The Role of Energy Storage in Australia’s Future Energy Supply Mix

Delivered as a partnership between the Australian Council of Learned Academies (ACOLA) and Australia’s Chief Scientist, the Energy Storage project studies the transformative role that energy storage may play in Australia’s energy systems; future economic opportunities and challenges; and current state of, and future trends in, energy storage technologies and their underpinning sciences.

The project examines the scientific, technological, economic and social aspects of the role that energy storage can play in Australia’s transition to a low-carbon  economy to 2030, and beyond.

1. There is a near-term requirement to strengthen energy security² in NEM jurisdictions. Maintaining acceptable energy security levels for customers will dominate energy reliability³ requirements until well in excess of 50 per cent renewable energy penetration.⁴

2. At an aggregated national level⁵, Australia can reach penetrations of 50 per cent renewable energy without a significant requirement for storage to support energy reliability.

3. Assess the future education, skills and infrastructure requirements to manage workforce transition and support thriving and internationally competitive artificial intelligence industries.

4. Australia’s research and development performance in energy storage technologies is world class, but would benefit from strategic focus and enhanced collaboration.

5. The availability of private sector risk capital and profitable revenue streams for Australian energy storage start-ups and projects is a challenge for new ventures, as is policy uncertainty.

6. A high uptake of battery storage has a potential for significant safety, environmental and social impacts that would undermine net benefits.

7. Unless planned for and managed appropriately, batteries present a future waste management challenge.

8. Australians are deeply concerned by the sharp rise in electricity prices and affordability. They hold governments and energy providers directly responsible for the perceived lack of affordability.

9. Energy storage is not a well-known concept in the community and there are concerns that a lack of suitable standards at the household level will affect safety.

10. Australians favour a higher renewable mix by 2030, particularly PV and wind, with significant energy storage deployed to manage grid security.

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2. “System security” is the ability to deliver near-instantaneous power (GW) for short periods (seconds to minutes) as fast
frequency response to withstand sudden changes or contingency events in electricity generation (e.g. failure of a large
generator), transmission (loss of a transmission line) or demand.
3. “System reliability” is the ability to meet electrical energy demand (GWh) at all times of the day, the year, and in future.
4. Ensuring system reliability and system security is a core function of the Australian Energy Market Operator (AEMO).
5. The storage requirements differ at a state level.

Australia is undergoing an energy transformation that promises to intensify over the coming decades. In the electricity generation sector this transformation involves: a greater reliance on renewable energy in response to climate mitigation policies; relocation of where energy is generated and distributed as a result of changing economics of energy costs and technological developments; and how and when energy is consumed with the advent of ‘prosumers’. ¹

Energy storage is critical to a successful transformation as it provides the vital link between energy production and consumption (See Box 1) and allows for greater penetration of both utility scale variable renewable generation and distributed energy generation. Without effective planning, appropriate investment and also incentives to develop and deploy energy storage technologies, the costs of electricity in Australia will continue to increase and there will be less reliable (adequate and secure) electricity supply.  These could have large negative implications on the Australian economy.

Box 1: Energy security and reliability in Australia’s electrical power system
Physical energy security for electricity generation and transmission comes from ensuring the ability to rapidly cope, within seconds or less, with fluctuations in energy demand and supply. Historically, security is provided by the ‘mechanical inertia’ of moving turbines. This inertia allows the system frequency (50 cycles per second in Australia) to cope with the ups and downs of supply and demand and ensures there is no blackout. Indeed, blackouts occur when the frequency drops too low because demand exceeds supply by too much and for too long. ‘Load shedding’, where demand is reduced or parts of the system are ‘switched off’, can be used – but with big disturbances in interconnected electricity grids there can be a cascading failure that results in a major power disruption.

Energy storage that can provide electricity into a grid at a moment’s notice is an alternative to spinning turbines to provide electricity security and balance energy demand with supply. Adequate, appropriate and available (i.e. connected to the grid) energy storage in South Australia would have likely prevented the South Australian electricity blackout of 28 September 2016 as well as the need for emergency load shedding in New South Wales and South Australia in February 2017.

Energy reliability refers to the ability to balance electricity supply and demand over longer periods (other than seconds to minutes as explained above for energy security). For instance, there may be a peak load demand for electricity generation at the end of a very hot summer’s day as people switch on their air conditioners when they return home from work. An adequate electricity supply is needed at these times to meet this peak demand, which may not coincide with peak variable renewable supply. Having readily available electricity generation sources (e.g. gas turbine generators) that can be powered up at these peak times can provide reliability, but this may be an expensive option if the plant only operates at peak demand periods.

An alternative is energy storage where the electricity is stored in a physical (pumped hydro), electrochemical (batteries) or high temperature thermal (e.g. molten salts, graphite or silicon) way when variable renewable energy is available (such as when the sun is shining for solar power or the wind is blowing for wind turbines). Energy storage is also a potentially less expensive alternative to keeping standby power plants idle most of the year, because of the other system purposes to which storage can be applied (i.e. security).

Uptake of Storage Solutions
Energy storage is an emerging industry globally and the application of storage in high volumes for both the stationary and transport sectors is still immature. Storage comes in many forms and can be applied in many scenarios. These include: in-front-of-the- meter large scale grid storage or community based or micro grid storage; behind-the-meter individual consumer storage coupled to solar generation (there are more than 1.8 million buildings, mostly households, in Australia with roof-top solar power systems); electrified transport (buses, cars, motorcycles and heavy and light vehicles for delivery); new defence requirements (notably the new submarine, unmanned aerial vehicle (UAVs) etc.); as well as numerous other applications with niche requirements (e.g. mining or  off-grid applications).

While acknowledging these diverse applications for energy storage, this report primarily considers the transformative role that energy storage can play in Australia’s electricity systems. It identifies future economic opportunities and challenges and describes the current state of and future trends in energy storage technologies. It examines the scientific, technological, economic and social economy aspects of the role that energy storage can play in Australia’s transition to a low-carbon economy by 2030, and beyond to a low-carbon economy.

Over the coming decade or two there is unlikely to be only one favoured form of storage. Based on expected-cost curves, the most likely forms of energy storage will include pumped hydro, batteries, compressed air and molten salt (coupled with solar power generation). These different technologies have varying costs and other characteristics, so determining which is the ‘best’ form of energy storage depends on where it is needed, for what purpose (either reliability or security or both), the nature of the electricity grid, and the current and future types of electricity generation.

Battery systems are the most cost effective when stabilising the grid, provided they have a ‘fast frequency response’ (FFR) capability through appropriate power electronics to synthesise the FFR, and are ready for immediate discharge when required. By comparison, where geology and water availability permit, large-scale energy storage by pumped hydro is most cost effective for delivering energy reliability.

Both batteries and pumped hydro technologies can provide energy security and energy reliability. Notably, having invested in batteries for security then the incremental cost of adding more storage capacity for reliability depends on the relative cost of the battery cells and the balance of plant (the supporting components and auxiliary systems of a power plant needed to deliver the energy). There will be circumstances when adding cells to a battery storage scheme will be cheaper than using pumped hydro, even though pumped hydro would represent the cheapest stand-alone solution.

Behind-the-meter energy storage will also increase as more consumers choose to take control of their electricity needs (e.g. those already with solar) and with the increasing possibility of microgrids being established. These types of deployment offer opportunities for aggregation of distributed storage assets to boost security and reliability, particularly at the local distribution level in electricity networks.

Models and requirements for uptake
A National Electricity Market (NEM) model was used to assess the requirements of energy storage out to 2030. The model was based on hourly supply and demand data for a year where there was the longest period of low availability of variable renewable resources (worst case scenario for variable renewable supply). Three scenarios underpinned the modelling in this report: (1) ‘LOW RE’ low renewable energy scenario (where variable renewables account for approximately 35 per cent generation); (2) ‘MID RE’, where variable renewables account for approximately 50 per cent generation); and (3) ‘HIGH RE’, a high renewable energy generation scenario (where variable renewables account for approximately 75 per cent generation). State levels of variable renewable electricity generation are also provided in this model, and these could be as high as 100 per cent for South Australia and Tasmania, depending on the scenario.

Energy security requires higher overall storage power capacity (measured as GW) than required purely for energy reliability, but the latter requires considerably more stored energy (GWh), as shown in Figure 1, particularly for high RE penetration levels. This is because for energy security purposes the electricity supplied is typically only required for very short periods (seconds or minutes), while for energy reliability the energy is needed for balancing supply and demand over several hours to meet peak loads.

Under the three scenarios, storage capacity requirements for energy security and reliability as a proportion of total generating capacity (GW) in the NEM in 2030 are shown in Table 1.

The requirements for energy reliability and security are calculated separately and have not been optimised. Therefore, the total energy storage required as a proportion of total capacity, especially in the high renewable energy scenario, would be less than the sum of requirement for the individual requirements for energy reliability and for energy security.

Figure 1: Reliability (GWh) and security (GW) requirements at 2030 across the three scenarios

Table 1: Storage capacity requirements under the three scenarios

The costs of ensuring sufficient energy storage depend on assumptions about the levelised costs of storage in 2030. For energy security alone, the costs in 2030 prices could range from $A3.6 billion, under the LOW RE scenario, to $A11 billion under the MID RE scenario (which would also easily meet the reliability requirements at that time) and to as much as $A22 billion under the HIGH RE scenario. By comparison, network capital spending in the NEM is currently between $A5–6 billion each year, equating to approximately $A70 billion in total if this level of expenditure is continued annually through to 2030.

Energy storage is both a technically feasible and an economically viable approach to responding to Australia’s energy security and reliability needs to 2030, even with a high renewable’s generation scenario. Nevertheless, there will need to be suitable planning and policies, and financial incentives, for either states or the private sector to build the appropriate level of storage. Achieving the right balance between technology neutrality and making strategic choices is essential to achieving resilient and cost-effective outcomes.

Public Attitudes to Energy Storage
Australians’ knowledge of, and attitudes towards, energy storage will shape acceptance and adoption. General knowledge of energy storage options is limited, and largely restricted to batteries (the ‘Tesla effect’). This lack of knowledge is one of the factors limiting uptake of storage, especially at the domestic scale. From focus group and national survey work undertaken for this report, there is low trust in the Australian energy system’s capacity to deliver consistent and efficient electricity provision at reasonable prices. This low level of trust includes government, but also extends to energy providers and retailers. Regaining consumer trust in the energy system, including articulating the costs and benefits of energy storage, is vital for enabling the uptake of energy storage.

There is a demand for domestic scale energy storage by households across Australia as a means of future proofing against further electricity price rises and to take control of energy supply. Under certain conditions, Australians would be willing adopters of home-based batteries for energy storage. These conditions include policy and market certainty that allows households to calculate the costs and benefits of domestic scale storage, given that it requires significant initial outlay. Households would also like assurances that safety standards for batteries are in place and adhered to, and that battery systems are installed safely. While there is limited consumer knowledge of storage options, there are indications that should policy and market settings change then uptake may quickly follow. The experience of the post-2008 policy framework and rollout of rooftop solar photovoltaics (PV) is instructive for domestic-scale energy storage. With premium feed-in-tariffs being phased out, households with rooftop solar PV are likely to be early adopters of energy storage.

There is a latent demand for storage. Almost 60 per cent of people surveyed preferred a scenario comprised of a higher renewables mix in 2030, and nearly three-quarters of this group preferred that energy storage, rather than coal and gas, bolster grid reliability. Energy storage beyond the individual dwelling – at grid scale or for multiple dwellings – is not well known, with pumped hydro being the form most identified. People have environmental concerns with pumped hydro, but this may stem from inadequate knowledge.

Opportunities for Australia
This report identifies significant energy storage technology opportunities for Australia across global supply chains, as summarised in Table 2.

Australia has world-class resources of raw materials used in battery manufacturing, most notably lithium. Our raw materials, together with our world-class expertise in the development of energy storage solutions, including batteries, the design of software and hardware to optimise integration in smart energy systems, and expertise in the design and deployment of systems for off-grid energy supply and micro-grids, demonstrate that Australia has the potential to become a  world leader.

While the possibility of Australia becoming a manufacturer of existing battery technologies is highly unlikely, there is opportunity for manufacturing of next generation battery technologies. This is particularly true in niche markets such as situations where safety is paramount, defence applications, and for Australia’s high ambient temperature conditions. Given that current lithium-ion technology was not designed for stationary storage or electric vehicles, but for portable electronics, then an Australian technology that is purposed for a specific application (e.g. hot conditions or defence applications) could underpin the establishment and growth of a local manufacturing capability. We are currently manufacturing, for example, lead-acid batteries specifically for Australian submarines.

Chemical storage is identified as a potential major new export opportunity as countries such as Japan and Korea embrace hydrogen energy. Australia is already committed to supply hydrogen to Japan, but this will be produced using coal. There are opportunities to use our solar energy resources to produce and export renewable hydrogen and ammonia, enabling growth of a new industry that may be suited to northern Australia.

While Australia is very capable in the research and development (R&D) of energy storage technologies, we do not have a history of converting this in to growth in local manufacture or the development of a local industry, with several examples identified where technology based on Australian intellectual property (IP) has been developed overseas Conditions required for Australia to create an energy storage industry may include the availability and support of start-up accelerators, creation of R&D incentives for industry to invest, and encouraging more venture capital.

The impact and risks of the various energy storage technologies vary. Pumped hydro was found to be a low risk, low impact technology. Despite the geographic limitations for pumped hydro, and the time (years) to implement new facilities, it is a technology that offers much potential for deployment in the grid.

While lithium-ion technology is the battery technology of choice for most energy storage applications, it comes with risks and impacts. For example, existing technologies rely on materials that have human rights impacts (for example mining of cobalt in the Democratic Republic of Congo) and availability of lithium resources. However, there is a potential opportunity for Australia, which has considerable lithium resources and where technologies for benefaction of lithium ores are being developed.

Recycling is identified as an opportunity for Australia, with a history of recycling more than 90 per cent of lead-acid batteries. Opportunities to develop technologies to recycle components of lithium batteries (including cobalt, nickel and lithium) could be further encouraged and supported.

Importantly, Australia has an opportunity to encourage product stewardship across the whole life cycle, including responsible sourcing of materials, development of mining standards and sustainability codes, and disposal.

Options for Further Work
Our findings provide reassurance that both energy reliability and security requirements can be met with readily available storage technologies. Notwithstanding, the market and technologies for energy storage and its integration into electricity networks continue to evolve. Research investment in the following will be valuable

• The optimum balance of generation, storage and interconnection, taking into account cost optimisation and the long-term strategic opportunities for Australia.
• The role of ‘prosumers’ including their effects on the market, the system (equity and pricing concerns) and on their contribution to the energy transformation that is underway.
• The broader question of public literacy as Australians’ knowledge of, and attitudes towards, energy storage will shape its acceptance and adoption.
• A deeper analysis of opportunities for growth of a substantial energy storage industry in Australia.

Conclusion
Over the past decade, Australia’s electricity market has experienced change on an unprecedented scale. In a decentralised, yet integrated 21st century energy future, electricity networks must enable new opportunities for managing the complexity of multiple pathways for flows of electricity and payments. Energy storage has the potential to upend the industry structures, both physical and economic, that have defined power markets for the last century.

There is a legitimate role for governments to ensure that the right policy settings are enacted to drive growth in energy storage. Policy leadership will result in innovation, investment, the establishment of new high technology industries, the growth of existing high technology industries and increased or new energy exports. A proactive approach will provide the opportunity for Australia to lead and facilitate re-skilling of workforces and the creation of jobs across all levels of the value chain from mining and manufacturing through to consumer spending.

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1. “Active energy consumers, often called ‘prosumers’ because they both consume and produce electricity, could dramatically change the electricity system. Various types of prosumers exist: residential prosumers who produce electricity at home – mainly through solar photovoltaic panels on their rooftops, citizen-led energy cooperatives or housing associations, commercial prosumers whose main business activity is not electricity production, and public institutions like schools or hospitals.” (European Parliament Think Tank, 2016).