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Where do we go now…. Sweet child o’ mine?

On 6 November the Victorian government announced the commitment to deliver, along with the Australian Energy Market Operator (AEMO), the largest battery in Australia 300MW. The Geelong battery is contracted under AEMO’s System Integrity Protection Scheme (SIPS) allowing an additional 250MW to flow across the interconnector and respond to network outages during summer (the contract allows free market operation of 50MW during the summer and up to the full 300MW all other times). Given the size of the battery do we already need to re-evaluate the amount of storage that is projected to be built in the National Electricity Market (NEM)?

The economics of battery storage are challenging where value streams are still developing (i.e. there a number of new markets that are under development as part of the ESB’s post 2025 Market Design that will be beneficial for storage but are not currently available) and some of those that are currently available are volatile. However, as we have seen those that move quickly will be rewarded and be in the best possible position to take advantage of new revenue streams when (not if) they arrive.

So how many MWs of storage (short or medium duration (i.e. up to 12 hours) does that ISP forecast will be built in the central case over the next four years. AEMO projects that 112MW of shallow and medium duration storage will be delivered by 2024. To put that in perspective we have had 300MW approved for delivery in 2021 in the last week or so. Our projections suggest that there is just over 900MW of committed (or significantly-progressed) storage projects set to be delivered by 2024. There is also an additional ~6GW of battery storage projects proposed or in planning. Even if we only assume that 10% of these will make it to completed projects that is still a total of ~1.5GW of battery storage that we can expect by 2024 – more than 13x the AEMO forecast. Figure 1 shows the expected committed and proposed battery storage projects against the AEMO ISP projections.

To be fair, the battery storage forecast by AEMO takes into consideration the reliability of the grid (i.e. the reduction of unserved energy) and so doesn’t consider the ability of system services contracts to be able to underpin investment in battery storage that allows batteries to then compete in energy and ancillary service markets.

What we can see is that there is a very steady pipeline of very large battery storage projects – the average proposed project size is ~150MW. Interestingly, the state with the highest MW of proposed projects is Victoria with more than 4GW of proposed projects (more than 40% of peak electricity demand) followed by NSW with only 1.3GW (only ~9% of peak demand), which is surprising given the coal retirement profile of NSW and the need for peaking and firming capacity. More battery storage will deliver more system and ancillary services while also assisting during peak demand. Underestimating the role of storage may have significant implications for future projects. If you are looking to value the revenues of battery storage or to find out more about our FCAS forecasting service contact b.cerini@cornwall-insight.com.au.

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