New electricity market rule a mixed bag for distributed battery storage

Australia’s main energy market policy maker has okayed a rule change that could accelerate the use of battery storage for grid stability, as more renewables enter the market.

The Australian Energy Market Commission said late last week it would allow “unbundling” of ancillary services for the grid – which provide fast-acting balancing responses following a “contingency” event, usually the unexpected loss of a large thermal generator.

This means that these services, known as FCAS, can now be more easily provided by more players, and not just the big generators, which currently control the supply (and thus the price) of FCAS services. Allowing new players like batteries and demand response loads should increase the supply of FCAS, and lower market prices.

But in a decision that shocked participants – and could serve to reinforce the dominance of the big fossil fuel utilities – the AEMC has effectively limited the amount of battery storage and new ideas, such as aggregating power plants in homes, by leaving it in the control of the major players.

The proposal was to create a “demand response” mechanisms in the spot market to respond to times of high load, and high electricity prices, as experienced in South Australia and other states in recent months, and which used to be frequent years ago, and may well become regular again as gas prices rise.

In effect, this would allow demand response or a battery storage to react to spot price spikes much the way a non-scheduled generator does today. In responding to a spot price spike with demand response, the high price can be “knocked out” in the next dispatch interval.

The idea was to throw the market open, allow large energy users to be paid the spot price for not using their energy, rather than paying a dirty diesel generator, for instance, to switch on to meet the rising demand. And it could provide another role for battery storage and “aggregators” like virtual power plants.

But the AEMC said there was no need to change the rule because the market was working fine, there were plenty of demand response options available to customers and that no reform was needed.

“The Commission has not found evidence of a relevant market failure that would justify mandating retailers to incur the costs from implementing the DRM,” it wrote in its report. AEMC chairman John Pierce said in his statement: “There are no barriers to the continued proliferation of demand response that has taken place to date.”

That, said some market participants and observers, is ridiculous. “That to me was shocking,” said one industry insider.

“Participating in demand response schemes in the NEM can be quite complex and generally only the largest commercial and industrial loads are participating today. And even then, in most cases you need your retailer to agree to let you participate.

“More demand response would bring greater competition in the NEM, so I’m surprised the AEMC considers that the status quo is good enough.”

© 2016 Solar Choice Pty Ltd

Giles Parkinson

Giles Parkinson regularly contributes unique content to Solar Choice News. Giles is the founder and editor of clean energy industry news service RenewEconomy. He is a journalist of 30 years experience, a former Business Editor and Deputy Editor of the Financial Review, a columnist for The Bulletin magazine and The Australian, and the founding editor of Climate Spectator.
Giles Parkinson