Published name
How might the NEM wholesale market and derivate markets most efficiently evolve to provide signals for investment in firmed, renewable generation and storage capacity?
The Advanced Materials and Battery Council believes the evolution of the market needs to consider the following adjustments.
Incentivise long duration energy storage (LDES) well before it is needed with the closures of coal generation. Studies in the UK have shown that LDES can lower system costs and reduce CO2 emissions as they allow increased penetration of renewables and reduced need for gas peaking (and back up) plants. (Ref. Scenario Deployment Analysis for Long-Duration Electricity Storage A study of the benefits of Long-Duration Electricity Storage technologies on the GB power system DESNZ Research Paper Number 2023/047)
The eligibility criteria could also evolve to include smaller generation limits as a way to increase consumer energy resources. AEMO ISP forecasts CER to be ~50% of capacity by 2050. Incentivising this by allowing smaller capacity storage into the CIS will allow for more capacity sooner.
There is significant demand to on shore manufacturing of batteries in Australia, or at least a high local content and capability to meet demand. Adjustment of the eligibility criteria to rate more favourably high local content batteries will provide a significant boost ot our energy security, manufacturing industry and sovereign capability. This would be in line with other government initiatives under ARENA and CEFC.
Development of these ideas follows in subsequent responses.
Is there a role for certificated schemes to promote investment in firmed, renewable generation and storage and what might these look like?
This is outside the direct expertise of the AMBC, however any system needs to ensure there is adequate LDES and could draw on CER or VPP’s.
Could the Retailer Reliability Obligation (RRO) play a role to incentivise new investment if it was expanded in the future?
Please specify
This is outside the direct expertise of the AMBC, however any system needs to ensure there is adequate LDES and could draw on CER or VPP’s.
Could other capacity mechanisms efficiently attract investment in firmed, renewable generation and storage capacity?
Please specify
There are a number of capacity mechanisms that could be used to attract investment.
The Capacity Investment Scheme must incentivise long duration storage so it in place when it is needed. The alternative is more gas.
The Capacity Investment Scheme should explore ways to include CER, with high local content requirements as AEMO highlights its very important future role.
LONG DURATION ENRGY STORAGE
To integrate intermittent renewables, there is a corresponding need for low-carbon flexibility technologies to respond to the variation in renewable output. One of the low-carbon flexibility technologies available is Long-Duration Electricity Storage (LDES).
UK modelling shows that adding LDES to the system can have a material positive impact on both emissions and system costs, with the duration of deployed LDES being the biggest factor in the size of that impact. Results include reducing CO2 emissions intensity by up to 28% and overall system costs by up to 3.5%. (Ref. Scenario Deployment Analysis for Long-Duration Electricity Storage A study of the benefits of Long-Duration Electricity Storage technologies on the GB power system DESNZ Research Paper Number 2023/047)
LDES can also provide time-shifting and system balancing and stability services, such as inertia, reactive power and black start.
Challenges bringing LDES include revenue uncertainty, market design, large upfront capital investment and the early development stage of many LDES technologies. This means that developers may struggle to gain the required investment.
Recommendation 1
The appropriate Federal entity (AEMO/CIS, other) commission an independent study similar to the one cited above to demonstrate the benefits of LDES to the cost and emissions intensity of the energy system as a matter of urgency. The study should begin with a survey of the LDES proponents to establish agreed assumptions.
Recommendation 2
Financial incentives for LDES, specifically flow batteries, to include establishment of a cap and floor energy price mechanism included in power purchase agreements, similar to that proposed in the UK. This will provide revenue security for project developers to overcome the funding challenges. Limits to be determined following the study in Recommendation 1.
This mechanism would provide certainty for investors and motivate cost reductions in the proven flow battery technology and promote innovation in technology and accelerate deployment.
Recommendation 3
Flow Batteries to be prioritised for LDES, including creation of an exclusive flow battery stream in the CIS because of their unique benefits including
1. technical capability to meet LDES and ancillary markets,
2. potential for significant cost reductions through deployment at scale and consolidation of a local mine to battery supply chain allowing an ability to reduce emissions and cost of the overall system.
3. supply chain jobs from mining, manufacturing and operational control, many of which are directly transferable from existing skills sets used in the operation of our mine mouth coal generation system.
4. Development of an export industry and attraction of international investment.
A full brief on flow batteries is included as an attachment.
Recommendation 4
Continue and lift investment in the flow battery sector to realise forecast cost reductions and provide a technology to lower the overall system cost and reduce emissions intensity to the energy system, through LDES and ancillary services.
Specifically,supportisneededforR&Dprograms, for pilot scale facilities and scale up manufacturing facilities.TheAustralian RenewableEnergyAgency(ARENA)andCleanEnergyFinanceCorporation(CEFC)fundingshouldbe leveraged.
GENERAL STORAGE INCLUDING FLOW BATTERIES AS THEY CAN PROVIDE ANCILLIARY SERVICES TOO
Recommendation 5: Develop markets and contracts to facilitate investment
The AMBC supports other submissions that state - EnergyMinisterstodirecttheAustralianEnergyMarketCommission(AEMC)andAEMOto:
a]reassessrulechangeswhicharecreatingfurtherobstaclestobatteriesandenergystorage,andexplore waystoremovethosebarriers.
b]undertakeareviewofpotentialnewmarketservicessuchasinertia,systemstrength,voltagecontrol andothers,thatcouldbedeliveredbystorageandprovideadditionalrevenuestreamsfortheservices storagecanprovide.
c]establishcontractsforexistingmarkets—financialcontractsforFCAS,peakenergy,oravolatilityindex wouldhelpbatteriesgainbetterfinanceandlowerequityreturns. Westronglyencourageenergyministerstoensurethatthisreassessmentprocesshasahighdegreeof transparencyandrigor,toensurethedesiredcleanenergytransitionoutcomes
Recommendation 6
The AMBC supports other submissions that state - Coal-fired power station closure certainty is pivotal. Certaintynecessitatesabalancedapproach,combiningbothincentivesandregulatorymeasures,toensurea smoothandeffectivetransition.
• Aministerialdeclarationonthedatesforcoal-firedpowerstationstoceaseoperationwouldprovide certaintyfortheownersandoperators,AEMO(asthepowersystemandmarketoperator),anddevelopers ofnewgenerationandstorageprojects.
• Thisshouldbecoupledwithaclosureframeworkmechanismthatfacilitatesatransparentandcoherent processformanagingtheretirementofthermalgenerators.
• Amandatoryassessment,yearlyfor5years,byAEMOofsecurityandreliabilitybeforeanypowerstationis orderedtocontinueoperation.Thisassessmentmustbepubliclyavailableandincludeamandatorycallfor industrytoofferalternativecapacitysolutionstoextendingthelifeofacoal-firedpowerstation.
• Whencontractsareagreedtoextendthelifeofthermalassets,termsmustbetransparenttomarket participants.
How can markets ensure we have sufficient capacity in place when and where we need it before existing resources retire?
Recommendation 7
The AMBC supports other submissions that state - A capacity reserve market including for LDES that is established 5 years ahead of a coal closure date that would shore up generation and storage (short and long duration) in time for the coal closures.
• This would underwrite new firmed renewable generation through an auction held five years ahead of a scheduled closure, leveraging the auction process established by the Capacity Investment Scheme.
• The new, dispatchable capacity could include both short- and long-duration energy storage, as well as demand-side solutions, including aggregated demand response and Virtual Power Plants (VPPs).
• Reserve capacity would need to demonstrate its ability to address the reliability risk – that is, to provide energy to meet a shortfall or capacity to manage peak demand.
• Once constructed and commissioned, the contracted capacity would be held in reserve (off market). In the event of an early closure (which is desirable) or a coal-fired unit failure near the end of its life, this capacity would be rapidly deployed into the market. This would guarantee a smooth transition for any future coal closures and reduce price volatility, without distorting investment signals for other necessary firmed renewable energy investments.
ADJUSTING THE MECHANISM TO INCLUDE COMMERCIAL AND COMMUNITY BATTERIES
Recommendation 8
The Capacity Investment Scheme should be extended to include smaller generation and storage projects associated with rooftop solar and storage. This should be coupled with a high rating for Australian content in batteries.
This would incentivise development of smaller scale community/commercial batteries and VPP’s to enter the system and begin to meet the consumer energy resource forecasts of AEMO. It would also help build stable demand and allow Australian battery manufacturers to develop expertise before tackling utility-scale projects.
This would also generate a market for local batteries that would drive investment in local battery manufacturing. The extension would need to be sustained through round after round to achieve this.
Recommendation 9
A host of changes to the eligibility criteria outlined below.
Streamline certification processes for Australian-made batteries to reduce developers' overhead.
Increase the local content weighting to over 51%, especially for projects that support smaller markets.
Mandate cyber-secure Battery Management Systems (BMS). Given the growing role of energy storage in national energy security, the CIS should require all batteries to include cyber-secure BMS that meet international standards or, at a minimum, require full transparency about software origins and security credentials. This aligns perfectly with the scheme's focus on capability and reliability while supporting local innovation.
How do the market settings preferred by stakeholders provide sufficient confidence to consumers and governments that capacity will be delivered?
There is substantial international capital on the sidelines looking for the appropriate signals.
Investing in flow battery technology advances the technological base, ensuring the energy mix has options and Australia has sovereign capability, not relying on global supply chains for our energy security.
Extending the CIS to include smaller storage options naturally provides another avenue for capacity and creates momentum in CER and when coupled with high local content requirements builds Australia’s sovereign capability, and therefore we wont rely as much on global supply chains for our energy security.
How can the NEM wholesale market and any other markets work in tandem to ensure we have appropriate signals for the right type of resources in place when and where we need it?
See all of the above
How can these market settings facilitate emissions reduction in line with the National Electricity Objective and Australia’s international commitments?
The introduction of more storage, especially LDES, enables deeper penetration of renewables and lower overall system cost. See Recommendation 1.
How do we enable consumers—ranging from large businesses to households with rooftop solar—to benefit from and contribute to the market? Integrating new consumer energy resources (CER) such as electric vehicles (EVs), batteries and solar photovoltaic (PV) has the potential for reducing unit costs by lifting capacity utilisation of the network and generation infrastructure. Lifting capacity utilisation through more efficient use of energy at different times of the day would reduce unit costs and improve outcomes for all consumers.
Recommendation 8
The Capacity Investment Scheme should be extended to include smaller generation and storage projects associated with rooftop solar and storage. This should be coupled with a high rating for Australian content in batteries.
This would incentivise development of smaller scale community/commercial batteries and VPP’s to enter the system and begin to meet the consumer energy resource forecasts of AEMO. It would also help build stable demand and allow Australian battery manufacturers to develop expertise before tackling utility-scale projects.
This would also generate a market for local batteries that would drive investment in local battery manufacturing. The extension would need to be sustained through round after round to achieve this.
Recommendation 9
A host of changes to the eligibility criteria outlined below.
Streamline certification processes for Australian-made batteries to reduce developers' overhead.
Increase the local content weighting to over 51%, especially for projects that support smaller markets.
Mandate cyber-secure Battery Management Systems (BMS). Given the growing role of energy storage in national energy security, the CIS should require all batteries to include cyber-secure BMS that meet international standards or, at a minimum, require full transparency about software origins and security credentials. This aligns perfectly with the scheme's focus on capability and reliability while supporting local innovation.
Further, detailed research and development is required into our own Battery Management Systems and policy frameworks to model the best integrations scenarios.
What can be done to facilitate better interaction between the demand-side, the spot market and any existing or future financial markets?
See previous response.
How might the NEM wholesale market best allow for customers to engage in the market to benefit from their investment in CER, while allowing for different consumers to choose how they engage and continuing to recognise electricity is an essential service with associated accessibility issues for many consumers?
Outside the current skill set of the AMBC.
How will prices at different times of the day and year change and evolve with the move towards firmed, renewable energy generation and storage?
The preamble outlines gas price as a significant driver of cost. Outside the current skill set of the AMBC.
How might the NEM wholesale market and derivative markets allow market participants to most effectively respond to fluctuating prices and manage price risk?
Outside the current skill set of the AMBC.
What new markets and other measures might ensure they are provided?
Please note LDES batteries can also meet these system needs.
Recommendation 5: Develop markets and contracts to facilitate investment
The AMBC supports other submissions that state - EnergyMinisterstodirecttheAustralianEnergyMarketCommission(AEMC)andAEMOto:
a]reassessrulechangeswhicharecreatingfurtherobstaclestobatteriesandenergystorage,andexplore waystoremovethosebarriers.
b]undertakeareviewofpotentialnewmarketservicessuchasinertia,systemstrength,voltagecontrol andothers,thatcouldbedeliveredbystorageandprovideadditionalrevenuestreamsfortheservices storagecanprovide.
c]establishcontractsforexistingmarkets—financialcontractsforFCAS,peakenergy,oravolatilityindex wouldhelpbatteriesgainbetterfinanceandlowerequityreturns. Westronglyencourageenergyministerstoensurethatthisreassessmentprocesshasahighdegreeof transparencyandrigor,toensurethedesiredcleanenergytransitionoutcomes
Which entities are best placed to determine what is needed, where and when?
Outside the current AMBC skill set.
To maintain system security and strength, how can we ensure these services are procured before existing plant retires?
Recommendation 7
The AMBC supports other submissions that state - A capacity reserve market including for LDES that is established 5 years ahead of a coal closure date that would shore up generation and storage (short and long duration) in time for the coal closures.
• This would underwrite new firmed renewable generation through an auction held five years ahead of a scheduled closure, leveraging the auction process established by the Capacity Investment Scheme.
• The new, dispatchable capacity could include both short- and long-duration energy storage, as well as demand-side solutions, including aggregated demand response and Virtual Power Plants (VPPs).
• Reserve capacity would need to demonstrate its ability to address the reliability risk – that is, to provide energy to meet a shortfall or capacity to manage peak demand.
• Once constructed and commissioned, the contracted capacity would be held in reserve (off market). In the event of an early closure (which is desirable) or a coal-fired unit failure near the end of its life, this capacity would be rapidly deployed into the market. This would guarantee a smooth transition for any future coal closures and reduce price volatility, without distorting investment signals for other necessary firmed renewable energy investments.
How can we promote innovation in how these services can be provided at lowest cost?
It is very important that any research into markets is done by those with no conflict of interest. Fossil fuel generators, have a large conflict of interest. Therefore have an independent group do the research with a strict scope.
How might we harness the larger number of small resources and growing participation to ensure all markets are increasingly competitive?
Recommendation 8
The Capacity Investment Scheme should be extended to include smaller generation and storage projects associated with rooftop solar and storage. This should be coupled with a high rating for Australian content in batteries.
This would incentivise development of smaller scale community/commercial batteries and VPP’s to enter the system and begin to meet the consumer energy resource forecasts of AEMO. It would also help build stable demand and allow Australian battery manufacturers to develop expertise before tackling utility-scale projects.
This would also generate a market for local batteries that would drive investment in local battery manufacturing. The extension would need to be sustained through round after round to achieve this.
Recommendation 9
A host of changes to the eligibility criteria outlined below.
Streamline certification processes for Australian-made batteries to reduce developers' overhead.
Increase the local content weighting to over 51%, especially for projects that support smaller markets.
Mandate cyber-secure Battery Management Systems (BMS). Given the growing role of energy storage in national energy security, the CIS should require all batteries to include cyber-secure BMS that meet international standards or, at a minimum, require full transparency about software origins and security credentials. This aligns perfectly with the scheme's focus on capability and reliability while supporting local innovation.
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