Australian Energy & Battery Storage Conference, Sydney, 7 March 2023
Tim Jordan, Commissioner AEMC
*check against delivery
Good morning and thanks for the opportunity to speak to you today.
I’d like to acknowledge the traditional custodians of the land we’re meeting on, and pay my respects to elders, past and present.
I know everyone in this room appreciates the importance of storage in achieving Australia’s renewable energy goals and delivering our transition to net zero.
Your discussions over the next two days will focus on the latest developments in large-scale batteries, pumped hydro and community batteries.
You’ll look at individual projects, and how finance and technology are shaping the energy storage landscape.
There’s certainly a lot to explore.
I thought I could provide most benefit to this audience by opening with an overview of where we’re up to in the energy transition and the deployment of energy storage.
I’ll cover the various storage options available to us – because we’ll need them all if we’re to reach our energy goals.
I’ll discuss the scope of the task ahead of us and the work we’re doing at the AEMC to make it happen.
And I understand there’ll be a few minutes for questions at the end of my remarks.
The task ahead of us
So, let’s look first at the task ahead of us, spelt out succinctly in AEMO’s Integrated System Plan.
The ISP marks the true north of the energy transition.
And it’s a plan that pulls no punches.
It describes the transition to net zero as a ‘once-in-a-century transformation in the way electricity is generated and consumed’.
And it includes some eye-watering figures spelling out what that transformation entails, including:
- at least a doubling of electricity generation by 2050;
- installing 10,000 kilometres of new transmission lines;
- a 9-fold increase in wind and grid-scale solar capacity;
- and the rapid retirement of coal-fired generation, with 60% of capacity to be withdrawn by 2030.
Increasing urgency around energy storage solutions
Operating a reliable low-carbon power system means that energy storage is imperative – and AEMO also makes this clear.
It says building the energy storage to manage daily and seasonal variations in solar and wind generation is the most pressing need of the next decade.
It has consistently called for urgent investment in long-duration storage to support a low-carbon National Electricity Market – and those calls become more urgent with each coal plant retirement.
By AEMO’s current calculations, outlined in the ISP, 61 GW of storage capacity is needed by 2050 under the Step Change scenario.
That’s 17 times current levels.
A heavy lifter in this new landscape will be dispatchable energy storage, derived from multiple sources such as utility-scale batteries, pumped hydro, community batteries and other orchestrated distributed batteries.
Capacity from these quarters needs to increase from current levels of 1.5 GW to 46 GW, a 30-fold increase.
And we could need even more storage. The more we electrify our homes, our businesses, our heavy industry and our transport, the more renewables and storage we will need.
As this chart shows, we are at the start of a multi-decade journey to build the storage we need to deliver a green and electrified economy.
As we are all well aware, this is a capital-intensive endeavour and the investment required for us to meet these goals is substantial.
By our estimates, an additional $242 billion in generation, storage and transmission investment is needed to deliver the Step Change scenario in the ISP.
To be clear, that’s $242 billion above current commitments.
Storage accounts for about a quarter of this figure, requiring an additional $64 billion investment.
Given the scale of the task and the figures involved, it’s imperative that we explore all the associated issues – and acknowledge the obstacles along with the opportunities.
It’s appropriate that your discussions over the next two days will touch on all these elements.
Some industry considerations
For example, while we can all commend Malcolm Turnbull’s long-standing enthusiasm for pumped hydro, there’s a discussion to be had as to whether we can build it in a timely way.
We have the right geography. Professor Andrew Blakers’ team at ANU has done excellent work identifying 1,500 potential pumped hydro sites in Australia.
We have the track record, with pumped hydro operating for many decades at sites across the NEM.
But the fact remains: Australia has not had a new pumped hydro development in almost 40 years.
The Kidston Pumped Storage Project in far-north Queensland, due for completion next year, will be the first, and Snowy Hydro 2.0 is the only other project under construction.
How do we address the impediments that are holding us back in pumped hydro, in terms of capital, land use planning, communities and social licence? That is a problem we’ll need to solve together.
Community batteries are in their infancy in Australia and we have yet to see the role they will play in the energy transition.
There is likely much to be gleaned from the rollout of the federal government’s program, which will deploy 400 community-scale batteries serving up to 100,000 households across Australia.
And we don’t yet know whether households will embrace batteries at home as enthusiastically as they put solar panels on their rooves.
While more than 3 million households have taken up rooftop solar, only around 60,000 have bought batteries to date.
Will there be a rapid acceleration of household batteries, or will distributed storage sit mostly with commercial and industrial customers?
Australia’s unique household storage opportunity
Recently, AEMC staff looked at the economics of household batteries.
They reached some promising findings around affordability which indicate batteries could become economic for many Australian households in the next few years.
For a start, installation costs for a typical residential battery have fallen, while the average battery life has increased.
The big breakthrough is that the average battery cost has halved over the past six years, from 80 cents per kilowatt hour to 39 cents.
It’s likely this cost will fall further as more batteries enter the market, manufacturing costs decline and technology continues to improve.
Accordingly, the typical payback period for household batteries has fallen from 19 years to just over 10 years.
What this means is that many households can now recoup the cost of their investment within the life of the product.
This marks a critical turning point in the economics of household batteries – a point at which consumers are much more likely to make the investment.
By 2025, a typical household will recoup their investment in just under seven-and-a-half years, well within the average battery’s 10-year lifespan.
Our estimate is based on conservative assumptions.
For example, we did not factor in the likely improvements in installation costs and battery life over the next three years, which would further reduce the payback period.
This is significant given the role that households and businesses will play in the energy revolution.
The ISP notes that consumer systems could account for nearly 20% of total underlying demand in the National Electricity Market by 2050.
The Energy Security Board estimates this could provide a potential $6 billion benefit to the Australian economy.
By 2034, the installed capacity of these consumer energy resources is expected to match the current utility-scale capacity of the National Electricity Market.
Households and businesses also feature heavily in forecasts around energy storage.
Of the 46 GW of dispatchable storage required by 2050, about one-third – 16 GW – will come from utility-scale batteries and pumped hydro.
The remaining two-thirds – 31 GW – will come from virtual power plants, vehicle-to-grid and other distributed technologies.
Large-scale batteries also gathering pace
Recent developments in large-scale batteries are also encouraging.
In December, ARENA unveiled a $2.7 billion project pipeline, backing eight of the largest batteries ever built in Australia with a combined capacity of 2 GW and 4.2 GWh.
This will result in a 10-fold increase in grid-forming storage capacity.
This was followed by last month’s announcement of similar scope by Infradebt, backed by Mike Cannon-Brookes.
It plans to finance the construction of six to eight batteries, with a total capacity of 1.5 to 2 GW.
State and federal governments are investing heavily in renewable energy and storage solutions.
This includes large investments in battery facilities, such as the Waratah Super Battery in NSW, which is set to be the biggest in the southern hemisphere.
There are also opportunities for commercial and industrial customers, demonstrated by plans to install and operate Australia’s largest rooftop solar installation at Moorebank Logistics Park, with 60 MW of solar power and 150 MWh of battery storage.
The Smart Energy Council further highlights the scale and pace of change.
From 33 sites providing just over 1 GWh of electricity at the end of last year, it charts another 8.1 GWh that is due to come online this year.
The Council expects there will be 78 big batteries by 2025, with 14.5 GWh of capacity.
So, there’s a lot going on in battery storage, to ensure we have the infrastructure to support a high renewables system.
How do we send the right market signals?
The balance of grid- and household-connected storage solutions adds a layer of complexity to our batteries challenge.
And it highlights the many strands that must be brought together to deliver an effective energy transition.
The AEMC’s role is to ensure we have the right market settings to facilitate the required investment in the energy transition, without imposing unnecessary costs on consumers.
We have navigated many changes to the rules, regulations and standards, with a lot more to come.
We’re mindful that the framework needs to be dynamic enough to accommodate technologies and strategies we haven’t seen before.
That’s why we canvas so widely across the sector, to capture emerging trends and their likely impact on different stakeholders.
And it’s why we urge you, as leaders in the energy storage industry, to remain closely involved in our work.
Recent AEMC work
The AEMC is doing a lot of work to support the integration of energy storage into the National Electricity Market.
You can see some of our recent projects listed here.
Some of these changes are very technical in nature but collectively they’re designed to smooth the path for energy storage in a number of ways.
For a start, the rule changes work towards NEM integration for all kinds of energy storage systems.
This includes integrating consumers energy resources by establishing a two-way grid where distribution networks must accept exports into the system.
We’ve sought to provide better price signals for investment in fast-response technologies such as batteries and looked at market price settings that incentivise energy storage.
We’re working to cut the red tape, costs and logistical hurdles to make it easier for storage and hybrid systems to register and participate in the market.
And we’ve pursued a number of system services reforms to ensure the electricity system continues to operate effectively with energy storage added to the mix.
Current AEMC work
Our current and future workplan also covers a range of energy storage elements.
This includes important consumer reforms enabling households and businesses to engage in the energy transition.
We’re looking at ways to manage increased variability as the power system evolves, such as updating settings for contingency events and confirming allowable frequency ranges during normal market operation.
There is also an extensive body of work relating to the Commonwealth’s Capacity Investment Scheme and whether we need different investment signals in a changing energy market.
The Commonwealth’s new underwriting mechanism will fund around $10 billion of new investment in clean dispatchable power.
It will help to ensure Australia has an ongoing supply of cheap, local renewable energy, and reduce our exposure to global energy crises.
Equally, we are looking at how to make sure we have sufficient investment in the storage we need to manage reliability risk as the market transforms.
At the AEMC we’re looking at how the market settings provide those investment and operational signals.
This year, the Reliability Panel, which is part of the AEMC, will assess what reliability settings in the National Electricity Market should be later this decade.
This work will look at what the market price cap should be, to deliver reliable, affordable energy as reliability risks change.
It recognises for the first time that, with a very different mix of assets and a changing physical operating environment, we may need different investment signals to address low-frequency but high-impact events.
It’s critical that the AEMC’s work anticipates and captures these developments which are changing the energy landscape before our eyes.
Last year’s agreement by Australia’s energy ministers – to incorporate emissions targets into the National Energy Objectives – will fundamentally change the way we work.
It will have implications for the rules we make at the AEMC and the nature of the rule change requests we receive.
I’ve covered a fair bit of ground this morning and hopefully given you a few thoughts to reflect on over the next two days.
The Australian energy industry is attempting something that’s never been done before – and that can be daunting.
But we can all draw confidence from the way we’re responding to the challenges – and opportunities – that lie ahead.
There’s a big reform agenda underway. Governments and industry are actively engaged.
Innovators and technologists continue to bring seemingly impossible ambitions within our reach – and there’s capital to support it.
We have energy consumers willing to embrace the new energy landscape, as our world-leading rates of rooftop solar demonstrate.
And we’re all heading for the same true north.
That gives me abundant confidence in the future.
Get in touch
As always, we welcome your input and feedback.
So, if you would like to talk to use about energy storage and how it fits into our work program, or if you have some suggestions of your own, please get in touch.