ENERGY WATCH #4 - October 30, 2018
A new industrial wind power model – and “another big battery” that has “changed thinking about the grid”
by Karel Beckman
For those readers who still believe that “renewable energy is too expensive to compete with fossil fuels” and “too variable to be reliable” – I have news. Bot these beliefs are (increasingly) obsolete.
Bloomberg published an interview on 22 October with Loreto Ordonez, chief executive of Engie Spain. Key takeaway in one sentence: “Developing renewables subsidy-free in mature markets is a ‘new reality’, and the 300-megawatt Goya wind project in Spain will set the standard for how developers can counterbalance increasing exposure to market prices,” said Ordonez.
Engie has signed a complex power purchase agreement for a proportion of Goya’s wind generation and has also taken a 15% equity stake in the project to “show commitment” and because the utility sees “value in the performance of the share”, said Ordonez.
The project shareholders hope to benefit from an increase in market prices by selling part of the wind farm output on the wholesale power market, she explained. Additionally, “Engie will be responsible for managing the civil and electrical work for the project in partnership with local companies.”
Engie views this as “a new industrial model of ‘joint value creation’ where Engie is reducing risk in project development by overseeing numerous elements of the project.”
“The framework is an inspiration for us to take into other markets”, particularly those with increasing exposure to market prices, said Ordonez.
Ordonez called the financing “an innovative way of developing renewables. Goya is a way to make compatible the Group ambition to scale up in renewables with the new reality of the Spanish market, and other markets too, of increasing exposure to market prices. We are implementing Goya through an industrial business model – to create competitive advantage by bringing together our know-how in the renewable value chain. In Goya, we are not just putting together a PPA – which is making the project bankable –we are also participating in the equity; we are the energy offtaker; the green energy manager; and we build up part of the project – so we are doing all the civil and electrical work (balance of plant), in a joint venture with local partners.”
“So we are not only signing PPAs in the market, but we are trying to develop industrial models. At Engie, we strongly recommend our potential clients to sign PPAs at the same time as financial agreements in order to ensure that all business development phase is closed. Ultimately, a PPA supports the bankability of a project –so it makes sense to sign it at the same time as arranging bank financing.”
“The renewables market is moving to a new reality of increasing exposure to market prices”, notes Ordonez. “Goya is an innovative pilot that will set a new path to develop renewables in mature markets. This is not just a one-off in Spain –the framework is an inspiration for us to take into other markets.”
“We are looking at this project as an industrial project, so taking on the electrical and mechanical installations is an additional element to value creation. We are trying to counter-balance market risk not only by signing the PPA but also by adding additional levels of value creation into the project. From the beginning of entering into the project, we had this idea of industrial value creation. We want to bring every level of expertise that we have to the project, to capitalize value out of it. In order to do the balance of plant, Engie had to put in place a joint venture with local partners.”
The lesson of this story: it is a mistake to think of a renewables-based electricity market in static terms. Market players react to challenges (such as lower or zero subsidies) and come up with inventive solutions. (One more reason not to opt for a “socialist model” to combat climate change, as some misguided souls are advocating.)
Another technological fix that is enabling ever higher levels of intermittent renewable energy – and changing electricity market in the process – is battery storage.
Giles Parkinson reported recently how the Tesla big battery in Australia – the largest lithium-ion battery in the world – has “exceeded all expectations. Quicker, cheaper and with greater reliability, versatility, accuracy and efficiency than predicted, the storage system also looks set to provide a fast return on investment.”
He followed this up with another fascinating article, on 15 October, about a second big battery in Australia, which has not received the attention the Tesla battery got, but turns out to be just as much of a success.
“The Newman battery storage project, installed just over a year ago in a private-only grid in the Pilbara serving mostly mining industry customers in Australia’s north-west, is having just as profound an impact on the way people think about the grid”, notes Parkinson.
“The 35MW/11.4MWh Kokam lithium-ion battery was installed in September last year by Alinta, next to its 178MW Mt Newman gas-fired generator, which supplies mining operations such as Gina Rinehart’s Roy Hill facility…. Like the Neoen/Tesla big battery, the Newman battery has shown that it is faster, smarter, cheaper, and more reliable than the fossil fuel generators around it.”
The battery “has done what most experts thought it could not do”, writes Parkinson: “provide sufficient inertia to the local grid in the absence of thermal generators.”
The Kokam battery won the WA [Western Australia] Excellence in Engineering Award. The jury report concluded that “There is no real difference between the battery and mechanical (rotating mass) systems. And its speed of response has all but eliminated the supply interruptions that were relatively common in the small grid that relies on comparatively slow gas generators.”
In addition, “it has led to a significant saving on back-up gas generation.”
“It is the first, as far as can be determined, utility-scale battery energy storage system to provide grid-forming services on a high voltage network,” the citation for the award reads. “Until now, the conventional thinking had been that electrical networks needed thermal generators to be online and operating to provide the required inertia to support the network. Thanks to this significant milestone in electrical engineering, that is no longer the case.”
Parkinson observes that “you hear a lot about the so-called reliability of baseload fossil fuel generation. But the reality is that they need a lot of back-up in case of failures, which are frequent. In a big grid, that goes largely unnoticed, but in small grids like the Pilbara it stands out. The Mt Newman gas facility consists of four different units, and usually two of them are needed to back-up another. Not so now, with the new battery.”
According to Gary Bryant, Alinta’s head of asset strategy, the Newman battery can do at least three things that were previously not seen with such installations, reports Parkinson: “it can operate in standalone mode, it has grid-forming capability, and can provide frequency control by acting as a virtual generator.”
“It’s the ability to provide enough fault current to keep the grid stable whenever everything else goes pear-shaped that has proved the most valuable. The nature of such grids means that generators can be lost, and large loads can be lost.”
“We have had situations where we had no thermal generators, and the battery’s been able to hold the transmission line by itself,” Bryant said.
And the same thing has occurred when up to 80 per cent of load is suddenly lost. “The battery has responded within milliseconds, absorbing the excess load until the system restabilises to ensure no loss for other customers,” Bryant said.
Previously, because of the slower response of the gas generators, cascading losses were often unavoidable. “We’ve definitely had fewer outages – our customer’s very happy with improvement of power quality.”
Is Bryant surprised? “Not really. The Alinta team travelled to South Korea to look at that country’s considerable deployment of battery storage, and choose the set-up that suited the Newman site best.
And he says there is a huge amount of interest in what it’s achieved.”
“It is changing the way everyone is thinking about these operations,” Bryant said. “The industry, generally, is starting to look at these things being genuine options to reduce gas consumption and maintain system strength and power quality.”
“We’ve had a lot of interest from miners – from the petrochemical industry, and from grid operators. We’ve had AEMO (the Australian Energy Market Operator), and quite a number of meetings with technical and policy advisors (from different governments).”
And he says there is no doubt that battery storage is now the technology of choice. Everyone wants one.
European electricity companies are sure to take note. Count on more and faster change in electricity markets and network operations.