B AT T E R Y S T O R A G E A S A K E Y E N A B L E R F O R 1 0 0 % R E N E WA B L E S

June 2021



Executive Summary
Battery storage paired with renewables is capable of providing all reliability and grid security services needed for an affordable, exible, zero
emissions electricity system. The technology is already proven and out-competes traditional synchronous alternatives – with over 1GW of battery
projects commissioned or under construction across Australia, and over 10 times more proposed capacity in the pipeline. The remaining
challenge lies in incentivising and coordinating this storage deployment at scale

Battery storage can provide any grid service required, across a range of time scales
The applications of battery systems range from instantaneous response (inertia and fast frequency services), through to long duration applications operating
over multiple hours (providing daily peaking capacity). This value stack can be further classi ed into reliability (resource adequacy) and system services
• Reliability (resource adequacy): renewables rming, energy and load time-shifting to avoid peak demand and network thermal limits, addressing
minimum operational demand issues by charging during peak renewable intervals, and offering optionality and complementarity for network upgrades
• System services: dynamic voltage and frequency stability, fast frequency response, fault level contribution, system strength, active harmonic dampening,
system restart services, virtual inertia, and SIPS (system integrity protection schemes) for large contingency events

There is no need for synchronous assets to achieve a low-cost, reliable, secure and zero emission grid

With such a broad and adaptable suite of services, battery storage can be deployed to address network and system security issues, whilst also providing
competitive wholesale market services in parallel (e.g. the 150MW Hornsdale Power Reserve (HPR) pictured on the cover). Until renewables levels reach
over 80 to 90 percent, lithium-ion battery storage technology can shoulder the bulk of electricity system requirements

As the latest data from HPR shows, battery storage with grid-forming inverters have demonstrated their ability to replace the suite of essential system
services historically provided by thermal plant, such as inertia and system strength. Batteries using power electronics can create ‘virtual’ equivalents that offer
a premium response with tune-ability. This completely removes the justi cation for deploying synchronous condensers for these services. The Callide event in
May 2021 highlighted just how effective this response can be in stabilising frequency through an inertial response using Tesla’s Virtual Machine Mode

New incentives to prolong the life of existing synchronous assets are unnecessary and inef cien

Australia’s electricity policy and rule makers must ensure the right incentives are in place to support investments in new, exible capacity and structure
procurement of services to match what will be needed in a 100% renewables future. By coordinating and strengthening investment signals for new, exible
capacity, resource adequacy will be met in a way that is both technology neutral (allowing inverter based resources to compete with synchronous machines)
and scale neutral (allowing provision from distributed energy resources and virtual power plants) to ensure lowest cost, highest bene t outcomes for
consumers over the long-term. 


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 Contex
Managing the transition to 100% renewable energ

Australia's electricity supply is rapidly moving away from thermal coal and gas red generation towards much higher penetrations of renewables, where up to
100% of electricity will be supplied by zero emissions technologies within the coming decades. Managing the transition will require careful system-wide
planning to ensure minimal impact on energy security and reliability, while delivering lowest cost outcomes for consumers and achieving emission reductions.

In a highly renewable system, there are still fundamental physical requirements that need to be met in order to maintain the seamless delivery of electrons
from generation source to load. They include fast-response exible capacity (complementing the output of wind and solar), ef cient network utilisation, and
provision of essential system services such as frequency control, inertia and system strength.

Provided the right incentives are in place, and technical capabilities are appropriately recognised and valued, each of these services can be provided with
technology that is available today – most notably grid-forming battery energy storage. Collectively, these services will support high penetrations of renewable
energy in a manner that ensures the future electricity supply in Australia is reliable, secure, affordable and clean

To deliver on these outcomes, there is increasing recognition of the need for updated market frameworks to ensure optimal investment in, and operation of
assets can occur. With the Australian Energy Market Operator (AEMO) forecasting up to 50GWs of new renewables, and 20GWs of additional exible
capacity required by 2040 across the National Electricity Market (NEM), coordinating the ef cient integration of new assets will require investment certainty,
innovative commercial models, and strong leadership from policy makers.

Figure 1: Render of 300MW / 450MWh Victorian Big Battery – to provide suite of energy, system and network service

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 The Role for Storage in Resource Adequacy Plannin

There is no panacea technology or ‘one size ts all’ approach for meeting the reliability and security requirements of a predominantly renewable energy
system. However, until renewable penetration levels reach over 80 to 90 percent5, battery storage technology can shoulder the bulk of requirements
• System services: lithium-ion battery storage and power electronics have demonstrated a premium ability to provide essential system services with
lightning fast and precise response (the NEM’s frequency control ancillary service markets do not yet reward this premium response, but security and
cost bene ts have been well documented1). With additional grid-forming projects currently being tested and integrated in the NEM2, battery storage is
quickly displacing the role of synchronous machines to provide system strength, inertia, fast frequency and voltage stability
• Energy generation: wind and solar are unequivocally the lowest cost generation and continue to fall in cost3. This will drive ef cient ‘over-build’ of
generation capacity4, where supply abundance will be available at near-zero marginal cost throughout much of the year and can be stored electro-
chemically (i.e. in batteries), and/or converted to other forms of chemical storage, potentially used to electrolyse hydrogen, utilised to electrify adjacent
sectors (transport, heating, manufacturing, desalination etc), or transferred across expanded networks and interconnectors to maximise diversity bene ts
(i.e. when cloudy in Victoria it may be still be sunny in Queensland or windy in Tasmania). The ability for storage to capture this excess renewable
generation (and mitigate low operational demand risk) is another advantage against traditional fossil fuel-based firming.
• Daily storage: battery systems (grid-scale, behind the meter and virtual power plants) are the most cost-competitive way to provide intraday rming and
load time-shifting, coupled with demand side response from households and commercial sectors, and substantial improvements in energy ef ciency (still
signi cantly under-appreciated). This demand side exibility will be increasingly evident as the attachment (and aggregation) rate for household storage
grows alongside electric vehicle uptake. Daily storage requirements are also reduced with excess renewable capacity (compensating for low resource
days – e.g. even on cloudy days solar panels can generate up to 30% of their total capacity)
• Low-use long duration storage: reliability ‘insurance’ requirements will be lower than typical models forecast when factoring the supply abundance
paired with industrial scale demand response exibility (allowing even cement and aluminium production to buffer and use latent exibility5) and
Australia’s vast geographical diversity. Renewable Energy Zones (REZ) reinforce this approach, with priority REZ developed in quality wind and solar
resource areas, utilising strong network backbones and shorter duration storage to optimise energy ows. Other forms of storage technology (including

1 Aurecon reports: www.aurecongroup.com/markets/energy/hornsdale-power-reserve-impact-study

2 See www.transgrid.com.au/wallgrovebattery and https://arena.gov.au/projects/hornsdale-power-reserve-upgrade/

3 https://www.csiro.au/en/news/News-releases/2021/CSIRO-report-confirms-renewables-still-cheapest-new-build-power-in-Australia

4 This is counter to typical system optimisation analysis that seeks to minimise curtailment of renewables, ignoring the benefits that excess, zero marginal cost, clean energy provides

5 See https://ieefa.org/ieefa-how-aluminium-smelters-can-help-decarbonise-australias-industrial-economy/

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 new battery chemistries currently being researched, alongside chemical, thermal and mechanical options, such as pumped hydro storage) are likely to
play an increasing role once renewable penetration reaches above 80 to 90%6

Figure 2: Renewables plus storage7 provide end-to-end electricity system requirement

ELECTRICITY GENERATION SYSTEM SERVICES STORAGE

Base Capacity Overbuild Capacity Frequency Voltage System Daily Seasonal

stability Stability strength

RENEWABLES

Li BATTERY STORAGE

OTHER STORAGE
(pumped-hydro; hydrogen etc)
All electricity supply requirements can be accounted for with renewables and storage technologies. With rapid and continued cost reductions, renewables
plus battery energy storage provides the lowest cost solution for up to 90% of the transition pathway. There is no technical or economic justi cation for
prolonging the life of fossil fuel plants, and to do so would be economically irrational and in direct con ict with Australia’s net zero ambitions.
This has now become the consensus globally, with even the International Energy Agency (IEA), known for its historical conservativism in forecasting
renewable energy adoption, publishing a report highlighting8
• “the world has a viable pathway to building a global energy sector with net-zero emissions in 2050

• “we must progress a rapid shift away from all fossil fuels

6 See CSIRO & ENA Electricity Transformation Roadmap study demonstrating 4 hour storage duration is more than sufficient up to 90% renewable share: https://www.energynetworks.com.au/projects/
electricity-network-transformation-roadmap/; and MIT deep decarbonisation study by Sepulveda et al: https://doi.org/10.1016/j.joule.2018.08.006

7 Note: while technically feasible for large scale (multi-TWh) Li-ion battery storage to provide energy ‘insurance’ for long duration ‘seasonal’ storage, other technologies currently under research and
development (e.g. hydrogen, ammonia, synthetic hydrocarbons or other ‘electro-fuels’) and existing pumped hydro developments are likely to provide a more cost-competitive solution that can combine
with fast-response services from batteries.

8 https://www.iea.org/reports/net-zero-by-2050

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 • “we require huge increases in electricity system exibility – such as batteries, demand response…to ensure reliable supplies

This conclusion is reinforced by AEMO’s 2020 Integrated System Plan modelling – highlighting a critical role for storage ‘to ll in the gaps’ to support around
94% renewables, and with 80% of total storage found to be optimally provided by ‘shallow’ (up to 2 hours) or ‘medium’ depth (4+ hours) battery storage
(including behind the meter systems and virtual power plants). AEMO frames an important but limited role for ‘deep’ (over 24 hours) storage to address rare,
low-probability, energy drought periods that may only occur once every decade.

Most in line with Australia’s current trajectory, AEMO’s step change scenario shows that by 2040, this deep storage capacity would be around 4.6GW (the
size of 2x Snowy 2.0s), relative to over 17GW of shorter duration storage, which is assumed to be battery storage based on cost competitiveness and
deployment bene ts. Combined, this 22GW of storage capacity almost entirely negates the role for gas plants, which are already being displaced due to their
limited ramping exibility and higher marginal cost basis9

Figure 3: AEMO Integrated System Plan – forecast storage mix to optimise resource adequac
Step change scenario, proportion of total capacity requirements in 204

9 https://www.cleanenergycouncil.org.au/resources/resources-hub/battery-storage-the-new-clean-peaker

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 Leveraging the exibility of storage is in direct alignment with state energy and climate targets. For example, the NSW Electricity Infrastructure Roadmap is
supporting new transmission, solar, wind and what it terms ‘long-duration storage’ (de ned by NSW legislation as over 8 hours) to maintain reliability. As the
AEMO data illustrates, to ensure lowest cost to consumers and optimally meet reliability and system security requirements, this de nition must be more
technology neutral so that it includes fast-response (shallow and medium) battery storage alongside government supported deep storage, which currently
restricts development options to solely pumped hydro projects

Deploying exible, modular battery storage assets rapidly over the coming years will de-risk the dependence on large, complex, or nascent deep storage
options, and at the same time provides immediate bene ts of energy cost reduction (through increased wholesale market and ancillary service competition),
reduces land requirements, while creating local jobs across the entire battery value chain.

The Role for Storage in Essential System Service

Historically, system security (the ability of the power system to stay within safe technical limits) was supplied as a by-product of synchronous generation, with
inertia and system strength effectively maintained by coal, gas and hydro plants. However, as the fossil fuel eet rapidly retires, the NEM will require new
forms of system service provision, and an accompanying framework that can unbundle, assess and reward these essential services in parallel to energy
dispatch

Batteries are uniquely placed and exible enough to support a renewable energy system across every interval, including a bi-directional capability to support
during both peak and negative price events A major bene t of battery storage is the ability to optimise for different services at different points in time

The demonstration of these services has been rapid. Hornsdale Power Reserve (HPR) entered the NEM in December 2017, and by April 2018, AEMO had
already published an initial report highlighting the superior frequency services being provided10.

Today, battery systems trialling grid-forming inverters are starting to be recognised for their ability to provide the full suite of essential system services,
including system strength, voltage control, virtual inertia, and system re-start services. As the pace of technology innovation quickens, battery storage will be
on track to provide these services at scale within the next few years, provided the right market incentives are put in place.

10 www.energymagazine.com.au/learnings-from-the-hornsdale-power-reserve-battery/

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 Figure 4: Multiple applications from a single technology

BEHIND THE METER SYSTEM SERVICES NETWORK SERVICES

In addition to on-site

optimisation and premium system wide services, battery storage can also act as network infrastructure, providing

Self-consumption / Fast Frequency Response / Voltage Stability / System Strength /

Renewable Optimisation Black start / Back-up
Demand reduction Energy Arbitrage / System Restart Services System Integrity Protection
voltage support, reducing
line losses, offsetting the need for new lines or transformers, and providing network congestion relief (‘virtual transmission’). Collectively, these services are of
particular value in electrically remote and highly concentrated renewable regions such as renewable energy zones (REZ). There is growing interest from state
governments and network utilities to unlock this value, but existing regulatory investment test frameworks (e.g. RIT-T) were not designed to assess the
optionality and system service bene ts from non-network solutions such as battery storage, particularly when they may have multiple owners and operators
and more complex commercial arrangements than the single use, long life infrastructure that networks typically deploy.

Overcoming these regulatory barriers will be critical to scaling battery storage deployments and ensure they can be effectively utilised to provide energy,
system and network services and optimise existing assets in a way that minimises the overall cost of the energy transition to consumers, whilst ensuring a
safe, secure and reliable system throughout

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 As a recent study from the Victorian Energy Policy Centre concludes:

“there is no technical obstacle to maintaining security as the NEM approaches 100% renewable energy. Security services can be, and in many cases
are being provided by renewable energy and batteries” 11

In contrast to this multi-purpose nature of battery storage, singular-focused solutions such as synchronous condensers may only provide some categories of
bene ts, at much smaller scale, and with less tune-ability and precision. Whilst network and system operators have extensive experience with these
traditional (and expensive) assets, it is only a matter of time until familiarity with grid-forming inverter technology grows – with several battery systems
seeking to actively demonstrate provision of system strength and virtual inertia by the end of 2021.

For example, the expansion of Hornsdale Power Reserve (HPR) to become a 150MW / 194MWh grid-scale battery includes an upgrade to the application
stack to provide virtual inertia, through Tesla’s proprietary Virtual Machine Mode (VMM) capability and the system’s grid forming inverters.

One silver lining of the May 2021 Callide C coal generator contingency event was that it provided an ‘in market’ test and real-life response of HPR’s inverters
with VMM, providing a useful dataset to assess and compare grid-forming capability. The event was signi cant, with customers across Queensland
experiencing black-outs and the power system navigating a Rate of Change of Frequency (RoCoF) of around 0.2 Hz/s in decline and frequency nadir of close
to 49.6Hz

Figure 5: Hornsdale Power Reserve – Virtual Machine Mode Response during contingenc
Notes: Virtual Machine Mode is enabled on 2 HPR inverters; chart shows measured response to system event on 25 May 2021; metered frequency data has been up-sampled from 200ms
measurements to align with 25ms power data sampling rate

As the data shows, VMM mimics the response of a synchronous generator and provides an inertial response resisting the change in RoCoF, injecting power
during the decline of frequency to help raise the nadir, and providing frequency stabilisation with Primary Frequency Control recovery to the Normal Operating
Frequency Band (NOFB). VMM also provides a voltage-smoothing function to resist change in the underlying voltage waveform, effectively providing a
source of system strength

11 See VEPC study from B. Mountain: https://australiainstitute.org.au/wp-content/uploads/2021/03/VEPC-system-security-report-FINAL.pdf

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 Site Response Virtual Machine Mode Enabled Inverter Response

1 2

▪ Active power response proportional to frequency ▪ Active power response proportional to Rate of Change of Frequency
▪ Response commences once frequency departs the configured deadband ▪ Response commences prior to frequency departing configured deadband
▪ Maximum power response when frequency reaches lowest point (nadir) ▪ Maximum power response when frequency is changing the fastest
▪ Stabilising effect to dampen overshoot of corrections by broader system

The additional bene t with VMM is that these inertial parameters can be customised for speci c network conditions, and this response is provided in parallel
with traditional primary frequency control, energy market dispatch, and black-start services. This is a central issue being studied by the NEM’s market bodies,
as the industry is acutely aware traditional thermal synchronous generation is being displaced as we accelerate the transition to higher renewable
penetration.

Recognition and payment for services will be a key driver to facilitate the uptake of these grid-forming inverter technologies, with new rules currently
proposed to allow system strength to be procured more ef ciently on behalf of all consumers, shifting the allocation of costs and risks from individual projects
to a more proactive system and network operator responsibility (i.e. updating the ‘do no harm’ principle). If designed correctly, these regulatory frameworks
should value the services provided by inverter-based technologies, rather than relying on legacy technologies or traditional network upgrades that are unlikely
to be cost-effective in comparison. As is increasingly recognised by Australia’s leading energy experts, the grid of the 21st century will be one based on
inverters and battery power electronic control systems – optimising for every moment

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Conclusio
There are still many challenges to overcome to realise the full value that battery storage can provide as an enabling technology. The technical and
commercial advantages of battery storage are now well understood and widely recognised. However, targeted and cogent market reforms are required to
really drive storage investments at scale over the coming decades. Battery storage should be considered a critical component for any system transitioning
towards high penetration renewables. For Australia in particular, batteries can unlock a large proportion of value in the clean energy transition, enabling the
retirement of thermal assets, whilst minimising the system security and reliability risks

An electricity system dominated by solar, wind and battery storage technologies will be the lowest cost outcome over the coming decades – rendering new
investments in coal or gas nancially unviable, with even existing thermal plants rapidly at risk of becoming stranded assets. We’re already seeing this play
out globally, most notably in the US where battery storage assets are able to compete on an equal basis with traditional generation and network investment,
and are being rewarded for their wide suite of exibility and system services. In Hawaii up to 3GWh of battery storage capacity is being procured by utilities to
supply both reliability and security services. In California, Southern California Edison is targeting battery storage procurement of 3GWh, and Paci c Gas &
Electric around 2.3GWh. Of course it's worth recognising all markets are structured differently (with different operating dynamics and policy drivers), but these
outcomes still provide a directional view of how the energy transition does not necessitate a role for coal or gas and instead can be underpinned by
coordinated investments in renewable and battery storage portfolios, with supporting network infrastructure

In Australia, strong leadership from policy makers and collaborative partnerships across the energy sector will be needed to make sure we too grab the
opportunity.


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 Appendi

Performance of Synchronous Condenser vs Battery Storage System service comparison across technologies

Synchronous Grid Forming Battery

Grid Services
Condenser Storage

◉
●
Yes – but fixed inertial
Yes – configurable inertia
Inertia constant based on
response
(frequency physical
disturbance characteristics of the
support) plant
Response time: near
instantaneous <<0.5 cycles
Response time:
(10ms)
instantaneous

System
●
Strength
● Yes – voltage smoothing
(voltage
Yes (fast acting reactive power
disturbance
response)
support)

Fault level ● ◉
contribution Yes - substantial Yes – but limited by inverter
kVA overload rating

Harmonic ◉ ●
dampening Limited damping Active harmonic cancellation

●
All battery operating modes
Additional Value ○
– enables value stacking
services None
across energy & ancillary
services

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