The Australian Energy Regulator (AER) is urging networks to look at the installation of big battery storage as it seeks feedback on how to best manage an unprecedented surge in spending on new transmission infrastructure over the next five years.
The AER anticipates spending of about $8 billion out to 2025, but is urging network companies to consider alternatives to simply building more poles and wires, and consider the use of distributed energy resources, such as strategically located energy storage systems, to optimise the performance of the electricity grid.
In an analysis commissioned by the AER, consultancy Houston Kemp told the regulator that new technologies were fundamentally changing the way transmission networks were set to operate in the future, including a shift away from the transitional centralised model of electricity systems opening up the opportunities for alternative investments.
“Expressed most simply, the trend towards much smaller scale and decentralised generation and storage technologies raises deep questions a to the long-term centrality of large scale transmission infrastructure in an efficiently-organised electricity system.
“At a minimum, these trends have the potential to expand the envelope of close substitutes for large scale transmission investment,” HoustonKemp said in a report to the AER.
The use of large-scale battery systems has already featured as an alternative to network investment, including the massive 300MW/450MWh Victorian Big Battery, which recently won a state government tender to provide critical network support services as part of Victoria’s System Integrated Protection Scheme.
It is contracted to provide 250MW/125MWh of capacity to the Australian Energy Market Operator which will allow more capacity to be transferred on the main link between NSW and Victoria for extended periods. Similar projects have sought to use battery storage as an alternative to network investment throughout Australia’s main grid and some developers believe battery storage will become a standard feature.
The AER has launched a consultation process to receive feedback on how such a substantial level of new network investment can be managed, balancing the needs of network companies to have sufficient confidence to undertake new investments, and the need to ensure consumers are protected from any delays and cost over runs.
“The recent reforms to make the ISP actionable have changed the way transmission planning is undertaken. AEMO’s 2020 ISP identifies a number of actionable projects which it forecasts to cost between $6.8 and $12.7 billion over the period 2022-32. Given these circumstances, we want to ensure our regulatory tools remain fit-for-purpose to promote the efficient and timely delivery of actionable ISP projects,” the AER said.
The analysis prepared by consultancy HoustonKemp suggests that in AEMO’s Integrated System Plan, between $10 billion to $19 billion could be spent on new transmission network projects, representing an almost doubling of the current regulated asset base of transmission infrastructure projects worth $20.7 billion.
Such an expansive investment in new network infrastructure has been identified as key to unlocking a surge of investment in new wind and solar projects, with conservative estimates of renewable energy penetration under the Integrated System Plan reaching 74 per cent by 2040, with a ‘step-change’ scenario seeing renewables surge as high as 94 per cent by 2040.
Most of this investment is expected to occur in the next five years, including a new $1.53 billion interconnector between South Australia and New South Wales, the QNI interconnector between Queensland and New South Wales which could cost more than $3 billion and the VNI West interconnector between Victoria and New South Wales which will cost between $0.94 billion and $2.41 billion depending on its final design.
The Humelink project, which will be necessary to support additional generation being supplied by the Snowy 2.0 pumped hydro energy storage project, is expected to cost between $0.95 billion to $1.76 billion. This is on top of the $5.1 billion price tag of the Snowy 2.0 project itself.
The AER has oversight of how network companies are able to pass through the costs of network investment to energy users, including by regulating the amount that a network company can recover through electricity charges.
The AER is examining a range of approaches for how these investments can be managed, with the regulator eager to ensure that network companies are provided with sufficient certainty to enable the substantial investments needed to strengthen the grid, while avoiding the earlier issues of ‘gold plating’ where consumers were left paying excessive amounts for often unnecessary network infrastructure.
The regulator said that it would be developing three new ‘guidance notes’ for network companies, providing an indication of how it will approach the initial assessment of new infrastructure investment proposals, how it will consider the various stages of projects as they are developed and what approach it may take to reviewing regulatory decisions, such as the allowable pass-through costs, once a project has been completed.
The AER will hold a series of online workshops to receive feedback on how it can best manage the substantial investment in the Integrated System Plan identified projects, throughout November.