Expanded Capacity Investment Scheme (CIS) – Design Paper

25 March 2024

Matthew Brine
Division Head
Office of the Capacity Investment Scheme
Federal Department of Climate Change, Energy, the Environment and
Water
CapacityInvestmentScheme@dcceew.gov.au

Dear Mr Brine,

Ausgrid submission to Expanded Capacity Investment Scheme – Design Paper

Ausgrid is pleased to provide this submission to the Federal Department of Climate Change,
Energy, the Environment and Water (Department) in response to its Expanded Capacity
Investment Scheme (CIS) – Design Paper (Design Paper). Ausgrid is supportive of the objectives of the Capacity Investment Scheme to drive the energy transition.

Ausgrid operates a shared electricity network that powers the homes and businesses of more than 4 million Australians living and working in an area that covers over 22,000 square kilometres from the Sydney CBD to the Upper Hunter.
Distribution networks offer the fastest and most efficient option for filling the expected generation and reliability gaps as electricity demand grows and ageing coal power stations exit.
In Ausgrid’s network alone, we estimate up to 3GW of latent capacity that could be leveraged to connect new renewable generation and storage within short lead times and at a lower cost than large-scale transmission projects.
There are currently policy supports for small-scale and behind-the-meter generation and storage, and large-scale renewable energy resources (including via the CIS). However, in this policy architecture there is a ‘missing middle’, omitting mid-size storage and renewables connected via the distribution network, which could meet many of the sector’s challenges faster and more cheaply than transmission-scale alternatives.
To unlock this potential, we recommend that the final design of the CIS allows distribution networks and other market participants to:

• Combine the capacity of multiple community scale batteries to pass, in aggregate, the
30 MW threshold for CIS storage funding eligibility;
• Sequence the use of multiple orchestrated batteries to extend their duration; and
• Aggregate the capacity of multiple medium scale generation assets located within
Distribution Renewable Energy Zones when assessing whether the 30MW threshold is
passed for CIS generation funding eligibility.
We also recommend that the Department provides support for a class ring-fencing waiver from the Australian Energy Regulator to allow electricity networks to provide storage services in partnership with retailers, aggregators and other market participants.
Role for Community Batteries in the CIS
The Australian Energy Market Operator’s (AEMO) Draft Integrated System Plan (ISP) highlights the massive growth in storage capacity needed by and beyond 2050 to support variable renewable energy as coal plants retire. Ausgrid’s network provides significant opportunities to increase storage capacity through the roll-out of community batteries, which can support the resilience of the power system and enable more consumers to play a role in the energy transition.
Under Ausgrid’s Network Innovation Program, Ausgrid has already rolled out five community batteries at Beacon Hill, Bankstown, Cameron Park, Narara and Cabarita, with four more batteries at Bondi, Cammeray, Warriewood and North Epping to be installed over coming months. Ausgrid’s first three community batteries trialled storage-as-a-service in partnership with retailers, which demonstrated that annual bill savings of approximately $200 per customer can be achieved. Ausgrid is also currently trialling community-based renewable energy projects co-located with the batteries to demonstrate how storage can support greater utilisation of renewable energy and lower cost barriers to electrification.
Ausgrid considers there is potential to substantially expand the roll-out of community batteries across our network over the coming years. Where funding and regulatory barriers are alleviated, our analysis indicates 5MW community batteries could be rolled out to over 200 sites across our network which has the potential to meet over 80% of our customers’ expected individual battery demand.
By rolling out these batteries at existing Ausgrid sites, this storage capacity would have limited impacts on the community and the environment, enabling faster implementation than installing storage at greenfield sites. As highlighted in Figure 1 below, by 2030, this has the potential to result in an additional 1.2GW of storage across Ausgrid’s network. Where 50 per cent of the assumed household battery capacity in the AEMO’s Draft 2024 ISP is replaced by community batteries, this could save customers up to $25 billion by 2052 as shown in Figure 2.
Figure 1: Potential growth in community batteries

Figure 2: Potential savings for consumers from community batteries

Note: Utility scale storage driven by NSW infrastructure Investment Objectives. $25B capital cost savings scenario assumes: 50% household battery capacity
(coordinated & distributed) replaced by community batteries; improved utilisation enables 10% less storage capacity; avg battery lifetime of 17 years; 2.5% CPI
Source: AEMO ISP 2024 Generation Outlook, Step Change, excludes Snowy Hydro 2.0 and deep storage (>12 hours)
As well as supporting the broader power system, providing customer storage services through community batteries will also enable more residential and business customers who rent or have a limited ability to install their own batteries to benefit from the energy transition and access lower cost renewable energy.
Funding support via Clean Dispatchable Capacity Investment Scheme Agreements (CISAs) could improve the investment case for community batteries further, improving access to savings for consumers in communities served by these batteries. However, the current eligibility requirement in the CIS for projects to have an AEMO registered capacity of at least 30MW would exclude community batteries from participation.
The Design Paper states that “virtual power plants … and other aggregation technologies will not be eligible for the upcoming April/May generation CIS tender. However, the intention is to include these technologies in future clean dispatchable tenders”.
Ausgrid requests clarification on the future eligibility for community batteries for Clean
Dispatchable CISAs that are individually smaller than 30MW, but when aggregated together exceed the 30MW capacity threshold. In particular, we recommend the Department confirms participation from aggregated <30MW community batteries owned by Distribution Network
Service Providers (DNSPs) would be eligible for tenders in the next Clean Dispatchable CISAs.
The Department should also confirm whether the use of multiple orchestrated batteries to extend their duration and provide additional flexibility would be eligible.
Enabling community batteries to be eligible in Clean Dispatchable CISAs will enable more storage to be installed under faster timeframes and more consumers to benefit from the energy transition.
We note that the Australian Energy Regulator (AER) provided a ring-fencing class waiver for batteries funded under the Community Batteries for Household Solar Program. A similar ring- fencing waiver for batteries funded under the CIS would remove the need to secure individual approvals for each funded battery and provide greater investment certainty for community battery projects.

Recommendation 1
The Department:
- Confirms DNSP-owned community batteries, which when aggregated exceed 30MW, will be eligible for the next Clean Dispatchable CISA tenders.
- Confirms multiple orchestrated batteries deployed in sequence to extend their duration and provide additional flexibility will be eligible for the next Clean Dispatchable CISA tenders
- Works with the AER to initiate consultation on a class waiver for battery projects funded under the Capacity Investment Scheme.

Role for Distribution Renewable Energy Zones in the CIS
Ausgrid is also considering opportunities to create Distribution Renewable Energy Zones
(DREZs), which will create significant additional capacity for small and medium scale renewable generation embedded within the distribution networks. DREZs could be in regional areas, such as the Hunter in NSW, or within commercial and industrial zones where solar on the rooftops of warehouses, factories and offices remains underutilised compared to residential buildings.
Significant capacity for additional renewable generation within distribution networks can be unlocked through the rollout of distributed medium scale storage as part of a DREZ. DREZs would create both the capacity for additional renewable generation, and the storage needed to help firm it. DREZs offer an opportunity to de-risk and complement larger-scale transmission connected projects currently facing delays.
DREZs can be delivered quickly by leveraging existing distribution network infrastructure. In
Ausgrid’s case, we also have a large, existing field force that can swiftly pivot to delivering
DREZ infrastructure ‘in-house’ rather than going through the additional steps of procuring labour through an outsourced model like most large-scale transmission projects. Ausgrid is currently considering site options for DREZs and would be pleased to discuss these further with the
Department.
We expect that distribution networks via a DREZ model could add new renewable generation at a significantly lower cost by avoiding large augmentations of the grid in remote locations. This could include opportunities for reduced or delayed transmission investments where faster and lower cost investments on the distribution network can be made, and to allow coal closures to proceed as scheduled. We have encouraged other energy market bodies, including AEMO via its ISP process, to begin establishing a regulatory framework that accommodates distributed storage as part of a DREZ. Supplementing this work through CISA eligibility would strengthen the option of using distribution networks to achieve the energy transition faster, cheaper, and with a lower community impact.

Recommendation 2:
The Department should extend eligibility criteria for Generation CISAs to include aggregation of multiple units, which are each less than 30MW but which when combined exceed 30MW of renewable generation, to be hosted in DREZs.

We would welcome the opportunity to discuss our submission further. Please contact Felix Keck at Felix.Keck@ausgrid.com.au for further details.
Regards,

Rob Amphlett Lewis
Group Executive Distributed Services and Plus ES