NSW energy roadmap at risk of shutting out big battery benefits

It’s been almost 18 months since the ambitious NSW Electricity Infrastructure Roadmap was first legislated, and the consensus remains that what NSW energy minister (and now Treasurer) Matt Kean managed to achieve politically, created one of the boldest visions for energy policy in recent memory, and by a liberal politician no less.

But as with all visions, the devil is in the detail, and the energy policy staff at NSW government have not been sitting idle. Rather, they have been furiously sifting through over-subscribed EOIs, declaring REZs, and now finalising key elements of the Long Term Energy Service Agreements (LTESAs) – the government backed ‘top-up’ contracts – that will underpin delivery of the targeted 12GW of renewables and 2GW of storage by 2030.

The clean energy industry is carefully monitoring all of this progress – after years of connection frustrations coupled with federal policy uncertainty and putting up with federal energy minister Angus Taylor ‘picking winners’.

Big battery players in particular have been seeking more clarity on the NSW storage requirements, given the initial focus on pumped hydro and emphasis on ‘long duration’ storage.

Neoen, Tesla, Tilt, Canadian Solar, Shell, Firm Power, and even the state’s own consumer advocacy group PIAC have been pushing for more clarity on the role of batteries, and more technology neutrality and “flexibility” in the Roadmap for over a year now.

As Neoen noted in one of the many consultations, “energy storage solutions, regardless of technology, always provide a level of storage that satisfy the definitions of both firming and long-duration storage and should be valued as both.”

Similarly, Tesla write that enforcing strict 8-hour duration requirements would “drive over-investment in long-duration storage, when shorter duration fast response battery storage would still be required to provide essential system services such as system strength, inertia and fast frequency response.”

Even energy giants EnergyAustralia and Origin have weighed in, which is not that surprising for Origin, given its publicly announced plans to replace retiring Eraring Power Station with 700MW of (nominally 4-hour) battery storage.

It will all boil down to how a single clause in the legislation is interpreted – requiring storage to be “dispatched for at least 8-hours”.

Combined with the targeted Pumped Hydro Grant Program, it’s clear the 8-hour rule is intended to disincentivise the all-conquering battery storage technology, and will result in a whole lot of unnecessary costs entering the system, at the expense of NSW consumers.

This is because shorter duration batteries can effectively meet all market and system requirements – as noted in AEMO’s Final 2020 ISP, which showed future NSW storage requirements being optimally met by 1.5GW of ‘shallow’ 1-to-4-hour storage, in addition to Snowy 2.0, and to much horror from the Feds, no need for gas either.

(NB: due to the circularity of the policy feedback loop, the recent 2022 Draft ISP model was hard-coded to meet the NSW 8-hour requirement – effectively deleting the entrance of shorter duration storage.)

In addition, batteries have inherent flexibility – they can trade off lower power capacity to increase their duration (similar to conserving a car’s petrol by accelerating less aggressively), so for example a 100MW/200MWh battery could provide 100MW power for 2-hours, or 50MW for 4-hours, or 20MW for 10 hours etc.

This is one of the reasons why batteries are so superior at providing multiple services to different parties at the same time – from fast frequency response, to network support and SIPS, through to energy generation and flexible load management.

Batteries are also fully modular, so can be built as one- or two-hour systems today, with more storage capacity added overtime if and when the system needs it – which means consumers don’t have to wear the risk of another ‘gold-plated’ infrastructure build-out based on highly uncertain forecasts, or worse, waiting for 10 years until large-scale pumped hydro projects are finally complete.

Batteries’ fast deployment and optionality have significant value in a rapidly transition energy market. Renewables plus batteries basically do the heavy lifting of the energy transition.

Given one of the Roadmap’s central objectives is to cut electricity bills for consumers, it seems sensible to maximise the value from flexible batteries.

And yet in the latest market update from AEMO Services (acting as NSW Consumer Trustee (CT)) it appears the almost final eligibility criteria will not allow a power to duration trade-off and will therefore likely disqualify all batteries unless they are built to operate at 8-hours at their full power capacity.

As the CT’s GM of Commercial Brad Hopkins noted, “the modelling shows 8-hours storage isn’t needed in NSW…so we acknowledge this is a sub-optimal outcome – we will be paying for storage that isn’t strictly needed” – but it seems the pumped hydro train may have already left the station, leaving consumers to pick up the tab.

If this decision becomes final, it would put the first stain on Kean’s otherwise splendid Roadmap, overtly ignoring the increasing role and widely demonstrated benefit of batteries – as written about here.

As PIAC points out, “solutions which are able to adapt and be flexible to changing market, system, environmental and social conditions will likely best meet these objectives and provide the most benefit to NSW consumers.”

In other words, allow batteries to at least compete on a level playing field, so consumers can benefit from their flexible value stack of services.

The full list of NSW Roadmap consultations and responses from which quotes are taken are available here.

This article was written by an author who wishes to remain anonymous. It is reflective of the conversations RenewEconomy has had with the industry, so we have agreed to publish it.