Owner of Elon Musk’s big SA battery escaped fine for missed deadline

Updated November 28, 2018 10:43:02

Tesla boss Elon Musk famously delivered on a promise to build it within 100 days or do it for free, but a new report has revealed the owner of South Australia’s giant battery escaped a government fine for missing a key testing deadline.

Key points:

  • Tesla battery owner, Hornsdale Power Reserve, missed a reliability test deadline
  • The former state government chose not to pursue the company for compensation
  • A new report has found the battery only passed the tests in January this year

The 100-megawatt lithium-ion Tesla battery, the most powerful of its kind in the world, has been operating alongside French company Neoen’s Hornsdale Wind Farm near Jamestown in South Australia’s north since the beginning of last summer.

The battery was a key element of the former Weatherill government’s $550 million energy plan, aimed at reducing energy costs and preventing load-shedding blackouts.

After responding to a challenge from Australian tech-billionaire Mike Cannon-Brookes on Twitter, the Tesla boss partnered with Neoen to build the battery within 100 days, beating more than 70 competing bids in a government procurement process.

A new report by South Australia’s Auditor-General, tabled in State Parliament on Tuesday, found the former government decided not to pursue a claim of liquidated damages against the battery’s owner, Hornsdale Power Reserve (HPR), for failing to meet a deadline for demonstrating the battery’s reliability.

To pass the reliability tests, HPR needed to demonstrate reliable commercial operation of the battery for at least 28 consecutive days without interruption.

The government contract provided it the right to claim liquidated damages from HPR if that was not achieved by December 1, 2017.

Auditor-General Andrew Richardson found the battery only passed the reliability tests on January 20 this year.

Days after the milestone was reached, the former government issued the battery owner a notice to claim damages, but did not take further action.

“The SA government received legal advice on this matter and decided not to pursue delay liquidated damages from HPR,” Mr Richardson wrote.

“We were advised by DEM (the Department of Energy and Mining) that this was because of external advice that the cost of this action could exceed the value of the delay liquidated damages, and to maintain a good working relationship with HPR.

“DEM further advised that the delayed performance validation only impacted HPR’s market capacity and did not impact the ability of the battery to deliver services from the state’s reserved capacity.”

Does the battery provide value for money?

The report revealed the battery will cost taxpayers $41.8 million over the next decade, but only $15 million of that money was accounted for in the government’s $550-million energy plan.

In return for that money, the South Australian Government has access to 70 per cent of the battery’s 100-megawatt output, and a small fraction — 10-megawatt hours — of the battery’s 129-megawatt hours of storage.

That’s enough power to help prevent a load-shedding blackout, and to provide stabilisation services to the grid.

HPR has the rights to the remainder of the battery’s storage and output to sell into the electricity market.

The Auditor-General said his department did not assess whether the battery had provided value for taxpayers’ money.

“The criteria for assessing what represents value for money, particularly in the complex and rapidly changing energy market, is highly subjective and difficult to objectively measure,” he wrote.

“We have not performed any market analysis to determine if introducing battery storage has impacted on electricity prices and prices passed on to the end customer.

“We did not review the operational effectiveness of the battery.”

Battery timeframe was ‘incredible achievement’

Mr Richardson said he had been unable to assess whether the decision-making process to offer public funds to build the battery had been properly assessed.

He said that was because his office had not been provided access to relevant documents considered by former premier Jay Weatherill’s cabinet.

“We did not identify any specific procurement probity matters, although there were aspects of the procurement that did not meet required standards or could be improved,” he wrote.

“Key governance documents were not prepared or suitably authorised until after the project had started.

“This was a result of the Energy Plan Implementation Taskforce having to take quick action to meet the SA government’s timeframes for delivering aspects of the Energy Plan by 1 December, 2017.”

The audit report noted the battery was constructed within the contracted timeframe and had been operating for about 11 months “without any significant concern reported”.

DEM noted the Auditor-General’s concerns, but in commentary provided to his inquiry also defended the decision making process.

“In less than nine months (and only five months after awarding the contract) the battery was operational, delivering power to the National Electricity Market (NEM) and providing system security services to South Australia,” officials wrote.

“This was an incredible achievement and could not have been realised without the hard work of many dedicated public servants, who have since won procurement and energy industry awards in recognition of their efforts.”

Topics: electricity-energy-and-utilities, energy, solar-energy, alternative-energy, environment, government-and-politics, states-and-territories, adelaide-5000, sa, jamestown-5491

First posted November 28, 2018 10:41:50