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Energy & Utilities | Infrastructure

Battery Storage Opportunities on the NEM, and learnings from the Hornsdale Power Reserve

18 Feb 2020, by Nicholas Mayfield

Ahead of the Pumped Hydro & Battery Storage Conference held this 25-26 February at the Swissotel Sydney we sat down with Energy Synapse’s Marija Petkovic for her take on the current opportunities for Battery Storage on the NEM, and learnings from the Hornsdale Power Reserve Case Study.

 
With the constant increase in renewables’ penetration on the NEM, how important are firming and FCAS services, and do we have enough capacity online and under development to meet short-medium term demand?

The demand and supply of electricity need to be in balance at every point in time. The big challenge with renewables like wind and solar is that they are weather dependent and hence their generation profiles have little to do with how people and businesses use electricity. As renewable energy grows, the need for firming and frequency control will naturally increase. In our view, the market is underestimating how quickly coal-fired generation will exit the market. As such, we don’t believe that the short to medium term pipeline is full. There are still plenty of opportunities for more batteries to come online.

 
As more renewables connect to the grid we can expect more negative-pricing events – does this have a large impact in the business case for new storage projects, or is this too hard to quantify?

In recent months, we have seen a record number of negative pricing events in the energy market. This presents an opportunity for batteries to charge cheaply (or even earn revenue from charging). However, renewables don’t just contribute to more negative pricing, their variability creates a larger spread in pricing.

When arbitraging the energy market, it is not the average price that matters, but rather the spread in pricing. At present, arbitrage is a relatively small portion of the battery revenue stack. As spreads continue to open up, arbitrage could become a larger portion of the overall value stack.

 
Based on your learnings from the Hornsdale Power Reserve Case Study, what is the current opportunity for new battery storage projects, and how can we expect current opportunities to change over the next few years?

The biggest opportunity for battery storage right now is from frequency control ancillary services. This is how the Hornsdale battery has earned the majority of its merchant revenue to date. However, the future of this revenue stream is uncertain.

On one hand, FCAS markets are shallow and hence can be very sensitive to new entry. On the other hand, as ageing fossil fuel power stations exit the market and are replaced with variable renewables, the need for grid balancing services will grow.

As renewables grow, we might also see new revenue streams being created such as a fast frequency response market. Batteries are already capable of providing this service, but without a market, there is no mechanism for them to be compensated for doing so. Batteries are a very unique asset in the NEM. We are still at an early stage of understanding how to value all the benefits that batteries can provide in a highly renewable, low inertia grid.

 
How does the recent announcement of an expansion to the HPR shape the conclusions of your report?

The Hornsdale Power Reserve has been earning solid revenue and actually earned its highest monthly revenue almost two years after first becoming operational. The opportunity has not eroded. The expansion announcement was not a surprise and supports the conclusions we made in our report.

You can hear more from Marija at the Pumped Hydro & Battery Storage Conference.

Book now to ensure you don’t miss out on this landmark networking and shared learning opportunity.

 
If you are interested in the full deep dive analysis of the Hornsdale battery, see the Energy Synapse website for more details:

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