(Read our follow up story here: Gas turbines versus battery storage: South Australia in state of inertia over future of energy
The South Australian government has outlined further details of its proposed energy security target and, contrary to expectations, it looks like it will exclude battery storage and make solar and wind farms paired with the technology ineligible to receive credits.
The move could have serious implications for wind and solar farm developers and owners in the state, given the restrictions it is likely to impose on output as the state seeks to limit the amount of “non dispatchable” generation. It may also result in higher electricity prices, given that storage is considered by many to be cheaper than gas.
The EST was unveiled in March, along with special powers for the energy minister Tom Koutsantonis and a new emergency back-up gas generator, as part of the state government’s response to the latest rolling blackouts, which it blamed on bad management by the market operator, and the fact that one big gas unit sat idle while 90,000 consumers lost power.
The EST is designed to ensure that 36 per cent of South Australia’s electricity demand is met through local “clean” but dispatchable generation, rising to 50 per cent by 2050. That equates to 4,500 gigawatt hours in 2017/18 and 6,000GWh from 2025.
This has major implications for developers and owners of wind and solar farms, seeing as the state is already at 50 per cent wind and solar, and will likely rise to 65 per cent by the end of next year as new projects, such as the 109MW Hornsdale 3 wind project, the 220MW Bungala solar farm, the 100MW Tailem Bend solar farm, and the 212MW Lincoln Gap wind farm come on line.
It was thought that battery storage – which could be added to many of these new projects, and many existing wind farms – would be allowed under the new legislation, which will assign credits – worth up to $50/MWh – for technology meeting that target.
But the draft legislation defines the “accredited generators” as being only those that can provide “real inertia” and “fault current”.
Battery storage can provide both inertia and fault current, but in the terminology used in the industry it is known as “synthetic inertia.” Asked for a clarification about the eligibility of battery storage, a spokesman for Koutsantonis replied in an emailed statement: “Not if that storage provides synthetic inertia.”
In an accompanying statement, Koutsantonis said that battery storage was being incentivised through the $150 million Renewable Technology Fund.
The state has already called for expressions of interest for 100MW/MWh of battery storage under that program, and received more than 90 responses. Its next move, and presumably a formal tender to get the technology installed by next summer, will be announced soon.
But the exclusion of battery storage and “synthetic inertia” from the EST is sure to create controversy – and much debate over the definition of inertia.
“I think the chemical stored energy is as real a source of kinetic energy (in the form of potential shaft angular momentum ) as you can imagine,” said the head of Australian operations of one international battery storage company. “This is real power that we can provide from the BESS (battery energy storage system).”
There is also questions about why some peaking gas plant – which is apparently accredited under this draft legislation – should be eligible, considering that there is much debate about how much inertia they actually do provide.
What’s more, the South Australian government describes the required technology as “clean”. Some of the existing peaking gas plants have emissions of 1 tonne of Co2 equivalent for every megawatt-hour produced, more than some black coal generators. Interestingly, the word “clean” is not used in the actual draft legislation.
It is not the first time questions have been raised about the scheme, designed by Frontier Economics’ Danny Price, who is also the architect of the proposed national emissions intensity scheme , and whose research has in the past been used by the fossil fuel lobby to argue against the renewable energy target.
When first unveiled, Zen Energy chairman Ross Garnaut queried Koutsantonis and Price about the then requirement of eligible generation to provide “synchronous generation,” which appeared to privilege the roles of the old fossil fuel technologies, and so limit the expansion of renewable energy.
“Was the objective to secure a large role for gas generation”, Professor Garnaut asked “Or was the objective to stabilise the electricity grid and market alongside expansion of renewables? If the latter, presumably alternative non-synchronous sources of frequency control ancillary services and inertia, like batteries, would be eligible”.
Price at the time said that the objective was grid and market stability, and that alternative technologies that met the objective should be included in the scheme. Garnaut warned at the time, and since, that it one of the details to watch. His concern has been justified.
Ostensibly, the scheme has been designed to as generators are not shut down without replacement, and will also encourage other technologies such as pumped hydro and solar thermal.
The proposed legislation says that eligible South Australia generators will be able to create a certificate for each megawatt-hour of eligible electricity. The price of these certificates will be capped at $50/MWh, but suggest a new certificate market worth around $225 million a year for the gas industry.
The target rises to 50 per cent by 2025, which means that most – or all – of added capacity will have to be accompanied by storage. This has major implications for new and existing wind and solar farms if battery storage is not allowed.
The draft plan for the scheme has been released for consultation and says it expects these certificates will be capped in price at $50/MWh, but it expects the increased competition from new entrants will result in lower prices for consumers.
“Existing and new generators will be eligible to create certificates. Retailers will be compelled to purchase and acquit certificates to meet the energy security target,” the government says.
“The price of certificates will be determined by supply and demand factors, but is effectively capped at $50 per certificate. Retailers may recover the cost of purchasing certificates from customers through their retail electricity prices.”
Despite this added cost, the government expects the scheme will result in lower wholesale electricity prices because of the increase in competition from local dispatchable generation. “This should offset any cost recovered by retailers from consumers,” it says.
South Australia has long been victim to a wholesale market dominated by just two or three major generators. That, and its long reliance on increasingly expensive gas, has caused it to have the highest wholesale prices in the country at times, although Queensland, which also suffers from a lack of market players, had higher costs earlier this year.
The key is the ability of new generators to meet the guidelines. Scenarios from the Australian Energy Market Operator suggest that if all projects go ahead, the state will be host to wind and solar farms to prove more than 80 per cent of its demand.
But that won’t happen, or the output will have to be seriously curtailed, if battery storage is not allowed.
(Please read our follow up story here: Gas turbines versus battery storage: South Australia in state of inertia over future of energy
Giles Parkinson 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 former editor of Climate Spectator.