Another interesting, semi-cheerleading headline mentioning Buffett's solar plays today:
Solar Shines as Sellers Sometimes Pay Buyers to Use Power - Bloomberg Business
Incidentally, if you really want to short coal mining and production, you could
short individual coal companies or use ETFs like KOL, but that is a highly risky proposition given unknown time horizon. To be honest, the best way to short coal I think is to continue investing in its replacement: solar.
Still, buying some LEAP puts in KOL sure seems tempting, doesn't it?
Negative spot prices are a huge signal that the market is not spending enough on storage. This is an amazing episode. April 23 from 8 AM to 6 PM in SoCal, there is so much power on the market that generators have to pay $61/MWh to buyers for the privilege of continuing to run their generators. You can see that this is very painful economics for baseload generators, but the situation is also tough for peak generators. Basically, the grid is relying too heavily on variable generation, peak plants, to manage variable demand than on storage.
Consider a gas peak plant that can operate from 30 MW to 100 MW. This is a dynamic range of 70 MW, but part of the cost of providing this dynamic range is idling at 30 MW. This 30 MW contributes to the baseload problem in an over supplied market. That is the gas peak operator needs to pay $2130 per hour (61 × 30) just so it can deliver 70 MW dynamic range needed to balance the grid.
Now consider the prospect of a battery peak plant with just 35 MW of power. This plant can provide 70 MW range from -35 MW to +35 MW. And it can provide that range without competing with baseload oversupply. Thus in an over supplied market it can contribute 70 MW without paying $2130/hour for idling.
Now consider that a new 100 MW gas peaker can cost about $80 to $100 million, but the the 35 MW battery plant using Powerpacks could cost as little as $17.5 M for just the Powerpacks, $20 to $30 million fully installed. If these packs are integrated into an existing power plant whether peak, baseload, or renewable, then there may be little installation cost beyond the Powerpacks.
So for capex, batteries are much cheaper than adding new peak power plants. For opex, batteries also win. But finally from a systemwide perspective, batteries will minimize the financial risk of negative spot prices for all generators in the market and will feed these low prices back into the market when net demand is higher. It is especially important that each generator secures some batteries or demand response capacity as a hedge against negative spot prices. The increased penetration of solar is only going to intensify this risk. So generators that want to protect their financial performance and longterm economics need to buy batteries or pay someone else to do so.
