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Rollout of big batteries set to accelerate across the NEM

Grid-scale battery storage is a key technology that will help enable the transition to clean energy. The Hornsdale Power Reserve in South Australia was the first big battery to be built in Australia’s National Electricity Market (NEM) in late 2017. Since then, 15 other large-scale batteries have registered to participate in the NEM, bringing the total rated power to almost 800 MW.

As more coal exits the grid and is replaced by variable renewables, there will be an increasingly important role for firming technologies, such as batteries. These technologies can help ensure the grid remains stable and that the supply and demand for electricity are in precise balance at all times. However, batteries are not just a technical curiosity. They offer the potential for big returns for investors.

Given the technical and economic potential of battery storage, it is unsurprising that there are already more than 140 big battery projects at various stages of development across the NEM. It has been a huge month for battery storage, with several of these projects progressing the “committed” (i.e. most advanced) stage. This includes:

– Macquarie Generation’s 50 MW/50 MWh Broken Hill Battery in NSW.

– Edify Energy’s 25 MW/50 MWh Darlington Point Energy Storage System in NSW.

– Edify Energy’s 60 MW/120 MWh Riverina 1 and 65 MW/130 MWh Riverina 2 Energy Storage Systems in NSW.

– Vena Energy’s 51 MW/84 MWh Tailem Bend Battery Project in SA.

– Engie’s 200 MW/150 MWh Hazelwood Battery in VIC.

The Energy Synapse Platform lets you track the progress of every project under development. Once it is operational, you can assess the financial performance and their exact strategies in energy and FCAS markets.

Revenue outlook for big batteries

The fundamentals that underpin the business case for batteries are very strong. Key trends in the energy market are summarised below:

– Most coal capacity will exit the NEM by the mid 2030s under AEMO’s Step Change scenario (which is widely considered to be the most likely). Coal-fired power stations tend bid at low and mid levels in the generator bid stack. When these power stations exit the market, there will be a greater gap in the bid stack between cheap renewables and peaker plants (such as gas and hydro). This will open up intraday spreads in wholesale energy prices and hence create strong arbitrage opportunities for storage.

– Frequency control ancillary services (FCAS) have to date provided the majority of market revenue for big batteries. However, there has been a persistent view from some consultants that the opportunities in these markets will quickly disappear because they are shallow and hence sensitive to new entry. While FCAS markets are considerably more shallow than the energy market, our view at Energy Synapse has always been quite bullish. While we do expect this revenue stream to have ups and downs over the next 10-15 years, our modelling shows that FCAS is likely to be a significant contributor to the battery value stack. Reasons for this include:

– Growth of variable renewables, and especially large-scale solar, is likely to drive higher requirements for regulation FCAS.

– Remaining coal fleet is likely to become increasingly unreliable, thereby increasing contingency events.

– Big batteries (particularly those with advanced inverters) can offer a wide range of grid services to help keep the electric system stable. More of these services are starting to be monetised, which will create additional revenue streams for big batteries. For example, there is already a commitment to create competitive markets for fast frequency response (FFR). We may see the monetisation of other services in the future such as inertia and system strength.

The age of battery storage is well and truly upon us.

Author: Marija Petkovic, Founder & Managing Director of Energy Synapse
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Coal closures and renewable energy targets – summary of the biggest week in Australian energy news

This week has been massive for clean energy news in Australia. Queensland and Victoria have both announced big targets, and AGL has brought forward its closure of Loy Yang A (one of the dirtiest power stations in the grid). This article summaries the key facts from these major announcements.

Queensland sets 80% by 2035 renewable energy target

The Queensland Government announced its Energy and Jobs Plan. This represents $62 billion of investment (public + private) in the energy system from now to 2035. The plan includes the following:

– Queensland will significantly increase its renewable energy targets to 70% by 2032 and 80% by 2035. These targets are aligned with AEMO’s Step Change scenario in the 2022 Integrated System Plan. The Step Change scenario already has broad agreement from industry as the most likely path for the future of the grid.

– Development of the 5 GW/24-hour storage “Battery of the North” pumped hydro project. This would be the world’s biggest pumped hydro energy storage system. Stage 1 of the project could be completed by 2032. A smaller 2 GW pumped hydro project is also planned, with a proposed completion date of 2030.

– Development of the “super grid” to export North Queensland’s sunshine and wind energy to the rest of the state. The super grid is planned to deliver 1,500 km of 500 kV transmission lines from Brisbane up to North Queensland and out west to Hughenden.

– Queensland plans to end its reliance on coal by 2035. Existing coal-fired power stations will progressively become “clean energy hubs” from 2027. Infrastructure at these hubs will include grid-scale batteries and gas (and later hydrogen) power stations. The large spinning turbines at coal-fired power stations will continue to be used to provide system strength to the grid.

Victoria sets 6.3 GW by 2035 storage target

The Victorian Government has announced the biggest energy storage targets in Australia. Victoria has set a target of 2.6 GW of energy storage capacity by 2030 and 6.3 GW of storage by 2035. The targets are expected to bring in $1.7 billion in investments from 2023 to 2035. The targets are inclusive of both short and long duration storage.

To support these targets, the Victorian Government is investing $119 million from the Renewable Energy Zone Fund in a 125 MW battery and grid forming inverter in the Murray Renewable Energy Zone, between Bendigo and Red Cliffs.

The Victorian Government has also announced that the latest round of the Energy Innovation Fund will include $7 million for a 100 MW battery and inverter in Terang.

AGL to exit coal by 2035

AGL has been dragged kicking and screaming, but it has finally committed to closing its fleet of coal-fired power stations by 2035.

It has taken a failed demerger plan, billionaire intervention, shareholder activism, exodus of board members, its single biggest customer (Tomago Aluminium) pledging to go renewable, rejection of a proposed chair, and more to get to this point. 

AGL owns three coal-fired power stations in the NEM: Liddell, Bayswater, and Loy Yang A. One unit at Liddell has already closed this year. The remaining three units are scheduled to close in 2023. In February 2022, AGL brought forward the closure date of Bayswater from 2035 to 2030-33 and Loy Yang A from 2048 to 2040-2045. AGL’s latest announcement has brought forward the closure date of Loy Yang A to 2035.

We have written extensively about the declining business case for coal-fired power stations and why companies like AGL need to transition quickly to survive. You can read the article here.

AGL has set an internal goal of 12 GW of new firming and renewable assets by 2036 to replace the retiring capacity.

Author: Marija Petkovic, Founder & Managing Director of Energy Synapse
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