwide implications. It means that any organization that has been selling at extremely competitive prices on the wholesale power market, making up for lackluster performance on the short-term markets, will have to change strategies. Unless it invests in batteries, it will probably have to make more on wholesale baseload power, and that means raising prices.

The ratepayers, however, get a break. Even in the absence of renewable energy, the average prices of power would decline. And this means a reduction in retail costs.

And finally, there is another clear implication. Solar power and wind power, whose prices are already competitive with the lowest priced power generated from fossil fuels, gain in the competition, because they will no longer have to struggle with an image focusing on their intermittent nature. We can see much more solar and wind generation in the future.

And this means our air will be cleaner, and we can all breathe easier.

You might also be interested in the article, “The End of Fossil Fuels is In Sight,” on page 19.

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