Australia needs 10 gigawatts of home batteries by 2030 to soak up excess solar

With Australia passing 3 million rooftop solar systems and rooftop solar capacity set to overtake coal by 2025, it is time to shift our gaze to the next battlefront in decarbonising Australia’s power system – batteries.

The scale of solar capacity being installed in Australia on both rooftops and in large solar farms, and is so big that generation from renewable energy will regularly top out above total electricity demand over the middle of the day.  It is important that further roll-out of solar is coupled with battery storage.

The good news is that battery storage rolled out at the household level provides the potential to deliver vastly greater value to electricity consumers.

It will deliver greater improvements in both electricity reliability and affordability because it provides a replacement not just for power station capacity but also costly network capacity.

To date policy, measures aimed at encouraging battery uptake have been too modest in scale and short in timeframe. Consequently, they have failed to drive a meaningful transformation in industry supply chains and competition that are essential to cost reductions.

We propose that a simple and easy to implement modification of the existing main policy mechanism for supporting rooftop solar roll-out – the Small-Scale Renewable Energy Scheme (SRES)- could drive the roll-out of as much as 10,000MW of household battery storage by 2030.

This would involve restoring the level of the SRES rebate to the levels that were in place five years ago if a newly installed solar system is coupled with a battery, meanwhile allowing the rebate to continue to step down and phase out by 2030 for solar-only systems.

In this article we’ll explain why we should be looking to shift policy support from the roll-out of solar to the roll-out of batteries. In part 2 of this article (you can fine here), we explain how the reforms to the Small Scale Renewable Energy Scheme could do this.

Batteries – the best solution for the real reliability problem

We’ve heard a lot from Angus Taylor, the federal minister for Energy and Emissions Reductions about how important coal and gas power stations are to reliability and that we must reform the electricity market to put more emphasis on reliability.

The Energy Security Board has obligingly recommended consumers be required to pay conventional coal and gas generators a new capacity fee if we are to keep the lights on.

But what if I told you that their apparent solutions to reliability dealt with just 0.3% of the historical causes of blackouts?

The pie chart below, produced by the Australian Energy Market Commission’s Reliability Panel – the body that is primarily responsible for evaluating whether electricity market settings are appropriate for maintaining reliability – shows that insufficient generation capacity causes just a tiny fraction of the blackouts in the National Electricity Market.

Instead, 95.6% are a result of problems with the powerlines that deliver power to homes and businesses, not the power stations themselves.

Source: AEMC Reliability Panel (2020) Information Paper: The Reliability Standard: Current Considerations

There is a technological option that could help us with the 95.6% of the reliability problem, while also helping, rather than hindering, us in reducing emissions. It’s called a home battery system.

While not all battery systems on the market right now are capable of supplying energy to the home when powerlines go down, most can with the right inverter.

Batteries and the main game in electricity affordability – networks

We’ve also heard a lot from Minister Taylor about the importance of ensuring affordable electricity supplies as well, and the reality at present is that home battery systems are expensive.

However, just like solar panels, computing devices and a range of other electronic equipment, battery systems are expected to decline substantially in cost as production grows in scale.

If we really want to make a contribution to getting electricity costs down, focussing solely on wholesale power generation is missing a very large part of the picture. The cost of paying for power generation makes up just under 30% of the average household bill.

Meanwhile, the cost of delivering power from the power stations to people’s homes makes up about half the bill. Retail charges make up another 12% with the remainder of the cost tied to funding programs that encourage the uptake of clean energy.

If Australia can help drive batteries down the experience cost curve, just like we did with solar panels, it will help cut out costs at the end of the powerline where they can have the biggest impact.

Source: Australian Energy Market Commission (2020) Residential Electricity Price Trends 2020

 

Australia’s has the most to gain from driving down battery costs 

Australia probably has the most to gain out of developed nations from driving home battery systems costs down. This is a function of:

1. Australia is well suited to exploit residential rooftop systems due to:
   1. High solar radiation levels;
   2. Low density residential housing providing substantial roof space to host solar systems;
   3. Already very high uptake of residential solar systems along with a very efficient, low cost solar installation industry;
2. A high cost electricity network distribution system;
3. High cost gas (relative to North America) and climate well suited to use of heat pumps which makes full electrification of household energy use highly cost -effective.

Expanding battery capacity is crucial to solar and emission cuts 

The need to accelerate a mass roll-out of batteries is also becoming urgent so we can effectively harness the benefits of ongoing growth of solar, due to hard physical constraints.

This is not a function so much of so-called ‘solar traffic jams’ on the distribution network (the “traffic jam” attributed to solar is really a problem with distribution networks failing to adjust voltages in accordance with the Australian standard for 230 volts introduced in 1983. See this report for further information).

Instead, the issue is solar is on track to exceed total grid-wide electricity demand for significant periods of time by as soon as 2025.

That may seem hard to believe and in fact we had mocked the idea just 3 years ago.  But since then solar installations have tracked far higher than even the most optimistic projections. The SA Government has started to curtail solar systems during low demand periods – this is going to get worse and will become the norm in other states too.

At the same time installations of wind power have also maintained quite high levels. The chart below details likely average hourly output of wind and solar by quarter in 2025 based on 2018 generation patterns.

This is derived from Green Energy Markets’ projections of rooftop solar capacity for 2025 prepared for the Clean Energy Regulator last year and our projections of likely generation from utility-scale wind and solar farms either in operation, under construction or capacity that has been contracted under long-term PPA or in tender.

The dark blue line running along the top is total NEM-wide electricity consumption by hour of day. The coloured stacked chart beneath it represents the averaged hourly output of wind (blue), solar farms (darker yellow), and rooftop solar systems (lighter yellow).

What it shows is that by 2025 the combined output of wind and solar is on track to exceed total entire electricity demand for a few hours in the middle of the day over Quarters 3 and 4 of the year.

For quarter 3 it would exceed total demand between 12 noon and 2pm while in quarter 4 it would exceed demand from 11am until 2pm. The averaging acts to simplify the picture somewhat because wind output tends to have high levels of variation around its mean output, but the overall story the chart conveys of renewables swamping the market in the middle of the day remains valid.

Averaged hourly generation of wind and solar in 2025 relative to electricity consumption in the NEM

Source: Based on analytical model detailed in Johanna Bowyer and Tristan Edis (2021) Fast Erosion of Coal Plant Profits in the National Electricity Market.

Given AEMO has the ability to curtail solar systems if it needs to, this shouldn’t create a technical problem for the grid. But it does pose problems for the economic attractiveness of solar. Power prices during much of the daytime hours will be increasingly depressed which will then flow through to very low feed-in tariffs.

Also increasing levels of solar generation will be curtailed and wasted over time – this curtailment is likely to affect generation before it exceeds total demand because other generators are still needed to maintain system stability (at least in the short-term until we develop more sophisticated tools to balance the system).

This loss of generation will undermine economic attractiveness, as well as solar’s effectiveness in displacing fossil fuels and lowering greenhouse gas emissions.

Yet the thing is that we only have to shift the solar generation just two to four hours later in the day to open up another massive opportunity to reduce Australia’s electricity costs and further reduce emissions.

The chart below details average wholesale prices by hour of day for NSW across a selection of years since 2015 with the 2021 line in red representing the first 6 months of the year.

In 2015 we had unusually low prices due to declining electricity demand coupled with low gas prices just before LNG plants commenced operation and blew the price through the roof. With the large rise in gas prices and the closure of Hazelwood and Northern Power Stations prices by 2018 and increased dramatically.

But then an injection of large amounts of renewable energy supply has acted to lower prices in the late night/very early morning period and in the middle of the day. But we still have stubbornly high prices from 4pm until 8pm. This same pattern is replicated across every other NEM state.

Average hourly wholesale power prices by year in NSW

As more solar comes into the system we’ll likely see prices in the middle of the day plumb even lower while leaving us with this annoying spike in the evening. At the same time the high demand in this same time period is also what drives the need for costly network capacity.

Batteries are perfectly suited to level out this short four hour burst in prices.

The time has come to shift our gaze from policy aimed at supporting the uptake of renewables to policy aimed at also supporting the uptake of energy storage technologies.

In part 2 of this article we look at how the government can accelerate the adoption of batteries via reform to the Small Scale Renewable Energy Scheme.

Ric Brazzale is the Managing Director and Tristan Edis is a Director of Green Energy Markets, which  provides analysis and advice to assist clients make better informed investment, trading and policy decisions in energy and carbon abatement markets.

This article is an extension of an original article detailing the 5 steps Prime Minister Scott Morrison needs to take to make his net zero by 2050 pledge credible. This article expands on step 3 of this 5 step plan.