The Nelson review into the settings of Australia’s National Electricity Market says millions of household batteries expected to be installed in coming years need to “more scheduled” to ensure that the main grid can continue to function.
The review’s standout recommendations are centred around price signals for large scale wind, solar and storage, which it intends to address through a series of reverse tenders for bulk energy, shape and firming services, and has rejected calls for a capacity market.
But consumer energy resources are also a major focus, because in coming decades around half of all the electricity supply will be produced by consumers. In South Australia, rooftop solar is already producing – on occasions – enough electricity to meet all that state’s demand.
And harnessing these resources is one of the major challenges for the market operator, also because at the moment most of these systems are effectively “invisible”, and certainly not “controllable” to the people trying to keep the lights on.
“Weather dependent and energy constrained: VRE generators are central to decarbonising Australia’s electricity supply,” the Nelson report says. VRE stands for variable renewable energy and applies to wind and solar output.
“While VRE generators produce no greenhouse gas emissions, they are inherently weather dependent, introducing greater day-to-day and seasonal variability in supply,” the report says.
“This growing reliance on weather-dependent resources increases the risk of periods where the market is energy constrained, less scheduled and less dispatchable.
“The market is also being shaped by the expanded participation of distributed energy resources (DER). Millions of new, small-scale, priceresponsive generators (i.e. batteries) are expected to enter the market.
“Without reform to make these resources more ‘scheduled’ and observable to the market operator and market participants, the market may not be able to function without significant over-investment.”
The report cites a study commissioned by the Australian Energy Market Operator that estimated the lack of visibility over home solar and battery systems could result in $1.4 billion to $1.8 billion of additional and unnecessary spending on large scale sources.
“Distributed consumer-owned resources, such as home solar and battery systems, will provide an increasing share of capacity,” it says.
“If virtual power plants (VPPs) are not participating in the market, AEMO’s demand forecasts may become less accurate, reducing market efficiency and jeopardising grid stability. Without visibility of these resources, there is a significant risk of over-building large-scale resources.”
The rapid uptake of DER – distributed energy resources – has seen rooftop solar emerge with the highest registered capacity in the NEM, and over past five years, consumers have installed distributed solar at about twice the rate of utility-scale solar.
AEMO projects the overall capacity of distributed solar to double in the next decade, from more than 25 GW to 50 GW, while sales of distributed storage, such as home batteries and vehicle-to-grid EVs, are expected to increase from 1 GW to 7 GW in 2029–30, then to 34 GW in 2049.
“This growth is more challenging than solar because it is difficult to forecast how batteries will be used,” the report says.
“Batteries can be optimised for energy arbitrage, ESS, demand shifting or selfconsumption. They can also join aggregated VPPs. However, VPPs are typically not visible to AEMO or the wider market.”
The review says changing wholesale market dynamics will increase the value and importance of DER in both reducing peak demand and potentially supporting minimum system load, but so far there has been little progress in integration them into ideas such as the demand response mechanism.
“Financial and regulatory incentives may be insufficient to encourage wider participation,” it says. “If these barriers above remain unaddressed, potential DR resources will remain invisible to AEMO and other market participants, and the potential benefits for grid stability and cost reduction will be unrealised.”
And: Our approach is not to throw out the market – but to reinforce its strengths
