Long read: State and territory subsidies for Australian storage

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It is no secret that its unique combination of high irradiation and highest rooftop solar penetration per capita in the world, coupled with high electricity prices and power supply instability, make Australia fertile soil for energy storage. And the forecasts are promising. According to Bloomberg NEF, which has significantly increased its projection for global deployment of distributed and grid-scale batteries from now to 2040 amid rapidly falling costs, Australia is among nine markets that will be driving the sector’s growth to a cumulative 942 GW/2,857 GWh.

Overall, big batteries have been mushrooming across Australia – the home of the world’s biggest battery – with the mission to provide support to the grid. Meanwhile, behind-the-meter battery uptake has seen nothing but an upward trajectory. There are economic and emotional arguments behind the trend. The adoption of home batteries Down Under is propelled by bill shock (i.e. the desire for self-consumption amid utility price hikes), but also by environmental motivation for achieving green self-sufficiency.

Although the payback period has shortened considerably, battery storage prices are still quite high for many households. Despite the lack of support for the technology’s deployment at the federal level, states and territories appear amenable to offering assistance when it comes to harnessing the potential of distributed energy storage.

Filling in the void

On the federal level, the Coalition government is rolling out a campaign for what it calls ‘fair dinkum power,’ which equates to ‘base load’ and coal generation. With Energy Minister Angus Taylor saying there is already too much solar and wind on the grid, and proposing investment in new coal or gas generation before the next election is called, there is little hope for any emissions reduction policy taking shape.

What is more, Taylor has signaled that the Australian government could indemnify new generation projects against the future risk of a carbon price, as well as support the retrofitting of existing coal plants – a policy that has already caused Australia to slip down one place in EY’s biannual renewables index, citing political upheaval in the energy sector.

In the absence of federal policy, states and territories are once again emerging as the torchbearers of Australia’s energy transition. Against the backdrop of considerable benefits of behind-the-meter energy storage, such as storing excess rooftop solar output and shifting grid demand in order to reduce electricity costs and improve reliability, a number of states have launched battery schemes.

“While the industry is now calling for additional support programs to encourage batteries, a variety of these have been introduced by governments across the country, to accelerate the uptake of energy storage systems. This will also help to increase scale and reduce prices, in the same way that the widespread use of solar panels has helped to drive down costs,” says Clean Energy Council spokesperson Mark Bretherton.

In the context of a downward cost curve, Australia’s network operators and energy companies are also developing a growing number of virtual power plants – smart remote management systems that can use groups of home battery systems to provide important services to help stabilize the grid.

So far, so good

Australia’s biggest battery subsidy program has been launched in South Australia this year. The state government’s landmark AU$100 million (US$72.5 million) Home Battery Scheme will subsidize the cost of buying a home energy storage system for up to 40,000 households. The huge announcement has already attracted two energy storage providers, China’s Alpha ESS and Germany’s sonnen, which are establishing manufacturing facilities in South Australia (SA), creating hundreds of local jobs. Launched in 2016 with a pilot round, the Australia Capital Territory’s battery subsidy scheme has grown into the AU$25 million Next Generation Energy Storage program, which aims to support the roll-out of around 36 MW of energy storage in up to 5,000 Canberra homes and businesses by 2020.

In the run-up to the November state election, the Victorian Labor government has pledged an AU$40 million scheme to subsidize the installation of battery storage in 10,000 homes, announced as part of its massive AU$1.24 billion Solar Home initiative, which will deliver half-price solar panels to 650,000 households and solar hot water systems to 60,000 homes with no up-front cost.

The Western Australia government has signaled winding back subsidies for rooftop solar, while looking for ways to boost battery uptake. As a side project, it has kick-started an Australian-first trial to integrate a bulk Tesla battery into the existing network, announcing it is a more cost efficient way of managing the growth in residential solar than traditional infrastructure spends like substation or transformer upgrades, and overall a cheaper community solution to hundreds of distributed batteries offering up to 8 kWh of storage at a cost of AU$1 per day.

Meanwhile, New South Wales has launched a variety of energy storage initiatives. The AU$55 million Emerging Energy Program will seek to propel large-scale renewables and storage projects, as well as underpin feasibility studies to get new projects off the ground. In addition, AU$30 million has been allocated for communities in the state to build their own local clean energy projects, using solar, wind, and storage technology to power their homes and businesses. To the tune of AU$20 million, the state is also planning to install up to 900 batteries with a total capacity of
13 MW on hospitals and schools that already have rooftop PV systems.

The so-called Sunshine State of Queensland, with half a million households now generating power from rooftop solar, is providing battery grants to up to 1,500 households and small businesses. The packages provide grants of AU$3,000 and interest-free loans of up to AU$10,000 over 10 years for up to 10,000 combined solar and battery storage systems, as well as grants of AU$3000 and interest-free loans of up to AU$6,000 for 500 batteries.“These schemes are material. Considering the battery market was 21,000 in 2017, the SA plan for 90,000 batteries [including 50,000 homes in the SA-Tesla VPP project] in the coming four years is hugely significant – and will deploy far more energy storage than even the Tesla Big Battery [Hornsdale Power Reserve]. Should Labor be reelected in Victoria, 10,000 batteries will also be significant. The Queensland scheme will therefore have less impact,” says Warwick Johnston, Managing Director of Australian PV consultancy SunWiz.

It’s a long way to the top

With federal elections just around the corner, announcements of support programs for home battery systems could even gather momentum, being well received in the electorate. But, Green Energy Markets (GEM) Director of Analysis and Advisory Tristan Edis provides a reminder that there is still much to be done until the presence of distributed battery systems becomes more evident on the grid.

“The South Australian and Victorian Government home battery support initiatives are relatively small-scale, but will be quite important in stimulating potential customers to move from the ‘interested’ stage to putting their hand in their pocket and purchasing a unit. This will provide a learning ground that will help the sector take the next step into the mainstream, but only if battery prices come down substantially. Really, battery system prices need to halve if the household, commercial market is going to grow materially beyond about 60,000 units per year,” he says.

Overall, it is not only direct subsidy programs, but also other movements in the National Electricity Market that could encourage the battery uptake. Namely, wholesale electricity prices have turned the corner thanks to the addition of large-scale renewable energy supply since the closure of coal-fired power plants in 2016 and are forecast to plummet from about AU$85/MWh over 2018 to about AU$49/MWh by 2021 without any new policy. According to a GEM analysis, by 2021 the large amount of extra solar capacity coming online will push gas generation down to very low levels and mean black coal will increasingly set the marginal price for wholesale electricity over daytime periods. As a result, feed-in tariffs as low as AU$0.03 per kilowatt hour will not be out of the question.

“There could be a lot of very unhappy householders at that time, who may have just installed a solar system […]. Their anger and unhappiness could be readily directed towards installation of a battery. In addition, regulators are now suggesting that power retailers offer feed-in tariffs that vary over the time of day. You could see households being tempted to install batteries by very high feed-in tariffs offered between 3 p.m. and 8 p.m. and very low feed-in tariffs prior to 3 p.m.”