Tesla says energy market reform must be accelerated in Australia, not delayed

Global electric vehicle and storage giant Tesla has urged Australia’s energy authorities to accelerate the reform of energy market rules and resist the aggressive push by incumbent coal, gas and network companies for further delays.

Tesla, which built the world’s biggest lithium-ion battery in South Australia, and whose electric vehicles are the best selling EVs in Australia and much of the rest of the world, making it the world’s most valuable car company, says reforms are needed to encourage the deployment of flexible assets and improve market efficiencies, and help the clean energy transition.

“Delaying agreed reforms will increase risk premiums, and in particular defer the benefits arising from the introduction of new flexible technologies,” such as  battery storage and demand response, Tesla says in a submission to proposed delays to the critical switch to 5-minute settlements on the Australian wholesale electricity market.

“Developers of battery projects are generally concerned about the need and speed of implementing market reforms to better recognise the value of services – delaying 5MS prolongs uncertainty for a technology that has already demonstrated its ability to deliver outstanding outcomes for Australia’s energy consumers upon immediate deployment.”

The shift to 5MS was proposed back in 2015 – to end the rorting of the 30-minute settlement arrangements by existing fossil fuel generators and to encourage smarter and quicker technologies such as batteries and demand management. The rule change was finally agreed in 2017, but its implementation delayed until mid 2021.

Now, incumbent coal and gas generators, including most network operators and the federal government-owned retailers Red Energy and Lumo, are calling for the reform to be delayed 12 months, and up to 24 months, citing the impact of the Covid-19 pandemic. Origin Energy joined those ranks, becoming the first of the big three retailers to openly support the delay.

Battery storage and demand response companies are calling for the reform to proceed on schedule. Only the Queensland government owned Stanwell has broken ranks with the incumbent generators, saying the delay would add costs rather than save them. It is largely ready to go.

The remaining incumbents have argued that the system will not be ready and will be costly to meet in the current timetable. The Australian Energy Market Operator, which operates the trading system, has said however that it will be ready on time, and any delays could cost an additional $9 million, which will be passed on to consumers.

Tesla and others say that the industry has had more than three and a half years to prepare, and that should be enough. The South Australia and ACT governments also oppose the delay.

Tesla’s views should carry considerable weight, not just because of the significant impact of the big battery it built at Hornsdale (See Tesla big batter’s stunning interventions smooths transition to zero carbon grid), but also because its market work (about $A275 billion) is also bigger than nearly all the Australian electricity industry combined.

Its position is supported by Enel X, the demand response subsidiary of global energy giant Enel, itself worth more than twice the value of Australia’s biggest four gen-tailers. Big global market forces are now intervening to switch the dial on Australia’s clean energy transition.

“5MS has been on the reform agenda for more than 3 years, and as recognised by AEMO, a 12 month delay is pinned on several subjective assumptions that were made early on as the pandemic impacts were still unfolding,” Tesla says in its submission.

“Concern of the financial viability of market participants should not be solved through delaying market improvements (or passing additional costs to end-consumers).”

Tesla has completed the expansion of the Hornsdale Power Reserve in South Australia – commonly known as the Tesla big battery because of its unprecedented size – and has also provided the storage for big battery projects at Gannawarra, Lake Bonney and Bulgana.

It is also playing a central role in a 50,000 unit, 250MW virtual power plant in South Australia that will add to grid security and help absorb excess solar from rooftop installations, and has proposed a 600MW Victoria big battery near Geelong to help that state expand the amount of electricity it can trade on its main link to NSW.

The 5MS is just one of a number of proposed reforms that will help such installations extract value from their multiple capabilities. Battery storage companies say their “value stack” goes largely unrecognised by the current market design, which was shaped for a grid dominated by big, centralised and slow moving generators.

Many of these reforms could take five years to implement, but Tesla says there is a strong case to push forward.

“We recommend the reform agenda be maintained as much as possible, and suggest if the AEMC or ESB can identify reforms that directly assist with the transition to introduce and deploy flexible assets and improve market efficiencies, then these reforms be under consideration to be accelerated rather than delayed.

“We believe 5MS fits this criteria, and as identified in the original rule change determination, delivers significant benefits to consumers through improved price signals, in turn driving efficient investment that will flow through to greater reliability, system security, and lower emissions and costs.”

Tesla said it provided further information to the AEMC, which will deliver its judgement in early July, but said this would remain confidential.