OPINION: Elon Musk and the South Australian battery storage scam

OPINION: Elon Musk and the South Australian battery storage scam

July 13, 2017

The Australian energy industry is completely corrupt and nothing offers more proof than the announcement of Tesla as the supplier for a 100MW/129MWh battery storage plant in South Australia yesterday. By the end of this article, I would imagine that any reasonable person could only assume that there is sufficient evidence to satisfy the Independent Commissioner Against Corruption's definition of 'reasonable suspicion'. Moreover, based on the timeline and evidence at hand, I cannot see any reasonable person concluding anything other than what was publicly portrayed as a battery storage procurement process by tender, was actually a carefully orchestrated PR farce involving both Tesla and the SA government well before it publicly began- and that it involved a foregone conclusion. If that is proved to be the case, 90+ companies outlaid time and money based on serious misrepresentations by the SA Government. Misrepresentations that Tesla may have been party to.

A 2015 Washington Post and subsequent ABC Australia report highlighted the fact that, contrary to popular belief, Australia is on par with Colombia when it comes to accumulating vast wealth through political connections. Just like Colombia's infamous Pablo Escobar, those operating in Australia don't even seem to feel the need to hide what they're up to. A 2016 report from the Australia Institute titled Greasing the Wheels didn't need to try too hard to expose the political donations by major mining and energy players paid to achieve financially favourable outcomes in the country.

Over my twenty-year career, I've worked in South-East Asia, Latin America, Africa, and even pre-EU Eastern Europe. In that time I've seen transaction arrangements that would make many peoples' heads spin. Yet it's my home country of Australia that makes my stomach turn the most violently with its stench of corruption. Nowhere is that more the case than the South Australian energy sector.

Yesterday, South Australian Premier Jay Weatherill appeared with Elon Musk publicly to announce that Tesla had been awarded a contract to build a 100MW/129MWh battery storage facility adjoining Neoen's windfarm near Jamestown- North of Adelaide. Much was made of the projects' ability to 'stabilise the grid', and about Elon's promise to 'build it inside 100 days or it's free'. Mainstream media has swallowed the story hook, line, and sinker- just as the Musk-flavoured Koolaid drinkers on LinkedIn have shared the story with gusto.

In a previous life, I was lucky enough to study media manipulation and information operations with the UN and various NATO agencies. If there is one thing I therefore respect Elon for, it is his savvy when it comes to hiring a communications team. Believe me- he has one that would put most Western nations' intelligence agencies to shame. Personally, I'm therefore more interested in nuances- such as what wasn't said at that press conference. So far as I'm aware, Tesla has only been contracted as a supplier. That then, begs serious questions regarding project financing, and the promises Weatherill and his 'minister for everything' Tom Koutsantonis have made on behalf of the South Australian taxpayer.

Likewise, no one present at the press conference seemed interested to ask exactly when the clock starts ticking on that Domino's Pizza-style 'delivered inside 100 days or it's free' promise. I did some digging and found that the 100 days only starts, not from the date of contract signature as Elon originally promised (in writing- albeit on Twitter), but after a grid connection agreement has been achieved. If you're familiar with utility-scale energy projects in South Australia, you'll know that six months is considered fast for a connection agreement. They routinely take nine to twelve months and more, which is more than enough time for any battery manufacturer on the planet to put together a 100MW/129MWh system. '100 days or it's free' is therefore purely an installation timeframe and considering such systems arrive in 60-foot shipping containers and simply need to be connected together, it should therefore be considered nothing more than American-style 'big talk'. Donald Trump would be impressed.

The very-PR-friendly boast/tagline could however hint at a far more insidious and orchestrated smoke-and-mirrors strategy, deliberately designed from the outset, by all involved, to mislead the public. It's therefore worth a closer look at the background to the deal.

On March 9 this year, Mike Cannon-Brookes was sitting at the Australian Financial Review's annual summit. A very high profile event attended by industry leaders and top politicians alike. Tesla was about to open its first South Australian store in Adelaide, and had unveiled the overpriced Powerwall 2 home energy storage system to a lukewarm response. While at the event Mike just conveniently happened to reference an AFR article published the same day regarding Lyndon Rive's (Elon's cousin) claims that Tesla could fix South Australia's energy woes inside 100 days. Cannon-Brookes and Musk's conveniently public Twitter conversation was shared far and wide, and, oh-what-a-surprise, in no time SA Premier Jay Weatherill was in on the act.

And here's where the evidence that it was all exactly an act becomes tangible. I'm a massive fan of Cannon-Brookes and what he's done with Atlassian, but what Mike knows about renewable energy and battery storage could be tattooed on the foreskin of a very small mouse. He evidenced that in a February 2017 article where he was quoted as hoping the 6.4kWh Tesla Powerwall in his Sydney house would allow him to disconnect from the grid; and in his numerous tweets mentioning 100MW, with no mention of the MWh of capacity required. For those unfamiliar with pricing battery storage: it is impossible to quote on a battery system without knowing both how much power it needs to supply- and how long it needs to supply it for. That is measured in watts per hour- i.e. kW/kWh or MW/MWh.

More importantly, it is a fact that Cannon-Brookes has a vested financial interest in Tesla's success, and that that interest has never been publicly disclosed. Where I come from, that is called insider trading.

Only two working days later on March 14, Jay Weatherill announced a '$150 Million Renewable Technology Fund'- and, surprise surprise, a tender for exactly 100MW of battery storage output (the MWh required was not publicised which makes one wonder as to whether it was even considered). Funnily enough- exactly what Cannon-Brookes, Rives, and Musk had been discussing so publicly.

Are we expected to believe that a team of SA Government employees worked across a weekend to put a $150Mn fund structure together, along with a full suite of tender documents- or that the whole thing was a charade from start to finish? I've worked with the best lawyers and accountants in Luxembourg- the home of the global fund structuring industry- and the best in the business there take a few months to put together a fund structure. As for a full suite of tender documents inside two working days: please, you're significantly stretching the realms of possibility.

Either way, over 90 companies spent a lot of time and money submitting a proposal inside the two weeks given. Weatherill and Koutsantonis at least publicly pretended to take one of them seriously by attending a joint SA Government press conference at the closing of the tender on March 31 regarding a JV proposal by LendLease, Samsung, and Carnegie Energy. Is it only me, or does anyone else find it odd to hold such a high-profile event, requiring weeks of planning, on the final day of a tender process- yet only have one proposal-maker present?

Even more interesting is the fact that the winning bidders Tesla and Neoen registered the Australian Company Number and name: Hornsdale Power Reserve a full week before the tender closed. For the record: the tender documents made no mention of any need to register a new SPV in order to be considered.

Considering the LendLease/Samsung/Carnegie proposal did not win, it's almost as though the SA Government had picked its winner well before the tender process began, yet deceitfully portrayed the appearance of a level playing field to the public- and the many companies involved.

In the interest of full disclosure, I did not make a submission, although I did contact several companies offering financial support for their bids to the point that taxpayer funds would not need to be touched. I reiterated my offer, in writing, to Tom Koutsantonis and Jay Weatherill on March 15 & 16. In that same documented correspondence I explained that 100MW/100MWh of battery storage could not possibly put a dent in South Australia's energy issues- not by volume, and certainly not in one geographical location. I outlined that at least five times that figure was required and that the installations needed to be distributed throughout the population centres from the Victorian border and around the Eyre Peninsula from Port Augusta to Coffin Bay if grid stability was to be achieved in the event of severe storms.

 

I also offered, in writing, to provide finance for the full amount, and to fund the $1Bn grid interconnection from Port Augusta through to New South Wales in order to close the loop on the National Electricity Market- thereby bringing South Australia's crippling power prices in line with the rest of the country. I received no response from either Koutsantonis or Weatherill other than an acknowledgement of receipt.

 

It wasn't my first occasion to question Koutsantonis and Weatherill's authenticity when it comes to South Australia's grid stability and electricity pricing issues- issues that are crippling the average home-owner, and industrial-scale employers like the Arrium steel plant alike. Likewise, it wasn't the first time I'd question their propensity for doing deals that would make Lyle Lanley of the iconic 'Springfield Monorail' Simpsons episode proud.

In 2016 I was dealing with Whyalla City Council regarding what would have been Australia's largest solar PV project by a substantial margin. Regional Development Australia had thoroughly vetted the project proposal and arranged a meeting with SA Minister for Energy, Tom Koutsantonis. That meeting was torpedoed at the last minute by Whyalla region state member Eddie Hughes (a fellow party member of Koutsantonis and Weatherill) in order to promote a much smaller solar project of only 6MW being promoted by an energy industry figure of dubious repute by the name of Alex Brasier and his Chinese backers- Surpass Sun Electric. SSE Australia's Chinese CEO, Dong Wang, had openly bragged to me that they had taken steps to ensure their political influence in Whyalla and the SA State Government was 'secure' and 'untouchable'. At the time I had no idea what he meant.

My own project proposal had power purchase agreement (PPA) and funding support; guaranteed training and employment for locals; and a steel order of over 10,000 tonnes for the troubled Arrium steel plant (a vital employer in the town) for the necessary racking infrastructure. It was also 30-50 times the size of SSE's project and therefore offered far higher levels of employment and grid stability. Despite support during our initial meeting from Whyalla Mayor Lyn Breuer, an abrupt and unexplained about-face occurred. I have since been told that the about-face occurred immediately after a phone call from Mayor Breuer's long-time confidant Eddie Hughes. Whyalla City Council's head of town planning Jason Willcocks then lied in a publicly recorded meeting in order to obtain the pre-ordained decision, and Mayor Breuer has since admitted to sharing my clearly confidential proposal with Eddie Hughes. Since then I have obtained evidence that suggests my proposal was shared with the competing party.

To provide some further background as to the players involved:

Eddie Hughes: the SA State Member for the Whyalla region. Hughes is a twice convicted criminal- once for assaulting a police officer, and another for attacking the Queen during a visit to Australia. His convictions would disqualify him from parliamentary service under SA laws today, however they were enacted after his election. Despite this, he enjoys the full support of Premier Weatherill and Minister for Mining and Energy; Finance; and State Development Tom Koutsantonis. Only a few weeks prior to the Tesla project announcement, Hughes and Whyalla Mayor Lyn Breuer publicly pressured Whyalla Council to vote in favour of providing Alex Brasier and his Chinese backers SSE with additional publicly owned land on the basis that it would 'assist them to secure Whyalla as the location for the SA battery project tender'. Strangely they were not willing to make the acquisition of the land subject to this precondition though.

More importantly: It would appear obvious that both Hughes and Mayor Lyn Breuer openly pressured Whyalla councillors to hand additional land in Whyalla over to Alex Brasier and SSE for the state battery project after the decision to award the project to Telsa/Neoen had already been made- but before it had been publicly communicated. Considering Breuer and Hughes's connection to the Premier and Energy Minister, I do not believe that a decision like that could have been made without their knowledge. Why then would Hughes and Breuer then actively support a single developer of dubious trading history based on misrepresentations regarding their chances at securing the project in Whyalla?

Hughes is pictured below (centre) celebrating the 6MW solar PV project deal with Alex Brasier (far right) and SSE representatives including Dong Wang and Colin Gillam at SA Parliament House. Dinner and drinks were presumably paid for by the taxpayer, and interestingly- prior to a deal actually being signed. He certainly does look happy celebrating a foregone conclusion then.

Lyn Breuer: Mayor of Whyalla. Lyn was the speaker at SA Parliament until she left in 2014. Conveniently she took Eddie Hughes's seat on Whyalla City Council, while Eddie Hughes left Whyalla City Council to take Lyn's seat at State Parliament. If you're thinking this sounds like an orchestrated game of musical chairs, you're not the only one. Lyn's daughter accompanied her as her 'assistant' on not one, but two Christmas holidays, sorry- I mean vital business trips in the public's interest, to the UK at the SA taxpayers' expense. I have since been contacted by a Coober Pedy resident with allegations of corruption against Lyn at an Aboriginal health non-profit organisation she chaired in the town. Other than being Mayor, today Lyn is a long-time board member of the Bedford Group where her son Tim (also a Whyalla City Councillor) is a ‘regional manager’ despite having no work history other than on a fish farm. Cosy indeed when it comes to voting numbers on anything put to Whyalla council. 

EDIT: I have since been informed that Lyn Breuer resigned from the board of the Bedford Group in late 2016- immediately after her own political party officials donated $100,000 of taxpayer funds to her son's employer. Funnily enough, this occurred shortly after Mayor Breuer made public remarks that her son's position was in jeopardy. That transaction was overseen by none other than Jay Weatherill and his man in Whyalla, Eddie Hughes.

Tom Koutsantonis: SA Premier Jay Weatherill's 'right hand man' and Minister for Mining and Energy; Minister for Finance; and Minister for State Development. Strangely for a person responsible to 1.68Mn people and such a diverse and important portfolio, Tom's sole work experience prior to politics (other than being a union representative) was as a taxi driver.

Alex Brasier: Director of ’Sustainable Power Partners’, a company deregistered by the Australian Securities and Investments Commission in June 2016 due to insolvency. Strangely, the company was only reinstated in January 2017- months after Whyalla City Council had voted in favour of his project proposal based on misrepresentations from town planner Jason Willcocks and Mayor Lyn Breuer. Brasier is also a director of 'Sanctuary Energy', an energy retailer apparently banned from trading in at least twoAustralian states due to the volume of complaints lodged against them through the respective states’ Departments of Fair Trading. Interestingly, Brasier's sole supporter over many years is none other than Eddie Hughes. Sanctuary Energy’s business model appears highly questionable in that, just like his laughable Solar Oasis project was supported by Hughes yet completely relied on a favourable political outcome and free money from the Australian Renewable Energy Agency, Sanctuary Energy's success rested completely on taking a sizeable percentage of government funding- in this case a 50% share of the government supported residential solar Feed-in-Tariffs. You can read more on my opinion of ARENA funding here, and interestingly, Tesla's partner in the battery storage project is none other than Neoen- a substantial beneficiary of free ARENA funding. A very small world indeed.

So while I imagine Elon is a perfectly great guy to have a beer with and may not personally be at fault (other than obviously being in on the Cannon-Brookes twitter stunt at the AFR Summit), the facts here raise some important questions. I'm a massive fan of the saying 'bet the jockey at least as much as the horse'. In South Australia today we have a group of jockey/politicians with, shall we say, interesting track records. Those track records intertwine to a far-too-frequent and uncomforting degree with people of an even more dubious background in the business sector and, more importantly, satisfy the Independent Commission Against Corruption's definition of 'reasonable suspicion'.

I therefore publicly question how Tesla's deal with the SA Government came about; whether due process was followed with respect to a publicly-announced procurement process by tender; and whether or not- something far more insidious may have occurred.

If none of the parties involved has anything to hide, I'm sure they'll have no problem submitting to a full investigation by ICAC and any other relevant authorities. As for the 90+ companies that spent valuable time and money submitting their own bid, I'd be talking to a lawyer regarding the possibility of a damages class action against the SA Government.

Feel free to contact me via email in the first instance if you're a federal or state government agency interested in investigating this matter.

This article was written by Adam Hammond. Adam is the CEO Bluetech Capital & Bluetech Finance.

 

 

 

 

As a passionate advocate for fairness and equity in the marketplace, I was compelled to share this because we are at a tipping point with technology where true innovation can be driven out of the market by a loud voice. This means that the tendering process must support competition. Failing to do so is a vote for monopolisation, which causes social and economic inequity, and drives innovation into the ground.

Alexia Lidas, Director, Metis Advisory

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