Posted: 28 Jul. 2020 03 min. read

Big batteries

In addition to residential battery systems, utility-scale batteries are also gaining traction around Australia, as both the private and public sectors consider investment in large battery storage solutions.

Where are the big batteries?

There are currently six utility-scale batteries operating in the National Energy Market (NEM), which are all within SA and Victoria. Whilst there is a range of developers and investors building battery storage solutions, there are only two battery manufactures that have installed operational batteries in Australia: Tesla and Fluence.

Considerations in developing the battery

Although increasing, the Australian market for utility-scale batteries is still in its early stages, as developers continue to grapple with these batteries’ revenue streams. Operating the battery in the wholesale (merchant) market, in competition with traditional generation is limited by the batteries’ inherent requirement to charge and recharge at different points in time.

This charging paradox is a key consideration during the development phase and in consideration of battery design. The power (MW) capacity represents the maximum output of the battery at any one point in time. The energy (MWh) however, represents how long the battery can run or discharge at maximum power, before it needs to be recharged again. The developers’ intended revenue strategy drives the battery design and power to energy ratios.

How to make money?

Given these considerations, developers look to both market and contract revenue sources in order to commercialise battery projects:

  • Energy arbitrage (merchant) – operating the battery in the merchant market, through charging from the grid (or a neighbouring generation asset) during low price periods and discharging back to the market during high price periods.
  • Ramp assist (merchant) – developing a co-located battery with (for example) gas generation and operating the battery in the merchant market during high price periods and whilst the gas generation is ramping or starting to generate more slowly. Co-locating a battery can increase a power station’s flexibility and ability to better capture high prices.
  • Ancillary services (market) – operating the battery to bid into the frequency control ancillary services markets by making capacity available to respond, when required, to deviations in the frequency of the grid.
  • System Integration Performance Scheme (SIPS) (contract) – operating the battery as a transmission network infrastructure through the provision of energy during peak periods of congestion on the network, thereby relieving network constraints.
  • Network support services (contract) – entering into medium to long term contracts with networks to provide system services such as synthetic inertia, voltage control and system strength.
  • Grid firming (merchant or contract) –discharging during periods of low variable renewable generation to support a retailer or renewable generator to maintain their steady supply or into their supply contracts. 

A balancing act

While batteries present an exciting technology solution that is emerging across the network, there is a tipping point to make them financially viable. The largest and most prominent utility-scale battery in Australia to date, Hornsdale was only able to progress to project development and finance, due to a 10-year $4 million per annum contract with the SA government for SIPS grid support services.

While there is an increasing market for utility-scale batteries, project development, more often than not they require government underwriting or support. Continued cost reductions, better signals and more evolved revenue streams will help accelerate entry and provide the necessary confidence to investors. 

This blog was co-authored by Cara Teoh.

Meet our author

Kumar Padisetti

Kumar Padisetti

Partner, Financial Advisory

Kumar is a Partner in the Financial Advisory practice and is responsible for the Energy and Resources Sector. He specialises in portfolio management, policy advice, commercial and financial analysis, market modelling (electricity, gas and renewable energy), strategic positioning and assisting clients with growth strategies. Kumar helps his clients make future decisions with confidence.