The price of success and important role for distributed storage

There is no doubt that 2023 has seen rooftop solar establish itself as the Australian energy system’s major stars. And with success comes new challenges.

The PV industry globally has also grown at a remarkable pace, with roughly 400GW of installations expected to be achieved globally according to forecasts from BloombergNEF. Think about that; beyond a gigawatt per day! Put another way, that is an almost 25% annual growth rate over the past decade, and a whopping 55% expansion – under the most pessimistic scenario – year-on-year.

Source: BloombergNEF

While China remains the giant in terms of global PV markets, Australia has an important role to play, and is achieving its own measure of success. As I set out in the previous update, 2023 could very well be a record-setting year for small-scale (sub 100kW) PV installations, with over 3GW set to have gone up on Aussie homes and small-businesses during the year.

But more importantly, Australia’s rooftop solar penetration rates are bringing with it new challenges and opportunities for solar businesses right around the country. As I set out in the previous blog, rooftop PV is becoming increasingly impactful on the operation of the National Electricity Market (NEM).

The most obvious impact is that rooftop PV, along with large scale solar and wind, is putting the squeeze on gas and coal-fired generators. This means lower emissions and is surely one of our missions as an industry. Gas is being squeezed out of the “merit order” first, particularly in the middle of the day. As gas-fired electricity is currently the most expensive in Australia, this means cheaper wholesale electricity prices on the NEM and eventually for consumers. The OpenNEM data from the past month illustrates this trend – with the headline figure that, even as temperatures have spiked early in summer this year, renewables are accounting for over 40% of electricity production for the period.

Source: OpenNEM

Looming challenge

While these are undoubtedly positive trends, there are increasing calls that as old, and evermore uneconomic, coal-fired generators are retired and exit the NEM that there may be a shortfall in “dispatchable generation” – sources that can be ramped up to meet demand, particularly in the early evening. And there’s a lot of coal generation set to be retired over the next decade: something like 6GW of capacity.

Lumi Adisa made this point in an article published on pv magazine Australia. Adisa is a former Investment Director of Energy Markets at Octopus Investments Australia and now with the NEOM project in Saudi Arabia.

In the article, Adisa notes that rooftop solar has been observed to depress midday electricity demand in QLD, NSW, and VIC – while the evening peak has remained, or even increased. He explains:

“In Queensland, the average midday demand has dropped by over 1GW whilst the evening peak has increased by over 250MW in six years. Victoria has seen a similar stretch of the intraday demand profile over the same period with midday demand dropping by about 1GW and the evening peak increasing by over 200MW. New South Wales – which has the largest peak load – has seen the biggest change in its intraday ramp with average midday demand dropping by close to 2GW and the evening peak increasing by about 100MW.”

This is potentially a worrying development as it could exacerbate a potential shortfall in dispatchable resources. An increasing number of voices have been raising such concerns, including consultant Kate Summers, from Ekistica, who spoke at the plenary session of the second day of All-Energy Australia in October.

Enter: Batteries

It does appear that governments are hearing these arguments, and price volatility is playing a role in spurring at least a partial solution to this problem. An investment cycle in utility-scale energy storage is currently underway right around Australia, with these batteries poised to soak up both residential and large-scale solar in the middle of the day, and discharge during evening peaks.

In the chart above, battery discharging is depicted in the blue and it is encouraging to see that the impact of batteries is already being seen on the NEM. And with the delta between minimum and maximum demand growing, and such events becoming more common, there is an improving business case for large scale batteries to charge up when electricity prices are low (or negative), and discharge when prices are sky high – known as arbitrage trading.

Energy analyst Rystad, in its annual review published this month, noted that a record high of 3.7GW of large scale batteries are currently under construction in Australia, as reported by RenewEconomy. As the publication observes, some of these batteries are truly massive in size – above 1GWh.

Source: Rystad Energy

“These [battery projects] were led by landmark projects such as the Waratah Super battery (850MW and 1680 MWh), and the newly contracted Melbourne Renewable Energy Hub (600 MW and 1600 MWh), and the 500MW, 1000MWh first stage of the Eraring big battery.

“Other notable projects with construction starts include three projects in WA, three more in Queensland, the Blyth battery in South Australia, and the Latrobe and Rangebank batteries in Victoria.” In addition, the pumped hydro project in Queensland run by Genex includes 300MW of pumped hydro and battery, with the first pumped hydro project in Australia for over 40 years supporting a claimed 2GWh of continuous power generation.

As the batteries and more come online, the blue band in the OpenNEM chart will expand, displacing gas, ensuring midday solar production is not wasted, and reducing any potentially growing gap between supply and demand.

Distributed challenge

As positive as the wave of new large-scale batteries is, there remains a potential problem in the distributed segment of the market – the rooftop. With the current annual installation rate of 3GW, see again my previous blog, there very well could be limits to how much new solar can be added in certain areas, depending on the capacity of the grid. NEOM’s Adisa spells it out:

“Although we have seen a lot of final investment decision (FID) announcements on grid-connected batteries, distributed storage remains a challenge. Given the current trend in rooftop solar growth, it is only a matter of time before the policy makers look to the distribution network for some system ramp mitigation mechanisms.”

The solution here, I would argue, remains the same as on the large scale. Residential battery storage can work wonders in charging with the rooftop PV installed around midday, for it to be used in the home in the evening. Batteries can also assist with voltage control on the grid, in areas where high penetrations of rooftop solar could potentially worry distribution network operators.

The relatively high price of residential batteries has long been an impediment to seeing the level of installation activity that would have a truly meaningful impact on grid function. But here too, some industry veterans have proposed a simple fix. Tristan Edis and Ric Brazzale, from STC clearing house Green Energy Markets, have been advocating a change in the residential solar subsidy scheme, to boost battery installs in homes and small businesses.

“We propose that a simple and easy to implement modification of the existing main policy mechanism for supporting rooftop solar roll-out – the Small-Scale Renewable Energy Scheme (SRES)- could drive the roll-out of as much as 10,000MW of household battery storage by 2030,” the Green Energy Markets’ team wrote in RenewEconomy, more than two years ago. “This would involve restoring the level of the SRES rebate to the levels that were in place five years ago if a newly installed solar system is coupled with a battery, meanwhile allowing the rebate to continue to step down and phase out by 2030 for solar-only systems.”

That it has been over two years since this argument was made and no action taken by the federal government demonstrates that the politics on extending subsidies to residential batteries are difficult. Thankfully, state governments have been stepping up to support distributed energy storage.

The most notable was announced in the first week of December, the Battery Booster Rebate Scheme in Queensland. The program will provide rebates of up to $4000 per household, if they meet certain eligibility criteria, for a residential battery. Up to 4000 households could benefit from the scheme.

In reporting on the program, the ABC indicated that the program is likely to go live in 2024.

“While the government was yet to announce when the Battery Booster Rebate Scheme would kick off, Energy Minister Mick de Brenni indicated to ABC Radio Brisbane that it was due to begin next year.”

A subsidy of this size will no doubt help aide battery adoption in QLD. Increased competition amongst battery suppliers is also seeing more competition on price. And both are important, as it is clear that batteries are key to delivering the flexibility and dispatchable capacity that is needed, and with ever-more urgency, on the NEM.