Deep dive: How does stored energy support the NEM?

In a previous article, we explored at how the energy mix is changing, and how lower-cost-renewables are creating a demand profile that is marked by peaks and troughs. Now we take a look at how the future of energy storage can help manage that changing demand profile.

Greater peaks and troughs in electricity use place more emphasis on sources of reliable electricity that provide electricity to the NEM on demand. The main sources of dispatchable generation across the NEM are electricity generated from coal and gas, which use the energy stored in fossil fuels. However, there are also other technologies that can utilise the excess of zero-emissions renewable energy that can be produced during the day, storing excess or cheap energy that can then be dispatched at periods of higher demand or higher wholesale prices.

What ‘stored energy’ options are available?

While numerous technologies have been trialled over the years, pumped hydro and batteries are the most developed of these options. Energy can be stored in the form of gravitational energy for hydro schemes and chemical energy for batteries and then converted to electricity when required.

Pumped hydro uses cheaper electricity to pump water to a higher point, which is then released to generate energy through gravitational turbines during a period of greater demand. As a technology it has been around for decades and is continuing to see ongoing investment throughout Australia: for example, the proposed Kanmantoo project in South Australia.

Increasingly, large scale battery storage is also becoming economic as the cost of batteries decline and the technology to utilise stored energy in a more dynamic way improves.

South Australia’s Dalrymple battery, operated by AGL

Extremely fast-response battery storage like the Dalrymple battery operated by AGL in South Australia and the new Maoneng batteries can also help stabilise the grid by providing important power system services to the NEM, as well as exporting energy when required. Not only do these batteries provide large amounts electricity when required, they can also provide smaller bursts of electricity very quickly to stabilise the frequency of the grid and keep the NEM in a secure operating state.

Investment in these large-scale projects will continue as the cost of new technologies declines, more flexible generation sources are required, and older coal-fired power stations reach the end of their life.

“As the shape of demand in the NEM changes, it will be more important to have the right mix of generation and interconnection to transport electricity from where it is generated to where it is needed.”

Small-scale battery storage

While the majority of electricity supply in the NEM is still provided by large generators, the impact of small-scale solar is still very material and presents a significant opportunity to contribute to the overall needs of the system. Similarly, the ability to store electricity generated by solar PV during the day and use it at a later time could have major benefits for both the grid and customers.

As the case study we examined in our recent Hub article, ‘Peaks and troughs in demand’ shows, rooftop solar can have a significant impact in reducing overall system demand, but what happens when the sun goes down?

“If this electricity could be stored and shifted to use at the time of day when it is needed most, it could significantly reduce the amount of electricity required by other dispatchable generation.”

For example, electricity stored in small scale batteries could assist in extending the speed (‘ramping rate’) at which gas generation is required to come online when there are major reductions in solar or wind generation. Through utilisation of smart battery software, customers could choose to use their energy at times of the day when electricity is in greatest demand (and at its most expensive) and be rewarded by their energy retailer for this service.

While the potential benefits from storing electricity are huge, we are currently only seeing the beginnings of this transition, as the cost of storage remains high. As costs decline and more storage options are integrated in the NEM, they will continue to need to be complemented by other sources of dispatchable power, in particular fast start gas generation, such as AGL’s Barker Inlet Power Station, which is more flexible and can ramp up faster than than coal generation.

If storage can be well integrated over time, the operation of a future grid that utilises greater amounts of cheap renewable electricity will be more productive over time, leading to lower costs for customers and less emissions from dispatchable coal and gas-fired generation.

Opportunities for consumers

In the interim, even at a smaller scale, customers can benefit from a battery installation depending on their arrangements with their retailer. For example, customers may be able to store the energy produced by their solar installation during periods of low demand (or low wholesale prices) and export energy at periods of high demand (or high prices), maximising the value of the electricity produced by the solar panels.

As the value of wholesale energy at peak times or during shortfalls can be as much as $14.70/kWh (around 150 times the usual wholesale price of around $0.09/kWh), this could present a significant opportunity for customers (or aggregated groups of customers) to participate in the wholesale market. Additionally, customers may be able to benefit from payments for services that stabilise the grid, such as frequency control. AGL’s Virtual Power Plant (VPP) is trialling precisely this type of technology with a group of customers in South Australia.

While there may be an emerging opportunity for customers to participate in wholesale electricity markets, in reality it may be that customers simply utilise their battery storage in a way that can assists them to better manage their own household energy usage.

As more and more household devices become connected to the internet, smart appliances, home management systems, smart inverters, and battery software may be able to optimise the energy usage of a household or shift periods of usage to help both the grid and the customer and maximise these benefits.

Control and choice is essential

The most important thing is that customer retain the choice over how their energy is used, permitting a number of different options available to them as to whether they want to consume, export, or trade the energy that their solar installation is producing.

For most customers, the value of a battery and solar will be dependent on a few key factors: the size of the solar panels they have installed, the amount of electricity they consume in their household and when they use it, and the size of the battery they install.

“As costs for batteries and solar continue to decline and data analytics provide better information about household electricity usage, these opportunities may become increasingly attractive investments for households.”

What’s next?

In the interim, supply and demand in the NEM must continue to be balanced instantaneously, and large amounts of flexible scheduled generation such as gas generation and pumped hydro will still be required to meet the needs of the system at the lowest cost as the grid evolves and responds to these technologies.

As electric vehicles become more attractive for customers, the demand from charging vehicles and the opportunity to use electric vehicles as portable batteries to support the reliability and security of the NEM will also become a compelling option to that the future grid will operate more efficiently. The way that electric vehicles might change the supply demand dynamic of the NEM will the topic of a future article.

Update: in February 2020, AGL and Hillgrove Resources Limited, which owns the Kanmantoo site, mutually agreed to not continue with the proposed pumped hydro project. However, AGL remains committed to continuing the development of energy storage projects such as batteries and pumped hydro to providing firming capacity to the market.

These projects include a 100 MW battery in Wandoan, Queensland, a 30 MW battery in South Australia, and four 50 MW batteries to be built in NSW. We are also investigating the feasibility of a 250 MW pumped hydro plant at Bells Mountain in NSW, and a 50 MW battery at Broken Hill.