FINANCIAL ANALYSIS OF MEGAPACK BATTERY SYSTEM; 2023 PRICING

Utility-scale, battery system pricing usually not made public, but for this system it was.

Neoen, in western Australia, turned on its 219 MW/ 877 MWh Tesla Megapack battery, the largest in western Australia.

Ultimately, a 560 MW/2,240 MWh battery system, $1,100,000,000/2,240,000 kWh = $491/kWh, delivered as AC, late 2024 pricing. Smaller capacity systems cost much more than $500/kWh

Financial Analysis of Megapack Battery System; 2023 pricing
Assume battery capacity at 45.3 MW/181.9 MWh, a 4-h system

Turnkey cost $104.5 million

Specific cost $104,500,000 /181,900 kWh = $574.5/kWh
Amortize bank loan, $52.25 million, at 6.5%/y for 15 years;

Owner investment, $52.25 million, minimum 10%/y for 15 years;

Assume battery daily usage at 40% of capacity, which decreases with aging;

Battery system capacity aging at 1.5%/y loss for 15 years

Year 1 arbitrage

Year 1 roundtrip battery system loss factor = 0.9 *0.9 = 0.81

Battery delivers to HV grid at peak hours = 365 d/y x 181,900 kWh x 0.4, usagex 0.9 = 21,511,494 kWh/y, which Owner sells at wholesale price of 8 c/kWh

Battery takes from HV grid at midday = 26,557,400 kWh/y, which Owner buys at wholesale price of 4 c/kWh

Battery roundtrip loss = 5,045,906 kWh/y

Year 15 arbitrage

Year 15 roundtrip loss factor 0.81 x (1 - 0.015) ^14 = 0.655

Battery delivers to HV grid at peak hours = 365 d/y x 181,900 kWh x 0.4, usagex 0.655 = 17,395,097 kWh/y, which Owner sells at wholesale price of 12.10 c/kWh

Battery takes from HV grid at midday = 26,557,400 kWh/y, which Owner buys at wholesale price of 6.05 c/kWh

Battery roundtrip loss = 9,162,303 kWh/y

Year 1 O&M at $20/kW-year

Owner receives capacity payments of $3/kW-month from Grid Operator

Owner receives ancillary services payments of $12/kW-month from Grid Operator
Without those lucrative revenue streams, the project would not be profitable. See NOTE.

Assume inflation of O&M, wholesale price, capacity payment, ancillary services payment at 3.0 %/y

Assume subsidies at 30% up-front cash tax credits; 7-y MACRS depreciation; loan interest deduction; corporate tax at 21%.

Assume Owner has other profitable businesses which would fully utilize any tax credits

Financial Metrics, per Google AI

Internal Rate of Return 14.08% IRR vs 10% hurdle

Subsidies shift costs from project Owners to ratepayers, taxpayers, government debt.

NOTE: Payment levels determined by Grid Operator to “help make batteries pay”.

It is highly likely political pressures are imposed on grid operators to “help” Owners of battery systems have enough revenues, other than the minor revenue from arbitrage, to have a “suitable” IRR for the Owners of the battery systems. The public, i.e., Joe Doe taxpayer and ratepayer, is fed some BS story about the greatness of battery systems, because the Joe Doe folks will never be able to figure it out.

NOTE: Excluded costs are: 1) grid extension/reinforcement to connect battery systems, 2) downtime of parts of the system, 3) decommissioning in year 15, i.e., disassembly, reprocessing, storing at hazardous waste sites.

COMMENTS ON CALCULATION

Almost all battery systems operate at less than 10%. They are typically used to stabilize the grid, i.e., frequency control and counteracting up/down W/S outputs. See URL.

https://www.windtaskforce.org/profiles/blogs/battery-system-capital-costs-losses-and-aging

About 40% annual throughput, by absorbing midday solar peaks and discharging during late-afternoon/early-evening, as in sunny California, would be extremely hard to achieve. The more solar systems, the greater the midday peaks.

See above URL for Megapacks required for a one-day wind lull in New England

40% annual throughput is close to Tesla’s recommendation of 60% maximum throughput, i.e., not charge above 80% and not discharge below 20%, to perform 24/7/365 service for 15 y, with normal aging.

Tesla’s recommendation was not heeded by the Owners of the Hornsdale Power Reserve in Australia. They excessively charged/discharged the system to maximize profits. After a few years, they added Megapacks to offset rapid aging of the original system, plus they added more Megapacks to increase the rating of the system.

http://www.windtaskforce.org/profiles/blogs/the-hornsdale-power-reserve-largest-battery-system-in-australia

Loss factor is from HV grid to 1) step-down transformer, 2) front-end power electronics to convert AC to DC, 3) into storage, 4) out of storage, 5) back-end power electronics to convert DC to AC, 6) step-up transformer, to HV grid.

NOTE: EV battery packs cost about $135/kWh, before it is installed in the car. Such packs are good for 6 to 8 years, used about 2 h/d, at an average speed of 30 mph. Utility battery systems are used 24/7/365 for 15 years

NOTE: Aerial photos of large-scale battery systems with many Megapacks, show many items of equipment, other than the Tesla supply, such as step-down/step-up transformers, switchgear, connections to the grid, land, access roads, fencing, security, site lighting, i.e., the cost of the Tesla supply is only one part of the battery system cost at a site.

NOTE: Battery system turnkey capital costs and electricity storage costs likely will be much higher in 2023 and future years, than in 2021 and earlier years, due to: 1) increased inflation rates, 2) increased interest rates, 3) supply chain disruptions, which delay projects and increase costs, 4) increased energy prices, such as of oil, gas, coal, electricity, etc., 5) increased materials prices, such as of tungsten, cobalt, lithium, copper, manganese, etc., 6) increased labor rates.