One small gain for battery storage, one big win for fossil fuel industry

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Energy market rule maker agrees to new rule allowing for more battery storage as wind and solar replace coal and gas. But another crucial request, from the COAG energy ministers, is rejected, reinforcing the market dominance of the existing big players.

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Australia’s principal policy maker for the energy markets has waved through a rule change that could accelerate the use of battery storage to provide grid stability as more renewables enter the market. But the rule maker has shocked participants with another decision that may reinforce the dominance of the big fossil fuel utilities.

The Australian Energy Market Commission late last week made two rulings that it was first asked to consider way back in 2012 (such is the glacial pace of change in Australian regulatory circles) but which seen as critical as more wind and solar enter the market and old fossil fuel generators are phased out.


One of the rulings was good news and largely expected: The AEMC said 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.

That ruling was largely uncontroversial and expected, with any opposition by incumbents lukewarm at best.

The second ruling, however, has stunned some participants in the industry, because it effectively limits 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 were 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.

It makes sense. Overall, it should mean lower prices, and less pollution. Demand response, battery storage and other measures are considered by every independent analysis as a critical piece of the tool kit that is needed to a lower carbon grid.

Everyone, that is, apart from the energy incumbents, who stand to profit from their market power and the current system, and who fought hard against the rule. Already, they had managed to have some of the proposals watered down – to the extent that the setting aside of the rule change request , which came from COAG energy ministers, came as no great surprise.

What did stun the industry was the reasons for it: 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.”

The submissions to the demand response rule change – like those for the other key rule before the AEMC at the moment, the proposed shift to 5 minute settlements to match the dispatch interval – typifies what’s at stake for the market, between the incumbents and the new disruptive technologies.

Those that opposed the ruling – as they did the five-minute settlement – included all the big coal and gas-fired generation companies, who want to retail their market dominance, and their ability to profit from the market.

The big generators – AGL, Engie, Origin Energy, EnergyAustralia and Snowy Hydro and their lobby groups – said introducing demand-side response into the spot market would be costly (they have to change some their systems), cause market distortions and “favour other technologies”.

It was interesting to note that the supposed “cost” of the mechanism – $112 million over 10 years – compares to the “super profits” of more than $190 million in the two weeks that the major generators gamed the market in South Australia in July.

They got a sympathetic hearing from the AEMC, the policy maker makes clear in its notes.

The rulings by the AEMC – rejecting the demand response proposal, and kicking the 5 minute ruling down the road for another year – reinforces the view in many quarters that Australia’s regulators are simply too slow, and too beholden to the incumbents to act quick enough to hasten the transition.

That view was reinforced last week when the Australian Competition and Consumer Commission said it saw nothing wrong with the market behaviour of the big generators to exploit their market power and extract high prices in the South Australian market.

That market power has been reinforced this past week with many of the same generators extracting the maximum price when the Australian Energy Market Operator controversially offered to pay them for market services while the main connector was upgraded.

That decision has been criticised by the Clean Energy Council – which questioned why the AEMO wanted to buy 35MW of FCAS from local generators only, effectively delivering them a windfall at a cost to renewable energy generators and consumers.

The new rule on FCAS may not avoid a similar situation in future, because that was a market decision by AEMO. But it should avoid the sort of situation last year when South Australia experienced a major black-out because those generators failed to follow instructions.

Opening up more competition means more battery storage, and more options for the market operator to deal with “low inertia” and high levels of renewable energy. This will occur as more renewable energy enters the market and more fossil fuel generators exit the market.

It was previously thought that thermal coal plants (gas and coal) were the only ones that could provide system security, but this is now rejected. In the US,. Germany, and the UK, market operators are holding major auctions to provide battery storage to meet grid security issues.

In its submission, the South Australia government said increasing competition in the provision of ancillary services through unbundling will provide the market with increased and various suppliers and therefore assist AEMO with its role of ensuring a secure and reliable electricity system.

It, and the rest of COAG, however, have only gotten half of what they wanted. The AEMC has allowed some new technologies into the market with the changes to the FCAS “unbundling”, but kept any changes in check by refusing the demand response rule change, effectively keeping that market in the hands of retailers, to help protect the generation assets they own.

And it will likely make it harder for aggregators of demand response software and business models – those bringing together “virtual power plants” that pool the resources of solar and battery storage installations in households and businesses – to push through their proposals with the direct imprimatur from the big retailers.

And it will prevent some demand side consumers from investing in demand response.

Addendum: The rejection of the demand response rule change may make it easier for the big generators to push for so-called “capacity” mechanisms, effectively another subsidy to ensure that thermal plant is available to ensure system supply and security.

Although these payments have been rejected as just another fossil fuel subsidy, companies like AGL are promoting them furiously.

It has been said that the argument for a capacity market is often predicated on the absence of demand side response, and demand side participation. So AGL and other big generators will be pleased with the AEMC decision.

Not only that, having demand response would remove the need to have price caps, which critics say have become a “focal point for tacit collusion”. A strong demand side market and more competitive scarcity prices and no price cap may result in a more efficient outcomes for participants on the NEM.


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  1. Kenshō 4 years ago

    On this occasion I agree with regulators and the fossil fuel industry. Demand response is absolutely not necessary for a smart grid. The inverter/charger has a far more consistent 50 Hertz sinusoidal waveform than any fossil fuel generator and provides load management with smart software behind the meter. Every PV/wind/storage system added, increases the stability of the grid by eliminating fossil fuel generators.

    • Geoff James 4 years ago

      Hi Kensho, I think you’re missing the point a bit. Yes there are many devices that can manage load and generation behind the meter to help the grid. But why would they do that without the opportunity to get paid for it? Load and inverter management that makes sense for the customer is not necessarily what the grid needs. That’s why there are market mechanisms (like the proposed DRM) to acquire grid support services when and where they’re needed.

      • Kenshō 4 years ago

        There’s already sectors of the grid where businesses are motivated to install PV/storage to address demand charges.

  2. Analitik 4 years ago

    If the following is the DRM rule change requested, I can see why it wasn’t passed – implementing would be an absolute nightmare. Defining the baseload consumption for households would be a total can of worms, let alone the settlements for events.

    How much capacity is available (ie controllable by an aggregator), anyway?

  3. john 4 years ago

    $100 million dollars to implement some software.
    If the most deluded CEO who has no clue about using software must realize this is total rubbish.
    To implement 5 minute bid period in your software get a kid to fix your system it is not rocket science.

  4. Kenshō 4 years ago

    Demand response strategies are just the network taking control of the inverter/charger to turn loads on and off in our households and business premises, whereas we can take responsibility for having the inverter/charger programmed according to onsite needs. Having a cooperative grid is not necessary for effective load management because smart software can be used behind the meter.

    • hydrophilia 4 years ago

      Do we residential consumers already have good software for this?

      • Kenshō 4 years ago

        I’m not a solar installer nor do I promote products, although the local installer uses a brand called Selectronic to cut demand charges with load management software. Their inverter/charger has the ability to manage relays to turn dedicated power circuits on and off at various times of the day and hence stagger the loads around the solar day, or whatever the customer requires. Inverter/chargers also have profiles for grid interaction, for example keep batteries charged or completely maximise self consumption. The features appear to be evolving. The hardware can be used in any sector, models just varying in size and output power. As inverter/chargers are computers for managing a power control system, they also receive updates in software or can be programmed with different software and this software appears to be increasing in its range of applications.

  5. Kenshō 4 years ago

    Every person reading this website can take responsibility to programme an inverter/charger to only take power from the grid in off-peak times. There’s nothing stopping the responsible human being who refuses to blame others.

    • Geoff James 4 years ago

      Again, Kensho (see my other response), this doesn’t solve the problem of filling the gap when there’s a supply shortage – for whatever reason. The power grid is an amazing machine that uses a combination of central control (with market mechanisms) and local control to keep running. You are advocating a completely decentralised control model that is presently the territory of the adventurous researcher, not the responsible engineer, because some fundamental control problems have not yet been solved (as far as I know). Try googling “emergent behaviour” and enjoy!

      • Kenshō 4 years ago

        I advocate what can be done not rail against what can’t be done.

        • Geoff James 4 years ago

          Er, I think my reply was in good humour, please don’t preach at me in return. Look me up, connect, and we can talk if you like. Geoff.

          • Kenshō 4 years ago

            I’m sorry if I appeared overly serious. I’m merely interested in environmental issues and finding ways forward. I appreciate what your saying and can see many are not thrilled by the rulings by regulators.

      • Kenshō 4 years ago

        It’s not necessary to have demand response because we will be getting rid of large generators with inertia. Batteries feeding inverters ramp up and down in milliseconds and hydro 60-90 seconds. Supply and demand will already be matched within milliseconds to seconds. DRM merely attempts to redress problems by fossil fuel generators and networks of the future won’t have them.

  6. MaxG 4 years ago

    All I can say is: this is no surprise; anything goes to maintain profits, as it is capitalism at its best; the assets have been sold, the baby fell into the bath tub; and I am glad I have my own battery and PV; and a middle finger to stick up in the air :))
    This will be a no win for the public as long as their representatives are in bed with big business… as ling as they think their fudged reports confirm their climate-change denial thinking.
    In a nutshell: everything is fine in this country, the people elected these morons, what’s there to worry.

    • solarguy 4 years ago

      Hello Max, I have known that you have disconnected from the grid for while now and your clearly very happy about that. I think you mentioned you had an evacuated tube solar water heater. If you don’t mind, I would like to ask the following questions.
      Brand of the system.
      Amount of tubes in collector and size of tank.
      Number of people who use the system.
      Performance of the system, how many days of the year boost is required and what is used to boost the system e.g. instant gas?

      • MaxG 4 years ago

        I am on-grid off-the-grid 🙂 We are still connected, and use the FiT to offset the daily supply charge and do away with the generator (I have one petrol, but need a better one (diesel)) for the time being. If they reduce or drop the FiT below 6 Cents I will disconnect (needing almost 30kW export to offset) … and as the payback is 3 years for the genny in mind and the kWh can be generated for 25 Cents on diesel. (1l diesel ~9kWh @ 60% efficiency ~ 5kW or ~25 Cents/kWh.

        For completeness sake, the system: 12kW in panels on 2 x 6kW KACO on one SP-PRO GO 7.5kW with 20kW LiFePO4 battery 400A 48V.
        Solar: I have two buildings; the shed runs on a no-name eBay 20 evac tube, open system. Electrical boost required after 2 consecutive days of insufficient solar… with 2 people using the system. Happened twice last year; 6 times this year in Jun/Jul alone.

        The house will run on a closed system (I just ordered in Germany; arrival in Nov),
        It feeds into an 800l storage tank with 2 extra heat exchangers, one for the wood burner wet back, one for solar, and one for the hot water out.

        This system will not require boosting from ‘electricity’ (it can be), but the wood burner does space heating (convection and hydronic), warm water on solar ‘deprived’ days…
        We are most likely hi-jacking this article; feel free to e-mail maxg at gmail dot com for more details.

        • solarguy 4 years ago

          Thanks Max, Sounds like the ET tubes are doing good for you. Going by what you’ve indicated on the number of days you boosted, would I be safe to assume that you have needed to boost no more than a dozen days in any given year?
          You forgot to mention what size tank?

          • MaxG 4 years ago

            200l (shed); (800 house)
            QLD (200m AMSL; 100km west of BNE)
            No bother at all 🙂

            I would not buy any brand evac tube system, as they are simply too expensive… and would simply run a 300+l electrical, fed with surplus electricity.

            Boosting also depends on the storage amount (litres) you’ve got in your system… hence, why we choose 800l to be able to bridge the 3 or 4 days of lack of sunshine in Jun/Jul this year — a learning that influenced the storage capacity.

            I am sure you know it: what ‘others’ use is almost irrelevant. My ‘gear’ selection is based on empirical data, past logs, and very good understanding of the performance of the buildings. Both will have been built by me, and the quality will be accordingly (e.g. air-tightness).
            The shed and house are fully insulated, walls R3, ceiling R6+. The architect’s rating was 8-star, but we have changed the specs to actually achieve passive house standard = certainly not your average Aussie home. E.g. we heat/cool the whole house on less than 3kWh/per day on the worst! (peak) day (170m2 with 2.7m ceiling height, double glazed windows, etc.). Also maintaining a constant temp 365/24/7.
            The HVAC ‘technology’ going into it, is over-spec-ed as we could not find smaller units… I am not kidding.

          • solarguy 4 years ago

            HVAC ?

          • MaxG 4 years ago

            Heating – Ventilation – Air-Conditioning

          • solarguy 4 years ago

            Ah hah, got ya.

  7. Kenshō 4 years ago

    I’ve always found it difficult working with generators and attempting to get a consistent engine speed and hence a consistent frequency. When the generator is powering up, the load can’t be connected right away or the generator gets bogged down and stops. Even when running and having reached optimal operating temperature, if the load suddenly increases, the generator can struggle to increase its fuel in time and then struggle to maintain speed.

    On the other hand, the inverter/charger is a computer controlled power management system, getting its power source from a battery. The computer software has fields where the frequency and voltage of the inverter are precisely set. The fact is, inverter/chargers have always had a history of being more reliable than the relatively variable and intermittent grids around the world.

    If there is an overall deficit of renewable energy compared to the overall power needed by the loads, the inverter/charger can be told when and how many amps to get from an external AC source such as a grid, diesel generator or wind generator. Some inverter/chargers can manage multiple external AC sources.

    It was a strange backward step in evolution, when decisions were made to introduce grid-connect inverters into grids, making the intermittency of RE appear immediately on the output of grid-connect inverters. In contrast, the inverter/charger does not suffer from the intermittency problem, as it is powered by a battery. Compared to a fossil fuel generator, the inverter/charger ramps its output up and down very quickly and reliably because the system runs on electrons and the electrons from the battery are very fast…

  8. Kenshō 4 years ago

    There really is no demand response issues on renewable energy grids. These grids have been implemented in developing countries and places without fossil fuel grids. Demand response issues only happen as a result of the inertia of large fossil fuel generators. It is a fallacy that RE grids produce demand response issues because the inverter/charger ramps up and down based upon the rate of electrons activating electromagnetic fields in coils, which happens quickly. The inverter/charger relies upon the battery to supply peaks in demand and electrons come from the battery quickly, so demand response issues don’t exist. The only issues that do exist in RE systems built with inverter/chargers and batteries, is battery full and battery empty issues. If the battery is full, the inverter/charger must switch off an RE source feeding the battery or if the battery is empty it must source power from an onsite RE source or the charger must get the additional power needed from an external AC source. The external AC source could be another inverter/charger on another system which happens to have a full battery or too much energy feeding its battery to be accommodated locally. If an inverter/charger has plenty of battery storage available though finds itself low on its ability to produce AC output power, it can also import AC from another inverter/charger elsewhere. In summary, fossil fuel generators have demand response issues due to their mechanical limitations whereas inverter/chargers are electrical and depend only upon electromagnetic fields and electrons from batteries.

  9. Kenshō 4 years ago

    DRM strategies must have been conceived in an era of grid-connect solar systems, placing intermittency from RE on the outputs of these inverters or been a hangover from dealing with fossil fuel generators. Small solar systems or micrograms built from inverter/chargers and batteries have never had DRM issues because the inverter/charger ramps up and down quickly and the intermittency of RE goes into the battery and is not seen on the output of the inverter/charger. That’s the fact of how RE systems built with inverter/chargers and batteries have always performed.

  10. Kenshō 4 years ago

    In the past, if there has ever been a deficit in power on an RE microgrid and the inverter/charger needs to turn on a fossil fuel generator, the inverter/charger supplies the load with the battery until the fossil fuel generator reaches its ideal operating speed and the frequency is ready to be added to the AC the inverter/charger is already outputting. If the battery is low due to cloud or deficit in RE, the inverter/charger then ramps down its own output from the battery and allows the generator to temporally supply the load. If the generator can supply all the load, the inverter/charger uses any excess AC from the generator to begin charging the batteries. If a large load is suddenly switched on which would otherwise bog the generator down, the inverter/charger quickly ramps up its own AC output to supply the deficit from the generator. In this way the inverter/charger keeps itself synchronised with the AC waveform of the generator and only lets the generator touch the network when it’s frequency is suitable. In this way the inverter/charger is the FCAS service for renewable energy, by ramping up and down quickly to supply loads (inverter) and when necessary use fossil fuel generators (or any external AC source) to charge the batteries (charger).

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