At a lower cost … compared to what exactly?

Just an update on previous post about new big batteries to be built in New South Wales. In that post, the author made the claim that grid-size batteries are cost-effective and come at a low(er) cost. Here are the instances in the article were such claims are made (my emphasis):

In doing so, TransGrid will demonstrate that batteries can provide the most cost-effective solution for NSW’s projected upcoming inertia shortfall,” Miller said.

This innovation will help accelerate the industry’s transformation to a low-carbon energy system, at a lower cost to customers” she said.

Batteries offer a solution to this challenge at a small fraction of the cost of traditional technologies such as synchronous condensers.

Research and results from the trial will be shared to support future projects and help demonstrate that battery technology is a low cost and technically viable solution to the emerging challenge created by the transformation of the generation sector.

Again, this looks impressive and also confirms the narrative of the media and some researchers that renewable technologies are cheap. If this is really true, then migrating to a combination of solar, wind and batteries seems the most logical thing to do.

However, not everything is what it seems.

When consumers in New South Wales would read this article, then they would probably be delighted. This battery is described as low cost, the most cost-effective, just a small fraction of the cost of traditional technologies, therefor facilitating the transformation at a lower cost to the consumer. What is there not to like?

You now would probably think that this means that the electricity price for the consumer in New South Wales will go down because of these cost effective, low cost solutions. Well, I am not so sure about that.

The article is primary about inertia services and this is a very specific part of electricity production. Inertia provides a buffer against rapid changes, ensuring that the system stays stable and is less susceptible to blackouts. When part of the system breaks down, it gives the other providers more time to step in.

The author of the article correctly acknowledged that inertia is traditionally provided by the conventional power generators like coal and gas. This all changes when adding intermittent power sources like solar and wind power to the grid. They don’t have inertia like the conventional power sources and this loss is what these batteries are supposed to fix. However, the intermittency of solar and wind will cause even more rapid changes on the grid. The more intermittent power sources added to the system, the more actions are needed to keep the frequency within its normal range of operation. Not sure whether this also is taken into account.

But, but, if those batteries are so cost-effective and come at a low cost, then why the need to support them? The Wallgrove battery will get at least a $20 million support according to the article. That is roughly one third of the projected cost… In principle, that should not be necessary if that battery was deemed profitable.

This claim should be seen in the context of inertia. These batteries don’t replace anything, they will be added to the grid in order to provide the inertia that will disappear when these coal power plants are being retired. Even when those batteries would completely tackle the loss of inertia, New South Wales still need to tackle backup production to overcome periods of no(t much) sun or no(t much) wind.

Backup capacity could become an even tougher nut to crack than the loss of inertia. When intermittent capacity increases, the backup capacity will not decrease much while production at peaks will increase dramatically. This means that, on the one side, there will be an overproduction when there is a lot of sun and a lot of wind. On the other side, the need for backup capacity will not decrease easily. It is necessary to prevent the grid from overloading (when there is a lot of sun and wind), but also to prevent the grid from collapsing (when there is no sun and not much wind). Solar and wind don’t follow demand, so production lows could also occur during peak demand and backup capacity should be enough to roughly cover peak demand.

This backup capacity will only be needed when there is no(t much) sun and no(t much) wind, therefor it will become economically not viable. The first batteries will surely earn quite some money, but income will diminish the more backup capacity gets installed. More and more of that capacity will sit idle, not making money. This will make additional capacity less attractive for investors. Just as the batteries used for frequency control and inertia, backup capacity also will become in need of extra support.

In the end, it depends on what is compared to. Looking at the increasing need for support, the cost of electricity only seems to move in one direction and that is up. That “lower” cost is therefor not something that will end up being subtracted from the energy bill of the consumer, it is a virtual gain. It is certainly possible that these batteries only cost a fraction of traditional technologies and therefor make transition cheaper, but this inertia is only part of a bigger story. A low(er) cost for inertia services doesn’t necessarily mean an overall lower price. Electricity will become more expensive, “at lower cost” in this context means just less expensive than when using some other technologies.

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