The Hornsdale Power Reserve, HPR, battery system, 100 MW/129 MWh, in Australia, was the largest battery in the world in 2017. It is located near a 315-MW, French-owned wind turbine plant.
In 2017, various capital costs of the system were mentioned. About 1.5 y later, documents revealed the turnkey capital cost was about 56 million euros, about US$ 66 million, or 66 million/129,000 = $512/kWh; this was a low price, because Tesla was eager to obtain the contract. The URLs show the turnkey capital cost and an aerial photo of the system on a 10-acre site.
- It is important to specify battery capacities, such as the capacity of 100 MW/129 MWh for the HPR. One without the other makes no sense.
- Prices of just the batteries is one thing, turnkey capital cost of an entire system is quite another.
- Tesla had to airship the entire Tesla supply from the US to Australia to comply with tight schedules.
Modes of Operation
The HPR revenues are derived from its primary functions, which are:
- The FCAS market, i.e., grid regulation. The battery rapidly performs small charging/discharging to help maintain grid frequency within narrow ranges, as specified by the grid operator. This service provides most of the revenues.
- Daily charging when wholesale prices are low, daily discharging when wholesale prices are high, aka arbitrage. This service provides a minor part of the revenues. See URL.
If called on by the grid operator, the battery may serve to:
- Help mitigate the effects of load-shedding blackouts.
- Help provide stability to the grid during times when other generators are started, during times when sudden wind output decreases occur, or during times other network issues occur.
This chart shows cumulative net charge/discharge of the battery vs flows on the Heywood interconnector and the regional reference price (the actual flows on the battery are the rate of change of the cumulative position, which reveals losses in the system as it increases to a multiple of the capacity over the period). At the time, Heywood was thermally limited to 600 MW import, 500 MW export.
This chart shows the output from the Hornsdale wind plant and the charge/discharge of the battery (both as flows, and cumulatively)
It is evident HPR is not used to stabilize the wind plant output. It is primarily used for response to frequency deviations on the grid – the so-called FCAS market – a service which provides its day-to-day income.
Because the battery spends a significant portion of its effort on grid frequency support, it performs small charging/discharging, 24/7/365, but, at the same time, it performs daily major charging/discharging for arbitrage purposes.
Reneweconomy has some analysis that benefits from some insider revenue information
Annual Operating Costs
A detailed spreadsheet analysis of the cash flow of HPR was not made for this article, because of a lack of public information. Various items of information would be required, such as:
- Return on Investment: Investors likely would require a return on investment of at about 10% per year.
- Bank Loan Interest: Bank loans likely would be at about 4% to 5% for 15 years. If $40 million were bank loans, amortizing at 5% per year for 15 years would require annual payments to the bank of $3.8 million per year.
- Battery Life time: The life of the battery system would be about 15 years
- Battery Degradation: There would be battery degradation due to aging and use, i.e., more resistance to charging, less storage capacity, more resistance to discharging, which would be affected by the average level of daily throughput.
- Battery Charging/Discharging Loss: Battery charging/discharging loss in year 1 would be about 18%, on a high voltage AC to high voltage AC basis; higher in subsequent years.
- Other Costs: Other costs would occur, such as for insurance, maintenance, operation, and HVAC of the batteries.
- Direct and Indirect Subsidies: There would be financial benefits to owners from indirect subsidies, such as accelerated depreciation under MARCS, deduction bank loan interest, etc., and from direct subsidies, such as federal investment tax credit, FTC, state investment tax credit, STC, waiving of sales taxes, waiving of property taxes, etc. See Appendix.
WIND AND SOLAR SUBSIDIES PROVIDE A BONANZA FOR WALL STREET
This URL shows wind and solar prices per kWh would be at least 45% to 55% higher without subsidies, and they would be even higher, if the costs of other items were properly allocated to the owners of wind and solar projects. See below section High Levels of Wind and Solar Require Energy Storage.
This URL shows about 2/3 of the financial value of a wind project is due to direct and indirect subsidies, and the other 1/3 is due to electricity sales.
An owner of a wind and solar project, looking to shelter taxable income from other businesses, is allowed to depreciate in 6 years almost the entire cost of a wind and solar project under the IRS scheme called Modified Accelerated Cost Recovery System, MARCS; the normal period for other forms of utility depreciation is about 20 years
Then, with help of Wall Street financial wizardry from financial tax shelter advisers, such as BNEF*, JPMorgan, etc., the owner sells the project to a new owner who is allowed to depreciate almost his entire cost all over again.
The loss of tax revenues to federal and state governments due to MARCS is estimated by the IRS at $266 billion for the 5-y period of 2017 - 2021, at about $53.2 billion/y.
The IRS is required to annually provide a 5-yr running estimate to Congress, by law.
The next report would be for the 2018 - 2022 period
Thisindirect largesse, mostly for wind and solar that produce expensive, variable/intermittent electricity, is in addition to the total of direct federal and state subsidies to all energy projects (MARCS and other) of about $25 billion/y.
* BNEF is Bloomberg New Energy Finance, owned by the pro-RE former Mayor Bloomberg of New York, which provides financial services to the wealthy of the world, including providing them with tax avoidance schemes.
Warren Buffett quote: "I will do anything that is basically covered by the law to reduce Berkshire's tax rate," Buffet told an audience in Omaha, Nebraska recently. "For example, on wind energy, we get a tax credit if we build a lot of wind farms. That's the only reason to build them. They don't make sense without the tax credit."