South Australia is a small, mendicant state, its population of 1.7M is supported by transfer payments from other states. It is now the proud owner of the world’s highest cost electricity. About 45% of its electricity comes from taxpayer subsidized windmills. In second place is Denmark, also covered in windmills.

The state shut down coal plants and replaced them with wind and solar. Of course, when the wind doesn’t blow and the sun doesn’t shine it has to buy electricity, mostly from the neighboring state of Victoria. If it is available.

The irony in this is that the Victorian electricity is produced by burning brown coal, much more polluting than the coal South Australia previously used.

South Australia is very hot in summer, and regularly suffers from heat waves. But there is no wind during heat waves. Just when demand is the highest, supply is lowest.

So, what has been happening is either blackouts or brownouts, or extraordinarily expensive electricity purchased from outside the state, if available, during periods of low/no wind power. But wait, there is a solution.

Elon Musk is to build a 100Mw lithium ion battery for South Australia. Seems small, given the current grid is around 3,000MW. The idea is to store electricity from windmills to release it when the wind is not blowing. He said that at 100MW, it will be the largest battery in the world.

Well, in fact there are a number of large batteries already operating, with the biggest around 200MW. But these are vanadium redox batteries (“VRB”). Compared with lithium ion batteries, VRB’s are more efficient, are safer, have a longer life, are easily recycled, are readily scalable, and importantly, are inflammable.

The other Australian states are not in much better shape. Victoria has effectively banned new coal fired power stations and will presumably follow South Australia with windmills and solar. Most states are seeing a huge increase in disconnections. When people cannot afford to pay their electricity bill, the taxpayer steps up, once again. Disconnections have risen by 140% over the past 6 years. This has been caused by annual increases in the electricity price of 8% to 11% since 2008.

It is ironic, Australia is blessed with some of the largest energy resources in the world, but is starting to look rather third world.

But for the investor there is an upside. With the installation of more and more grid scale batteries, demand for cobalt, lithium and vanadium will continue to increase. My pick is vanadium.