Battery storage to get new set of rules as regulators play catch-up to new technology

The Australian Energy Market Commission is seeking feedback on potential changes to the status of large-scale battery storage systems, and hybrid projects as the technologies begin to drive fundamental changes to the way electricity is bought and sold in the wholesale market.

The AEMC has released a consultation paper in response to a series of rule changes have been suggested by the Australian Energy Market Operator (AEMO), which has argued that battery storage and hybrid energy projects should be recognised as a distinct category of energy market participant in the national energy laws.

Currently, big batteries are categorised as both ‘generators’ and ‘loads’ within the national energy rules, but AEMO argues their unique ability to participate on both sides of the market as a single entity is problematic, and better rules could be written by recognising storage projects as a distinct participant category that can trade power in two directions.

Developers have been frustrated by the limitations of the current rules and regulations, which make it not only difficult to site big batteries next to wind and solar farms, but also fail to recognise the huge “value stack” of the multiple services that battery storage can provide to the grid. This has made it near impossible to extract the full value from their investment.

“AEMO is concerned that the NER do not adequately recognise storage and increasing bi-directional flows because they do not contain a specific definition for storage to use as a basis for applying storage-specific obligations,” the consultation paper says.

“The National energy rules were written when energy flowed one way: it was either supplied or consumed,” AEMC Acting Chair Merryn York added. “Now, energy flows in both directions. Batteries and other storage like hydro can both consume energy and supply energy to the grid. Eventually, this two-way flow of electricity will be the norm.”

The AEMC says that it would consider the potential barriers faced by big battery projects trying to join the National Energy Market, and how the existing rules may increase costs and regulatory burdens for such projects. In addition, the energy market rule maker is considering changes to the way fees are charged to big battery systems, given their unique role in the market.

“This is the third major arm of the work we are doing to get the grid ready for the energy storage era,” York said.

“We have already approved major reform on five-minute settlement, which will make the market more responsive and create financial incentives for fast-response energy generation like batteries to participate. We are also working on transmission access reform, which proposes financial incentives for batteries to locate where they’re needed most – to back up variable renewable generation like wind farms and solar plants.”

“This third piece of work on integration is about looking at how storage enters the market, and how it can participate to best effect. The forecast influx of storage and hybrid systems means the future will look very different, so we need to look at how the rules should adapt,” York added.

The AEMC noted that the market for large scale battery storage had increased rapidly since the completion of the original ‘big battery’ system, the Tesla battery installed as part of the Hornsdale Power Reserve, in 2017. A further four ‘big batteries’ have been installed since that time, while the cost of battery technologies expected to fall by more than 75 per cent over the next decade.

Confirming this trend, AGL chief operating officer Markus Brokhof recently told RenewEconomy that big battery systems are starting to make commercial sense, both as a means of providing grid firming capacity, but also as competition to gas peaker plants for short-term supplies of power. It is clear that storage projects will play an expanding role in the energy system and the AEMC is keen to ensure the market rules account for this.

The larger question of two-way participation in the National Electricity Market is currently being considered by the Energy Security Board, as part of its post-2025 NEM redesign work. There has been growing acknowledgment from the energy market bodies that the traditional model of ‘one-way’ flows of electricity – from generators to consumers – is quickly becoming out of date.

The rapid rise of both distributed energy systems like rooftop solar, the emerging role of battery storage and the recently approved rules introducing a wholesale demand response system see energy users take on much greater control of their energy needs.

Through the release of its latest consultation paper, the AEMC is seeking input into the scale of the challenges faced by storage projects in the National Electricity Market, and whether carving out a new category for storage technologies, or a simpler re-working of the existing rules, would be sufficient to help mitigate these challenges.

Submissions in response to the AEMC’s consultation paper close on 15 October.