Tesla’s $169 mn battery play is just the beginning

Tesla is ready to power some grids. And not just in California or Australia.

Last week, Elon Musk wagered he could address South Australia’s energy crisis with 100 megawatts (MW) of batteries installed in 100 days or less — “or it’s free.” The exchange blew up on Twitter and led to phone calls between Musk and leading Australian politicians, including Prime Minister Malcolm Turnbull. (Ukraine Prime Minister Volodymyr Hroisman later chimed in that he’s interested, too.)

An analysis by Bloomberg New Energy Finance finds that such a deal wouldn’t only alleviate South Australia’s blackouts, but would also be profitable — at an anticipated cost of roughly $169 million (A$220 million). Battery prices are tumbling fast — by almost half since 2014 — and such mega projects are increasingly popping up around the world.

There’s no formal proposal yet, but what’s being discussed in Australia would cost significantly more than many circulating estimates, some as low as $25 million. Here’s what we know so far: Mike Cannon-Brookes, cofounder of Sydney-based software company Atlassian, initially approached Musk about providing 100 MW of power, roughly the size of an electricity shortfall suffered by South Australia in a February blackout.

Megawatts measure the amount of power a battery can provide at any given time. Tesla’s battery projects typically supply a four-hour duration for each megawatt, so it’s reasonable to assume that South Australia’s 100 MW project would entail a 400megawatt-hour (MWh) battery installation. That would make it Australia’s biggest battery-capacity project, and one of the biggest on Earth.

In the Twitter exchange, Musk revealed Tesla’s pricing for battery packs: $250 per kilowatt hour when deployed in large projects. It was the first time he has publicly disclosed pack pricing, but Musk was careful to exclude the costs of shipping, installation, and related hardware, which are highly variable. They’re also highly significant, as they can amount to more than half the total bill.

Even so, Tesla’s pricing is a good deal and in line with where the entire industry is heading in 2017. The total price, according to BNEF estimates, would come to about $422/kWh, or $169 million.

Until recently, batteries were many times more expensive than natural gas “peaker” plants that fire up when supply falls (as when the wind dies down). The South Australia government’s current plan is to address its energy shortfall largely through the construction of a state-owned 250MW gas plant, along with A$75 million in grants and A$75 million in loans to help fund energy storage.