ELON MUSK: ‘The writing is on the wall for the long-term future of coal’

The 30,000-tonne bulk coal carrier ‘Pasha Bulker’ which ran aground in wild seas off a beach in Newcastle in June 2007. Photo: Torsten Blackwood/AFP/Getty Images

Elon Musk’s $50 million bet with Atlassian boss Mike Cannon-Brookes looks set to pay off for the American entrepreneur with the South Australian government announcing yesterday that his company, Tesla, will build the world’s biggest lithium ion battery plant in South Australia.

It’s a watershed moment for the technology pioneer, whose futuristic vision ranges from reusable rockets to electric cars and home battery storage for renewable energy. Musk has a capacity for self promotion to rival Richard Branson and yesterday’s “Big Battery” announcement grabbed global headlines.

Musk descended on Adelaide in a private jet to a rapturous response and the Tesla boss, who has plenty to sell, had just landed his biggest deal yet for “the world’s largest grid-scale battery”.

And of course it comes with the excitement of Musk’s “delivery within 100 days or it’s free” promise.

The numbers for this project have not been disclosed, so it’s hard to assess the Tesla proposal’s economic viability as part of the nation’s energy mix. But the 100 megawatt (MW)/129 megawatt-hour (MWh) plant seems considerably smaller than the initial 300MW idea Tesla’s outgoing battery boss Lyndon Rive hinted at when he told the AFR back in March that the company could solve SA’s power problems.

“We don’t have 300MWh sitting there ready to go but I’ll make sure there are,” Rive told the AFR .

He put the cost of large plants at between $US400-600 ($A526-790) per kilowatt hour of capacity, so a 100MWh works out at around $US50 million ($A65m).

When Cannon-Brookes asked Musk about the cost during their bet, the Tesla founder said on Twitter that it was around $250 per kWh for 100MWh systems, plus shipping, taxes and installation, which effectively double the price.

Musk hinted yesterday that failing to meet the 100-day deadline could leave him $US20 million out of pocket.

But Tesla is feeling confident after it built a 20MW/80MWh substation in California in just 90 days last year after a leaking gas storage plant near Los Angeles was suddenly closed.

At a round guess, the SA storage facility is probably costing around $A90 million and Musk said yesterday it will have a lifespan of around 15 years before the batteries need to be replaced. Given existing technological advances since 2000, it’s likely to be a very different energy market with vastly different costs by the time that deadline rolls around.

But to put the SA battery in perspective, prime minister Malcolm Turnbull proposed spending $2 billion to add around 2000MW of capacity – enough to power 50,000 homes – to the Snowy Hydro scheme using pumped storage.

The Tesla plant will be connected to the Hornsdale wind farm, 230km north of Adelaide, which is currently expanding to 300MW capacity. At full discharge, the Tesla project will deliver around 80 minutes of power, but it also it addresses the key concern of critics of renewable energy – reliability. The plant will deliver extra capacity during peak hours and offer stability to the grid.

Tesla’s brag is that upon completion, the plant “will provide enough power for more than 30,000 homes”, roughly the number that lost power during the September 2016 statewide blackout, which sparked a massive political fight between the federal Coalition government and South Australia’s Labor government over renewable energy policy.

And Musk went one step further yesterday, essentially striking at the heart of Australia’s political debate over energy policy with his observations about the future of coal. His comments are nothing new, but they will likely reignite a bitter and ongoing war of words because he essentially predicted the death of coal.

Coal has been at the centre of public debate in recent years, with Turnbull government ministers going so far as to accuse the country’s biggest banks of being “unAustralian” for declining to fund Adani’s controversial $16 billion Carmichael coal mine in Queensland’s Galilee Basin to supply the Indian market.

The federal government has been looking at backing the project with a $900 million government loan from the Northern Australia Infrastructure Facility. The Queensland government is offering Adani a $300 million royalty “holiday” on the project in a bid to make it viable.

The local fight over the future of coal, a resource that has long been part of Australia’s economic good fortune, has been savage and unrelenting – and even part of an internal battle between former leader Tony Abbott and Turnbull for the soul of the Liberal party.

Meanwhile, the world is turning its focus to renewables and meeting the targets of the 2015 Paris climate agreement.

It also comes at a time when new research from Morgan Stanley estimates that renewables will be the world’s cheapest source of power by 2020.

“Numerous key markets recently reached an inflection point where renewables have become the cheapest form of new power generation,” the bank said in a note, adding that the price of solar panels has fallen 50% in less than two years (2016-17).

Morgan Stanley says there has been oversupply of solar panels and solar installation grew 50% last year, but capacity is still 28% above installations.

Musk’s battery plant in South Australia is just a small part of a bigger picture that could make Tesla one of the world’s biggest energy companies over the next decade. Australia’s 1.6 million homes could be using Tesla batteries to charge their Tesla cars.

And in Musk’s view, there’s no room for coal. His point, which Morgan Stanley’s new report backs up, is that increasingly, coal will not be economically viable.

Here’s what he said (our emphasis added) yesterday in South Australia:

“The writing is on the wall for the long-term future of coal which is that coal does not have a long-term future.

“When going to investors to get financing for [a new or existing coal power plant] investors know that coal does not have a long-term future so the capital cost is incredibly high because they want to charge a much higher interest rate because they are not expecting it to last 30 years, which is normally the length of time that they would want to advertise the value of the power plant.

“So eventually coal becomes very expensive, because people aren’t willing to invest in something that does not have a great future.”

Australia farewells the last of the local car manufacturing industry in the next few months, having spent hundreds of millions of dollars in taxpayer funding in recent decades maintaining life support before the former Abbott government finally said enough was enough three years ago.

For all intents and purposes, the coal sector appears to be on a similar trajectory. Private investment is walking away from coal, bankers are saying no and even Indian multi-billionaire Gautam Adani seems unwilling to risk too much of his own money into his Queensland coal mine project without significant government support.

The question for Australian governments now is how many millions more of taxpayers dollars are they willing to spend to prop up coal before Musk’s prediction comes true.

* The views expressed in this opinion piece do not necessarily reflect the views of Business Insider Australia.