Regulator shoots down battery hopes of grid inertia market, citing high costs, low benefits

The Australian Energy Market Commission (AEMC) has shot down the hopes of battery investors and Australia’s biggest energy companies for a new inertia market, saying it’s too expensive and isn’t needed. 

While the energy market rule maker is open to the idea of a market to buy inertia – grid stability provided by spinning machines, gas peaking plants and now battery inverters – it rejected the need for one right now. 

In a final decision on the proposal – first pitched in 2021 – it says an inertia spot market is “currently unlikely to deliver net benefits to consumers”.

The estimated $30 million it would cost to set up and operate a standalone market for inertia services over a decade would be too expensive. 

“Our analysis shows that under current conditions, the estimated $5 – $10 million in upfront costs, plus millions more in ongoing operation, would far outweigh the modest expected benefits,” AEMC Anna Collyer said in a statement.

“We have found that the necessary inertia supply is already being secured through work being done to ensure system strength.”

Inertia has historically been provided by synchronous generating units such as coal and gas generators which deliver a steady, constant supply of voltage into the grid. 

But as coal plants in particular retire, other sources of inertia are needed to balance the variable voltage created by renewable energy sources. 

Showing the way forward

But the AEMC did not slam the door completely closed on a future inertia market.

A delay provides extra time to figure out the technical details and set up a regulatory framework, all work that Australian Energy Market Operator (AEMO) is doing now. 

What the AEMC’s work has done is laid out how to manage the grid once coal is completely out of the picture, says SMA Australia’s Darren Gladman.

“The AEMC has begun laying the groundwork for renewable generation supported by batteries with grid-forming inverters to take over that role and reduce reliance on coal and gas,” he says.

“There is still more technical assessment and regulatory reform needed before renewables, coupled with advanced batteries, can fully replace fossil fuel generators.”

Gladman says batteries with grid-forming inverters that can act like traditional coal or gas power plants are set to have a big place in future grid stability and system strength. 

But for them to work, the concept needs to be tested and there must be regulations in place, as AEMO is doing.

“The industry has made progress on addressing technical challenges like maintaining sufficient headroom and footroom for effective inertial responses,” he said.

“Manufacturers are working with market operators and transmission networks in Australia and globally to verify how inverters can deliver both inertia and system strength, and to ensure the proper regulations and markets are in place.

“This is one of the biggest technical and regulatory challenges we need to solve to fully demonstrate the capability of advanced grid-forming inverters and enable co-optimisation of inertia and system strength services. 

“Once achieved, it will help clear the way for more coal and gas plant closures and accelerate Australia’s energy transition.”  

Monopoly vs competition

The AEMC says there’s already plenty being done in the National Energy Market (NEM) to meet minimum inertia requirements. 

This includes gas plants being fitted with clutches that allow turbines to operate as condensers, and the introduction of grid-forming inverters, such as the 185 megawatt (MW) / 370MWh Koorangie battery which has a contract with AEMO to deliver grid-stabilising services. 

But the AEMC also counted significant investments in synchronous condensers, spinning machines that don’t require any electricity and provide a regular heartbeat in the grid, as a key solution to minimum inertia requirements. 

Transmission network service providers (TNSPs) are already investing heavily in these devices to protect against network faults, with Transgrid recently given permission by  the New South Wales (NSW) government to put in early orders for five of these giant machines.

And here is where some of the tension lies between those pitching for a new competitive market and those opposed. 

TNSPs are regulated monopolies and already spending heavily on synchronous condensers: spinning machines that don’t require any electricity and provide a regular heartbeat in the grid.

Recently, the New South Wales (NSW) government gave Transgrid permission to put in early orders for five of these giant machines, which it will be paid for as part of its regulated asset base or RAB.

Companies such as Tesla want a piece of this revenue, but through a competitive market that would give their batteries an extra revenue stream. Others such as AGL, Origin Energy and EnergyAustralia are keen to cash in services from both gas peaking plants and batteries. 

Transgrid offered one of the few submissions in support of the AEMC position to not create an inertia spot market, saying it already has the matter under control.

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