The divide between generation and networks used to be pretty clear. One group of companies owned the generators that supplied the power, and another group owned the networks that delivered it. And depending where they were, one group or the other got the pleasure and the profit from sending out bills to consumers.
Battery storage, however, has blurred the boundaries between what is a generation asset and what is a network asset, and the ownership of batteries – both big and small – has become the major new turf war between the big generation companies and the network owners.
The so-called ” value stack” of battery storage is surprisingly high. They can store excess power when prices are low and discharge when supply is short and prices are higher, they can provide multiple key “grid services” such as frequency control, and inertia and even act as a “virtual synchronous machine”, and they can act as “virtual transmission” by providing a layer of security that allows transmission lines to be used at their full capacity, or to reinforce local networks and remove the needs for upgrades and extensions.
The Australian Energy Regulator is currently wrestling with the issue of what to do about battery storage. It has already had to rule on this when allowing networks to remove expensive and potentially unreliable stringy networks and replace them with localised renewable micro-grids, based around a battery storage system.
Now the focus is moving towards “community” level batteries that could be spread around the grid – potentially putting them in competition with the big and small generators, and at the “big battery” storage level where the installations are as big, or even bigger, than traditional gas and coal generators.
Right now there seems to be something of a land grab for positions next to sub stations where prospective developers are putting together proposals for huge batteries that can deliver both network services and generation and storage services.
Networks are building batteries – such as Transgrid at Wallgrove in western Sydney, and with its offshoot Lumea in north west Melbourne – and Powercor wants to build up to 2GW of battery storage in 20 different locations around Victoria to reinforce its networks to accommodate more renewables.
Some of this is being allowed through waivers to “ring fencing” guidelines, which is the imaginary line between a network’s regulatory monopoly and the “competitive” markets that are sometimes allowed to play in, as long as the company involved has a different name, branding and uniforms.
But it seems that no one can agree on how this should be done. And it’s complicated by the fact that batteries can do so much, and it’s possible to assign one part of a battery to do one thing, and another part to do something completely different. And you can contract or lease that capacity to third parties.
The big generation companies are already concerned because their traditional business models are falling apart, their main assets are rapidly decreasing in value and they face intense competition in the “behind the meter” market that includes rooftop solar, household batteries, smart appliances and electric vehicles.
EnergyAustralia, which is planning a major battery to help replace the Yallourn brown coal generator that will close in 2028, is supporting a draft AER ruling that would prohibit networks from providing “contestable services” via batteries, unless they can apply for a waiver where they can prove that the benefits outweigh the harm.
EnergyAustralia is worried that the speed and scope of the broader energy transition will make it harder for the guidelines to keep up, and it is also worried that any waivers would allow networks to favour their related parties, and effectively cross-subsidise those activities.
Other big retailers are also concerned, more or less for the same reasons, and so too are some smart software companies, such as Enel X, which says local networks have not provided strong reasons to justify an ability to offer contestable services with batteries.
“The competitiveness of the battery market is threatened when regulated businesses are allowed to leverage their monopoly role to crowd out other providers,” Enel X writes in its submission.
“Thus we support the AER’s draft position to prohibit DNSPs (local networks) from offering contestable services with batteries.” And it says it is concerned that the waiver process is not robust enough and may rely on “commitments” from DNSPs that have no real weight and are not easily enforced.
Reposit said much the same thing, and the specialists renewable energy retailer Flow Power agreed, saying allowing DNSPs to build batteries could lead to “socialisation of costs and privatisation of benefits.”
“There is a risk that a ring-fenced affiliate can monetise a large portion of the battery while consumers pay for most of the capital costs through the DNSPs regulated asset base,” Flow Power says.
The oil giant Shell, which has big plans for its electricity business in Australia, says a strong ring-fencing framework for DNSPs is critical for both stand-alone power systems (SAPS) and energy storage systems (ESS).
“Our rationale is that ring- fencing helps to provide a level playing field for contestable services, which enables competition and ultimately improves outcomes for consumers.”
But others disagree.
Retailer Simply Energy says the need to obtain a ring-fencing waiver would add time, cost and regulatory uncertainty to community-scale storage projects.
“The potential risks of allowing DNSPs to lease excess battery capacity to third parties would be more appropriately dealt with through measures separate to the ring-fencing guideline,” it says.
The Public Interest Advocacy Centre says the ring-fencing framework will restrict the prudent and efficient investment in community storage. “The need for ring-fencing waivers adds time, cost and uncertainty to community scale storage projects, damaging their investment case,” it writes.
It notes the comments by a number of DNSPs, who say the need to obtain a ring-fencing waiver will likely delay investments in community battery projects and significantly increase the regulatory uncertainty and costs for potential participants that would lease the excess battery capacity
The Clean Energy Council, which represents renewables and storage companies, says energy storage on networks should be used to help more renewables onto the grid, supporting system security and reducing pressure on electricity prices.
It says the proposed waiver process will be useful, but is unlikely to be an appropriate long-term policy framework because of the time and delays involved in case-by-case consideration. “In the long term, we believe it would be preferable to reconsider the ringfencing policy framework.”
The turf war has only just begun.