Posted: 25 Nov. 2020 05 min. read

I like big batteries and I cannot lie

It is not new to recognise the ongoing transition of the energy market in Australia. The increase in variable renewable generation is changing the economics of existing synchronous generation – i.e. coal and gas generators – and how AEMO operates the market.

Historically, large synchronous generators have provided essential system services – frequency control, inertia and system strength – as a natural by-product of their generation of electricity. Variable generation – i.e. wind and solar – do not provide these essential system services. However, large, grid-connected batteries are increasingly able to provide these services to the network. 

In 2017, South Australia caused ripples across the world when Elon Musk promised to deliver the then world’s biggest battery (100MW/ 129MWh)[1]. TransGrid has recently announced a battery to be located in Western Sydney and Victorian Energy Minister Lily D’Ambrosio announced Victoria will develop a battery three times the size of South Australia’s at 300MW/450MWh. Even more recently, AGL has announced plans to develop a 250MW battery in SA on the site of its existing gas power station Torrens Island.  These big batteries may forever change the market for essential services.

So why do we need essential system services?

Essential system services ensure that the network is operated in a safe and reliable manner and includes:

Frequency Control Ancillary Services (FCAS):
keeps the frequency of the power system within its normal operating band by quickly injecting supply or reducing demand to maintain supply and demand balance. The NEM has 8 FCAS markets currently.

allows the power system to instantaneously resist and prevent changes in frequency and is provided by devices that are synchronised to the frequency of the system.

System Strength:
ability of the power system to manage fluctuations in supply and demand while maintaining stable voltage levels.

Where these services are not provided through normal operation, AEMO is required to intervene and the costs of those interventions are borne by the market.

The Energy Security Board (ESB), in its recently released Post 2025 Market Design Consultation Paper, recognised that the National Electricity Market does not currently have a market for or signals of the need for all required essential system services. As such, AEMO is having to increasingly intervene and procure these services on an ad-hoc basis and at high cost to consumers. Options are being considered to create markets for these essential system services, including a spot market for inertia. This is seen as essential to continue to transition away from traditional generation.

Grid scale batteries: what are they good for?

The South Australia battery (which was installed in December 2017) has participated heavily in the FCAS markets. This participation provides benefits to consumers, by supporting the network to operate safely and reliably and allows the battery to access and market and therefore a revenue stream.

But what about the other services?

The key driver for the Victorian Big Battery, is the AEMO-identified market need for increased reliability, specifically over peak summer periods. The 2019/20 summer saw AEMO activate the Reliability and Emergency Reserve Trader (RERT) Scheme in Victoria on two separate occasions as hot temperatures, outages at Loy Yang Power Station and constraints on the VIC-NSW Interconnector (VNI) caused over 2000 MW of energy to become unavailable to meet Victoria’s demand.

The battery is primarily being developed to provide System Performance and Integrity Services (SIPS) under contract between the Victorian government, AEMO and battery project developer Neoen.

SIPS services provided by the battery will increase the thermal limit of the VNI and allow more flows of electricity through to Victoria. The thermal limit of the interconnector is the maximum amount of electricity that can flow through it. The higher flow electricity on the interconnector, the increased likelihood of faults and issues. The battery’s SIPS service will act as a backup for the interconnector, if a fault occurs, the battery discharges preventing the interconnector from tripping and thereby maintaining the flow of electricity into the Victorian network.

The TransGrid battery will provide fast frequency response and inertia to the network. This battery is part of a trial (with TransGrid receiving funding support from ARENA and NSW Government) to provide technical information relating to the provision of these essential services with an aim of establishing that these types of batteries are the most efficient means of providing these essential services.

The Victorian Big Battery, TransGrid’s trial and AGL’s Torrens Battery, together with the changes proposed by the ESB to create and incentivise essential services, can provide a path forward to hasten the energy transition and place another nail in the coffin in the argument that our system will always need coal.

But will government intervention impact on battery roll out?

Despite the benefits emphasised by the Victorian government in announcing their battery, industry stakeholders have begun to express their concern about government intervention in the market impacting private investment decisions going forward.

As Victoria seeks to recharge its own batteries in response to COVID-19, the government seeks to align the Victorian Big Battery with state-wide recovery and job creation. With questions outstanding on both the market need for the battery and total costs and benefits of the project, the energy industry transition continues to grow in both complexity and… in size of batteries.

However, we do not yet know the implications of state-based policies that promote investment in batteries not based solely on the economics of the battery alone – will these government interventions aid in increasing efficient investment or crowd out private investment (like the TransGrid and AGL batteries) to the detriment of the market and consumers?

[1] Hornsdale battery has since then been upgraded to 150MW/ 194 MWh in size.

More about our authors

Cara Teoh

Cara Teoh

Manager, Financial Advisory

Cara is a Manager within Deloitte’s Energy Transition team, specialising in providing market, operational and policy advice to the commercial and government clients. Cara has experience in market development in gas, electricity and emerging technology markets and a deep understanding of energy market operational, regulatory and business processes. Her experience includes energy market analysis, technical market design and stakeholder engagement. Prior to joining Deloitte, Cara worked in the energy industry at the Australian Energy Market Operator (AEMO).

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.