How CEP Energy ‘world’s largest battery’ will shake up the energy market

A new Tesla-style battery from CEP Energy in NSW is shaking up the energy market and causing headaches for AGL Energy Limited (ASX:AGL).

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When Elon Musk’s Tesla Inc (NASDAQ: TSLA) was commissioned to build the largest battery our country (and the world) had ever seen in 2017, it made waves around the globe. Tesla was a company at the forefront of innovation. The announcement signified the largest upgrade to Australia’s national electricity grid in decades.

In the years since, it has proven a success. So much so that a private company CEP Energy is looking to do one better in New South Wales.

According to a report in the Australian Financial Review (AFR) today, Kurri Kurri in the NSW Hunter Valley is set to become the recipient of the latest ‘largest battery in the world’. According to the report, the battery will be commissioned by CEP Energy. CEP is chaired by former NSW premier Morris Iemma. CEP will build a battery up to eight times as large as Tesla battery in South Australia. It will have an estimated capacity of up to 1,200 megawatts at an estimated cost of $2.4 billion.

The battery will be operational by 2023 if everything proceeds as planned. The AFR reports that the project is being “backed by CEP’s private investors and some as-yet-unidentified institutional investors”.

The AFR quotes CEP chief executive Peter Wright as stating the following on the project:

[High-level feasibility work] shows strong commercial support for a really decent-sized battery system there…We certainly have access to capital, so there won’t be a capital constraint, but the ultimate sizing comes down to what is most appropriate in terms of market need… The grid capacity is there and we believe the business case is there…. The wind is at our backs and we’re confident we can achieve something within a reasonable timeframe.

CEP battery plans shake up ASX energy retailers

According to the AFR, the project “looks set to undermine” the plans of the ASX’s largest energy retailers like AGL Energy Limited (ASX: AGL) and Origin Energy Ltd (ASX: ORG). AGL has plans to build a new gas-fired power plant in NSW. The new battery may be large enough to undermine demand for base-load power that any new gas power plant would provide.

AGL’s ageing Liddell coal-fired power plant is also scheduled for full decommissioning in 2023. So this new battery could inadvertently fill a gap in the energy market by coming online at a similar time. This view is backed up by comments to the AFR from Mr Iemma:

Big batteries, including the one planned by CEP Energy for the Hunter, will play a major role in filling the gaps left by the gradual retirement of coal and gas-fired generation assets, including the nearby Liddell power station.

That could explain why the AGL share price is down another 2.06% today to $10.95. Not only is that share price a new 52-week low, but it’s the lowest price AGL has commanded since the depths of the global financial crisis back in 2008.

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Sebastian Bowen owns shares of Tesla. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Tesla. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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