The Battery of the Nation initiative is investigating and developing a pathway for future development opportunities for Tasmania to make a greater contribution to the NEM. ARENA has co-funded six projects with HydroTasmania under the initiative, which are helping to explore locations, finance models, market challenges and opportunities.
Report extract
The National Electricity Market (NEM) is undergoing unprecedented change through the rapid transformation of its generation mix. This transition is bringing significant uncertainty and risk to both generators and customers. The Australian Energy Market Operator (AEMO) has identified that thousands of megawatts of pumped hydro and battery energy storage will be needed as part of a least-cost generation mix in the future NEM. However, current market structures do not adequately value the flexibility and price stabilisation that storage brings.
While there are a number of processes currently underway to identify solutions to address these challenges, there is a risk that these will be too late to incentivise investment in new generation in time for the retirement of aging incumbent generation.
Investment decisions are needed now to ensure solutions are available in advance of a market shortfall – particularly in case generator retirements occur earlier than expected. Timely investment will help to minimise future reliability concerns and price issues for customers. The energy industry requires sufficient price signals, and confidence of a commercial return, to invest in the dispatchable, flexible capacity that will underpin Australia’s smooth transition to the future NEM at the lowest possible cost.
This paper explores various markets, services and contract options to highlight the investment risks and opportunities for energy storage. Most of today’s revenue opportunities are designed to efficiently optimise bulk energy supply while maintaining enough capacity to be able to meet peak demand – albeit at high short-term cost. However, the power system is becoming more variable; flexible and dispatchable supply is being needed far more often. High short-term costs are driving a greater proportion of the total system cost and timely targeted investment has the opportunity to reduce prices to the customer. The Grattan Institute found that supply constraints caused by the retirement of uncompetitive coal generators have caused a $6B increase in the total annual cost of electricity in the NEM since 2015.
