In a speech in March this year, AEMC Commissioner Tim Jordan stated: “…by AEMO’s current calculations, outlined in the ISP, 61 GW of storage capacity is needed by 2050 under the Step Change scenario. That’s 17 times current levels.” Federal and state governments have announced various policies to stimulate battery investment, but challenges to their development are starting to emerge.
Here we take a look at current proposals for storage across the NEM and their implications.
What does AEMO say?
AEMO’s Electricity Statement of Opportunities (‘ESOO’) was published last month, and forecasts in its Central scenario some large storage projects to be operational by the end of 2032-33:
Converting decommissioned power stations into large-scale battery storage is proving an efficient way to capitalise on existing electrical infrastructure (e.g. switchyards). The AEC has produced a guidance report highlighting considerations for this type of project.
In addition to the ESOO-listed projects, which are considered advanced in nature, there are many new projects hoping to progress towards completion:
While there is no shortage of projects, it is still a long way away from the $64 billion of storage investment AEMO forecasts is needed in its Step Change scenario. This might be one reason why governments are stepping in.
The Capacity Investment Scheme
In December 2022, energy ministers agreed to support the design of a Capacity Investment Scheme (CIS) in order to encourage investment in new dispatchable capacity into Australia’s energy grid. In August 2023, the Department of Climate Change, Energy, Environment and Water commenced consultation on the Capacity Investment Scheme.
The CIS aims to add $10 of investment to secure 6GW of “clean dispatchable capacity to the grid by 2030”. On 29 June 2023, the Commonwealth and NSW governments announced that the CIS would support an additional 550MW of firmed renewable generation in the state. In the announcement, both governments cited the 3.3GW of capacity submitted to the NSW 380MW firming tender round as evidence of an appetite to install additional firmed renewables in NSW.
The scheme will operate through a series of competitive tenders, where the commonwealth will offer long-term underwriting agreements for an agreed revenue “floor” and “ceiling” or “collar” arrangement. In its August 31 submission to the Capacity Investment Scheme consultation paper, the AEC identified several complexities that arise because of the collar arrangement, namely:
The AEC has taken the view that the collar’s complexities outweigh its benefits to the market.
A simpler alternative might be one that provides only fixed competitive grants upon completion or paid progressively according to availability. Under this model, the government would have no trailing liabilities, and, after completion, all ongoing market risks would be retained by the capacity.
Figure 1: Key features of the CIS
The CIS will utilize the AEMO ISP and the ESOO to produce its own reliability modelling, though it seems certain elements of the modelling process could be improved to reflect the reality that the delivery of firm output is for the purpose of customers, and best located at load centres. The current proposed structure of the CIS allows states to specify that projects must be located within a declared Renewable Energy Zone (REZ). It would seem preferable for locational incentives to arise only through market design.
It is important to note that the CIS has proposed a minimum project size of 30MW (AEMO registered capacity). As part of the consultation process, DCCEEW is seeking feedback on the evaluation criteria it should implement to assess a project’s contribution to system reliability – that is, the project’s potential contribution to avoid unserved energy events and to the reliability standard.
$62 billion Queensland Energy and Jobs Plan
On 28 September 2022, the Queensland government announced its $62 billion Queensland Energy and Jobs Plan which included plans for two new pumped hydro plans delivering up to 7GW of storage capacity. The plants are to be owned and run by a new entity called “Queensland Hydro.” The two new plants are called Borumba (proposed to be constructed near the Sunshine Coast) and Pioneer-Burdekin (proposed to be constructed near Mackay).
An assessment and early works are scheduled at Borumba in the 2023 calendar year. The Queensland government has stated that it would like the Borumba project operational in 2030, though recent delays to Snowy 2.0 have made some wary about this prospect. Sensibly, the government has flagged that some coal-fired generation will need to remain in the grid until Borumba is commissioned.
Pioneer-Burdekin is listed as ideally operational in 2032. The Queensland Supergrid Infrastructure Blueprint suggests that Pioneer-Burdekin will be commissioned in two 2,500MW stages, with the second opening in 2035. The blueprint also highlights a significant amount of wind and solar generation in close proximity to Pioneer-Burdekin.
The plan also included a $500 million investment in grid-scale community batteries. This funding will support local communities to store exported excess rooftop solar.
Separately, the government is working on a Queensland Battery Industry Strategy. A consultation paper was released earlier this year. The Government has also flagged an Energy Storage Strategy for release in 2024.
This generation has not been factored in to AEMO’s ESOO or ISP to date.
While this pipeline of projects shows promise, the latest ESOO does deliver some slightly sobering news around timing and in particular, the likelihood of delay.
“AEMO has observed that the initial target delivery dates provided by developers of new generation and storage investments often have not accounted for delays that could occur during the project financing, planning, development and delivery stages of projects. To ensure the accuracy of its reliability outlook, AEMO now applies delays to reflect observed development and delivery risks of new projects in the reliability forecast.”
This emphasis on the risk of delay in storage projects to backup existing and additional renewable generation suggests it is front of mind for the market operator. Recent media announcements underline the attention state governments are also giving to this risk. On 7 September, the NSW Government announced an additional $1.8 billion to support the NSW energy transition. $1 billion from this announcement was committed to establish the Energy Security Corporation. In relation to storage, the announcement says:
“The Energy Security Corporation will make investments in storage projects, addressing gaps in the current market, and improving the reliability of our electricity network as we transition to renewables.
This could include investing in community batteries and virtual power plants that will allow households and communities to pool electricity generated from rooftop solar, reducing their reliance on the grid and cutting their power bills.
Once established, the ESC will make investments in commercial projects, similar to the way the Clean Energy Finance Corporation operates.”
Given the reliability gaps identified in the graph below from the ESOO, governments, policymakers, and industry must work together to ensure storage projects stay on track as much as possible.
Figure 2 - Expected unserved energy, ESOO Central scenario, 2023-24 to 2032-33 (%)
From the volume of work being undertaken in this space, it is clear that reliability and levels of firmed capacity are front of mind for state and federal governments, departments, market operators and regulators. While there is enthusiasm for project implementation, there is perhaps a degree of clarity missing on preferences relating to technology. Different firming technologies have different reliability and flexibility characteristics, so it can be preferable to have a mix of technologies being implemented across the NEM – as determined by market design.
The expanded Capacity Investment Scheme (CIS) announced last week aims to bring forward 32GW of generation investment - 9GW dispatchable capacity and 23GW variable renewable capacity - with the costs of the scheme funded by the Federal Government. It can be expected to encourage new capacity which will represent a significant injection of renewables into a grid with ongoing system constraints so does not come without some risks. We take a look at some of the pros and cons.
Some of the challenges being thrown up by the energy transition, in particular around approvals, capacity and supply chain constraints, skilled labour shortages and government interventions are being reflected in the latest assessment of investor sentiment towards the sector. We take a look.
As Australia undergoes its energy transition, there has been discussion around the country’s potential to establish itself as a ‘green energy superpower’ within a future global green economy. Illustrating this discussion is a recently released report by the Joint Standing Committee on Trade and Investment Growth.
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