Growth and developments in the energy storage sector in Australia - Renewables

There has been significant recent growth in Australia's energy storage sector and indications suggest that the pace of development is only going to increase.

Recent examples have included the expansion of the Hornsdale Power Reserve, commencement of work on the 300MW/450MWh Victorian Big Battery, and announcement of a pipeline of nearly 3GW of new battery storage projects by other developers.

Why are we seeing such growth in the energy storage sector?

Renewable generation continues to increase

Australia's energy industry is in rapid transition from a centralised coal generation system to a highly diverse and de-centralised system dominated by large and small scale renewable generation.

The pace of transition is likely to increase with the Australian Energy Market Operator (AEMO) predicting in its 2020 Integrated System Plan that:

more than 26GW of new grid-scale renewables will be needed to replace the 15GW or 63% of Australia's coal-fired generation which is likely to retire by 2040;
distributed energy resources (DER), such as rooftop solar, will double if not triple over the next 20 years; and
between 6GW and 19GW of new dispatchable generation, such as pumped hydro, battery storage, virtual power plants and gas plants, will be needed to support the forecast increase in distributed and renewable generation.

Transition to renewables putting pressure on grid infrastructure

The transition to renewables brings with it a number of issues stemming from the fact that renewable generation is inherently variable, has different physical characteristics to conventional thermal generation and is often located in remote parts of the grid. As non-synchronous wind and solar generators are weather dependent, they cannot offer the same baseload stability that thermal (and hydro) generators can.

As noted in our previous article that explores the Energy Security Board's (ESB) pathway for reform of the National Electricity Market (NEM), recent reports released by the ESB have highlighted the challenges facing the NEM as a result of the increasing amount of renewable energy generation.

The ESB says that security of the system remains the single most concerning issue in the NEM.[1] System strength and inertia in the system have decreased and security has become increasingly difficult to maintain with the increase in variable renewable generation coming into the grid. Increased variable renewable generation, combined with the exponential growth of DER and an ageing fleet of thermal generators has also led to increased variations in both load and supply in the grid.

Weak system strength is making grid connection difficult in many areas of the grid, resulting in connection delays and additional costs. Once connected, some generators have had their output curtailed or revenues reduced due to high levels of congestion and transmission losses.

AEMO has intervened more than 250 times in the last year to either turn off grid-destabilising renewable generation or turn on gas-fired peak demand plants. The frequency of these security directions issued by AEMO has increased significantly over the last three years.

Energy storage technologies can support the transition to distributed and renewable generation

Energy storage technologies, such as battery storage, pumped hydro and virtual power plants play an important role in supporting the transition to distributed and renewable generation.

Energy storage can help balance supply and demand for electricity, and can provide the essential system strength services previously provided by synchronous generators that have withdrawn from the market.

In the following sections we explore some common and emerging energy storage technologies.

Battery energy storage systems

Batteries are relatively quick to install, versatile, and can be deployed in a wide range of locations, scales and contexts. They are commonly coupled with variable renewable generation but are increasingly being developed as standalone facilities which allow energy to be stored during times of low demand and dispatched at times of peak demand.

Batteries can respond rapidly and precisely to changes in energy demand, which allows them to play an important role in providing grid stability services, as well as stabilising the output from intermittent renewable generation projects.

Big batteries such as the Hornsdale Power Reserve in South Australia and the Victorian Big Battery near Geelong have been procured (at least in part) to provide energy security and grid stability services.

However, the capacity of even the biggest batteries remains relatively small (typically up to four hours) compared to long duration pumped hydroelectric storage. The capacity of a lithium-ion battery also degrades over time, requiring eventual replacement.

In Australia, the big battery market has been dominated by lithium-ion batteries, however Australia's first utility scale flow battery has recently been announced and may offer another alternative for medium duration storage needs. Yadlamalka Energy is installing the 2MW/8MWh flow battery at a site near Neuroodla north of Adelaide. Flow batteries claim to have a longer operating life than lithium-ion batteries and the ability to be charged and discharged indefinitely without degradation over time. Storage capacity can be scaled up or down relatively affordably, with flexibility to provide between two and 12 hours of storage.

Despite their limitations, the opportunities for batteries are likely to increase in the short to mid-term. Costs are declining rapidly with Bloomberg New Energy Finance's latest report predicting that current lithium-ion pricing of approximately US$137 per kWh will drop as low as US$100 per kWh by 2023, and it is becoming clear that batteries can provide a much wider range of system services than are currently being valued in the NEM. Future rule changes will likely create opportunities for the provision of these services and changes to scheduling mechanisms.

With so much storage capacity already operational and in development, it is unclear how future rule changes might impact existing storage projects, the scope of services already provided under those projects, and future revenue opportunities for those projects.

Declining costs and the opportunity to take advantage of a greater range of essential system services may continue to improve the business case for battery storage systems, however there could be a saturation point if growth continues at current pace.

Pumped hydroelectricity

Pumped hydro uses water reservoirs to store energy. Excess energy is used during periods of low demand to pump water into an elevated storage reservoir, and is then released to return via hydroelectric turbines to generate electricity.

Like battery systems, pumped hydro systems can come online very quickly and can provide power when needed to help reduce surges, avoid blackouts or meet spikes in demand.

Pumped hydro has greater storage potential than batteries and can supply larger amounts of electricity over a longer duration. Snowy 2.0, for example, will have a capacity of 2,000MW/350,000MWh, nearly 800 times the capacity of the 300MW/450MWh Victorian Big Battery. Pumped hydro is currently the only available technology for long term storage (greater than eight hours).

However, pumped hydro facilities take a considerable time to develop and build, require suitable geography, hydrology and topographical conditions, and face many potential engineering challenges and construction risks.

A direct price comparison between the cost of pumped hydro and the cost of big batteries is complex as both the cost of the power component ($/MW) and cost of the storage component ($/MWh) need to be considered. Typically, for grid scale facilities, the cost of the power component is less for batteries than for pumped hydro, whereas the cost of the storage component is less for pumped hydro than for batteries. This means pumped hydro tends to be more competitive as storage capacity increases, whereas batteries are more cost effective for shorter term storage. The relative cost of pumped hydro improves further when lifetime and replacement costs are factored in. Pumped hydro systems are generally designed to last between 50 to 100 years, whereas lithium-ion batteries may need to be replaced, due to degradation, at approximately 10 year intervals.

Pumping facilities can be retro-fitted into some existing hydroelectric plants reducing development time and capital costs. There are over 100 operating hydroelectricity plants in Australia and three major pumped hydro systems connected to the national grid.

Snowy 2.0 will provide an additional 2,000MW of dispatchable, on-demand generating capacity and approximately 350,000MWh of large-scale storage to the NEM; enough storage to power three million homes for a week. The first power generated from Snowy 2.0 is expected in 2025.

Tasmania already has significant hydropower assets and potential for adding pumped hydro capability to add value to existing assets. The Battery of the Nation project is developing a pathway of future development opportunities for Tasmania to make a greater contribution to the NEM, with a target of 2,500MW of combined installed capacity. Coupled with the potential for a second Bass Strait interconnector, there is an opportunity for Tasmania to produce more renewable energy and to realise more value from existing and new hydropower assets to contribute more dispatchable power and system security services to the NEM.

Virtual power plants

Virtual power plants (VPP) harness and aggregate the energy stored by numerous smaller systems and can rapidly deploy this energy into the grid on a collective basis to respond to energy shortfalls, provide frequency control ancillary services and other network support services.

AEMO's VPP Demonstrations Program has provided a framework over recent years to allow VPPs to demonstrate their capability to deliver grid stability services and to inform the effective integration of VPPs into the NEM. The Demonstrations Program includes Tesla's SA VPP (which may ultimately include 50,000 solar and home battery systems, forming the world's largest VPP) and the AGL Virtual Power Plant comprising 1,000 solar battery storage systems across Adelaide.

With more than 2.6 million rooftop solar system s and 73,000 home battery systems already in Australian homes, DER predicted to double if not triple over the next 20 years, and the declining cost of energy storage systems, there is huge potential for virtual power plants to play an important role in providing cost effective, secure and reliable energy systems of the future.

Electric vehicles

Like household solar batteries, the energy stored by electric vehicle (EV) batteries may provide an opportunity for pooling and deploying this power collectively, through ‘vehicle-to-grid' technology, to support the grid.

The Realising Electric Vehicle-to-grid Services (REVS) project, led by ActewAGL and part funded by the Australian Renewable Energy Agency (ARENA), is currently trialling how a fleet of EVs can provide similar grid services to big batteries and VPPs. The REVS project will deploy 50 EVs across Canberra and will become one of the world's largest vehicle-to-grid demonstrations.

Kinetic energy storage systems

Flywheel energy storage systems offer another alternative to batteries, with modern long duration flywheel technology able to store tens of kWh of energy per unit and provide approximately four hours of discharge. The technology is modular and multiple units grouped together can scale up to tens or hundreds of MW for grid scale applications.

These systems do not degrade significantly over time and do not have the same limitations on number of charge and discharge cycles as battery energy storage systems. The units are generally made of steel and able to withstand a broad range of ambient temperatures without the need for HVAC systems commonly required with batteries.

Hydrogen

Hydrogen could become another way of storing renewable energy by using excess wind or solar energy for production and then storing, transporting and using the hydrogen as a fuel for new dispatchable generation (similar to natural gas).

The hydrogen market is as yet undeveloped and we have yet to see the impact of this emerging market on the electricity market but there is a clear momentum building up in this sector, following the release by the Council of Australian Governments (COAG) of its National Hydrogen Strategy in 2019 and a range of Federal and State Government initiatives funding a variety of trials and pilot plants aimed at proving up hydrogen producing and storage technologies.

Is the recent growth in the energy storage sector likely to continue?

The transition to renewables is likely to continue and there will therefore be a continuing need for new dispatchable generation such as pumped hydro, battery storage, virtual power plants and gas plants. Policy settings at Federal, State and Territory levels are all very clearly aimed at the reduction of emissions and corporate Australia is also increasingly taking steps to reduce its carbon footprint and ensure it is part of a green and sustainable energy future.

It seems likely that a mix of technologies will be required to suit particular contexts with longer term storage requirements requiring long duration storage such as pumped hydro, and opportunities for batteries and other storage technologies where a more rapid deployment or shorter duration storage is required.

As the cost of batteries continues to decline, we may see batteries starting to challenge the need for some longer term storage projects where pumped hydro might previously have been considered as the only viable solution.

It is unclear, however, whether the current pace of development is sustainable and whether (in the absence of new markets) we may soon reach a point at which price competition between an increased number of service providers will reduce the attractiveness and viability of new storage projects.

We may also see a slowdown in new big battery projects which are designed to shore up existing grid infrastructure as recent projects are completed and short term needs satisfied.

Looking further ahead, it seems likely that there will be an ongoing role for energy storage projects to support the increasing amounts of new variable renewable generation which will be needed as conventional thermal generators continue to retire from the market. Many of these facilities may be located in and coordinated with the development of Renewable Energy Zones (REZ) to support the generation from the

Footnote

¹Energy Security Board, Health of the National Electricity Market 2020

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