Just when you thought you couldn’t possibly squeeze another wind farm into South Australia’s already high renewables grid, along comes another project.
Lincoln Gap is a 212MW wind project that in many ways encapsulates the transformation taking place in the Australian energy market.
It is based in Port Augusta, the former coal generation city that is now the centre of half a dozen ground-breaking projects; it is “going merchant”, meaning that it is not relying on incumbent retailers for the bulk of its revenues, and it is testing out battery storage.
The emergence of Lincoln Gap is not a surprise – its construction was flagged earlier this year when it landed its first off-take agreements, and after the nearby 220MW Bungala solar project, is one of the most advanced of a series of projects – Whyalla Steel, DP Energy, Tailem Bend – that collectively will double South Australia’s renewable energy capacity in the next few years.
What is new is the way it is structuring its business, and the fact that it will be the first wind or solar farm to add battery storage with no direct government subsidy (it is likely to be completed before the neighbouring solar and storage facilities servicing the neighbouring Whyalla steelworks).
In stage one of the project, 126MW of wind, the Singapore-based developer Nexif Energy will add 10MW/10MWh of lithium ion battery storage to test the market for FCAS (frequency control and ancislliary services) and time shifting the output of the wind farm (storing some for high priced peak intervals).
The next stage of the project could see that amount of battery storage trebled, according to project manager Zeki Akbas, the head of Nexif’s Australian development operations.
“In this (first stage) we going to performance test the battery,” Akbas tells RenewEconomy, adding that the preferred supplier has not yet been chosen, but a short-list has been drawn up.
“We are designing the battery for time shifting, and for participating in the FCAS market, so we can see what roles can it actually play in that market.
Does battery storage have a strong business case?
“Batteries are coming to the market – that’s not a debate. It’s just a mater of when they going to come and how they are going to come,” he says.
“The business case for battery storage is a very tricky one – the outlook for the ancillary market is quite uncertain and there is a range of outcomes, some of which are profitable, some of which are not.
“If you had just a battery as a stand-alone, separate from a wind farm, my answer would be that would be a no-go today.
“That doesn’t mean should do anything about it. If you start a year later, probably too late. But there are a lot of synergies with the wind farm and our merchant operation does provide a level of security to us.”
Indeed, the Hornsdale wind farm, which hosts the Tesla big battery, will ultimately be delivering all. its output to the ACT under a fixed contract, so it will be operating its network services and time shifting as a separate business.
Lincoln Gap, on the other hand, is holding a significant part of its output for the merchant market, selling it at spot wholesale prices.
Akbas says that the bundled sales market – which has seen developers of big wind farms such as Stockyard Hill, Silverton, and Coopers Gap sign contracts for $60/MWh or less – is not attractive.
Nexif did sign up for some contracts with ERM (for LGCs) and Snowy Hydro (electricity) to lock in some revenue, but the company feels there is potential to do much better on the open market. Battery storage should help it.
“Our approach, after looking at the market last year – was that the bundled sales market was not vey attractive, even including the financing that goes with it..”
“There is not a lot of developers offering contracts that are needed by the market.” And this situation may worsen as the RET approaches completion and the retailers are no longer forced to seek contracts.
And getting Australia’s big banks to embrace this new concept is still not easy.
Nexif turned to the Clean Energy Finance Corporation to provide the bulk of the $190 debt required, although Investec (which once owned Hornsdale), put in some $40 million.
Surprisingly, it was the first wind farm financed by the CEFC in South Australia, but the added attraction for the CEFC was that the wind farm was not actually contracting to the biggest retailers in the state, and so was adding to competition.
“That’s where we feel it is important for us to play a role in these financings where there is some merchant exposure and the mainstream banks still don’t want to play,” CEO Ian Learmonth says.
“It’s one that is at the forefront of this new wave of projects. ”
(You can hear Learmonth discuss this project in our latest Energy Insiders podcast).
And what does Nexif think of the proposed National Energy Guarantee? “The NEG has a long way to go in my mind. There is not a lot of detail worked out, and it will be all about the detail,” Akbas says.
Learmonth also has some strong views on the subject, and says he has a particular interest in the modeling assumptions that the Energy Security Board will be using to justify the plan. (Hear more here).
Giles Parkinson is a journalist of 30 years experience, a former Business Editor and Deputy Editor of the Financial Review, a columnist for The Bulletin magazine and The Australian, and the former editor of Climate Spectator.