Analyst suggests rule change could reduce battery funding

The Australian Energy Market Operator (AEMO) is proposing a rule change that would require batteries with a capacity of 5 MW or greater to contribute to the market by providing primary frequency response (PFR) services when discharging and charging.

Batteries currently only provide PFR services if they’re dispatched above zero in the energy market. The proposed rule changes, which would impact all batteries enabled for frequency control ancillary services (FCAS), could require batteries to cycle up and down at all times.

PFR services have historically been provided by generators such as coal and gas plants and AEMO said the new rules are necessary to stabilise the power grid as thermal generators continue to exit and the system increasingly relies on weather-driven power generation sources such as wind and solar, as well as batteries.

There are however concerns the rules could have the opposite effect and harm economic efficiency of batteries and system reliability.

Cornwall Insight Managing Consultant said Oliver Skelding said analysis suggests the proposed rule change could create more market uncertainty for batteries and risks further delaying the clean energy transition.

“This rule change could have unintended consequences for the electricity market,” he said. “Batteries are already facing challenges in finding financing. The introduction of a mandatory obligation to provide PFR when enabled for contingency FCAS could make it even harder.”

Skelding said batteries are currently able to discharge their energy at economically optimal times, often when electricity prices are high. Under the new rules, batteries could end up being forced to discharge energy at less profitable times, such as in the middle of the day, to compensate for small changes in frequency, lowering their revenue.

There may also be implications for the contingency FCAS markets as battery operators decide to reduce support in these markets to conserve energy for the evening peak, Skelding said.

There are also concerns about the implications that increased cycling of batteries could have on battery warranties and battery degradation over time.

“If the implementation of the new rule ultimately leads to fewer batteries or cuts their lifespan, the grid will be worse off than it was before the change,” Skelding said.

The Australian Energy Market Commission is currently accepting stakeholder submission on the proposed rule change. The consultation process is scheduled to close on 31 August 2023.

Skelding acknowledged that the increase in intermittent renewable generation in the grid dictates that there will need to be more PFR contingencies put in place but suggested there may be more palatable alternatives available.

“Given the preference for using price signals to meet contingency FCAS requirements, it would seem most prudent to do the same for PFR and elicit a market-based response from the technologies that are best placed to provide that service,” he said.

“The AEMO has some big decisions to make as we transition towards a greener future, and we await the results of the consultation to see the direction it intends to take.”