South Australia to unlock hidden value of big batteries in storage tender

The Tesla big battery at Hornsdale has certainly changed the way that the electricity industry is thinking about the grid and its future.

Its speed, versatility, and accuracy, and its ability to keep the lights on in critical events – such as the major transmission failure that occurred on prime minister Scott Morrison’s first full day in office last August (no, you won’t read about that in the Murdoch media) – has convinced them that it will, indeed, be even more useful than the Big Banana in Australia’s clean energy transition.

But while the Tesla big battery – officially known as the Hornsdale Power Reserve and owned and operated by Neoen – has confounded the skeptics and proved it can make money, it has also highlighted the gaping hole in Australia’s electricity market rules.

The NEM was designed two decades ago and based around the prevailing technology at the time – big and comparatively slow-moving centralised generation, with a majority of coal generators backed up by hydro and gas plants to fill the gaps in demand and step in when the coalers failed.

Tesla, however, has pointed out that the big battery at Hornsdale does a lot of things that it does not get paid for.  It, and other battery storage developers, such as Fluence, reckon that about only one third of the various “value streams” of a big battery are recognised by the market.

That assessment is supported by the Australian Energy Market Operator, which says the country’s main grid needs to make sure it was paying for resources needed to deal with inertia and frequency and other system needs.

That’s not surprising, because it is so new that there wasn’t even a category for it when it was being commissioned in the rush to meet Elon Musk’s famous promise to build the battery in 100-days or it’s free.

The battery had to pretend it was a solar farm, at least for filling in forms for a grid that had not seen such technology before, and the market rules still don’t allow such batteries to operate with the wind and solar farms they are located with as one system.

That is about to change, but probably slowly, as the rules go through the regulatory review process. One key component, the shift to 5-minute settlement periods to replace the heavily rorted 30-minute settlements favoured by coal generators, will be introduced in July, 2021. In the meantime, other markets need to be developed.

The South Australia Liberal government is keen to move ahead, just as its Labor predecessor did with the Tesla big battery, and wants to sign direct contracts that recognised and value parts of its armoury that are not currently done.

South Australia energy and mines minister Dan van Holst Pellekaan is expected to announce the results of its tender for grid scale storage projects in the next month or two, and said last week the focus will be on procuring grid benefit services not currently recognised by the market.

The $50 million fund attracted more than 50 different proposals – from batteries to pumped hydro, and hydrogen and compressed air – and it seems clear that the government will seek to write a contract in the same way that the Labor government did for Hornsdale.

“We will announce the successful applicants in coming months and this program will expand on the learnings of the “big battery” at Hornsdale to procure grid benefit services, and demonstrate an evolved market where we value system services,” van Holst Pellekaan said in his speech.

RenewEconomy understands from government insiders that it will be similar to the $4 million contract the previous government wrote for the Tesla big battery – in this case for grid security – and will focus on another area currently not recognised by the market.

This will guarantee revenue for those services, and having brought them into the system, provide a platform where those services can be valued and a market designed to support them.

This is of particular interest to South Australia, which expects to reach a level of “net” 100% renewables by 2030, meaning that it will be producing far more wind and solar than it needs, and will be exporting a significant amount to neighbouring grids.

That also means it needs to balance that output, fill in the gaps of supply, and also manage the various issues presented by the increased penetration of rooftop solar, which will reduce effective demand to zero at various points of the day.

That will require various levels of storage – batteries and pumped hydro and maybe others – plus a focus on demand management and providing new sources of demand, such as electric vehicles.

It also means providing the services traditionally supplied by thermal generation. The Tesla big battery along with demand management initiatives, has already grabbed a significant share of the frequency and ancillary services market, but there are more areas that need to be covered and which the battery can do.

In a recent submission to AEMO’s latest Integrated System Plan consultations, Tesla noted previous observations that the whole “value stream” of batteries needs to be better reflected. AEMO has said that only one third of battery services are recognised by the market.

The state government is not commenting on which services would be sought, or how, other than to say that the government will ensure there is a consumer and grid benefit, as there was with the Tesla big battery when it signed that $4 million a year contract with the previous state government, which has brought down prices and kept the lights on.

But he noted that international markets offer up to 16 different revenue streams, but less than half of those were recognised in Australia. “You either have a market or you procure the services,” one insider said.