During our research for the 13th Energy Storage World Forum Virtual Conference, we found that many people in the energy storage industry face challenges in terms of value stacking grid-scale batteries in order to maximise their returns on investment (ROI). Two of our speakers, Henry Nguyen (ElectraNet) and Dave Moretto (AGL Energy) shared their views on the most profitable revenue streams, why it is difficult to stack them, and what their ideal business model looks like.
The most cost effective revenue streams for grid-scale batteries observed by Mr. Nguyen are the revenues that come from providing network services like frequency control ancillary services (FCAS). For example, whenever the South Australian network gets cut off from the rest of the country, Mr Nguyen noted that big batteries in the state tend to generate more revenue during that short period of isolation compared to the rest of the year. With more renewable energy being integrated into the grid, FCAS are bound to become an even more profitable revenue stream for utility-scale battery energy storage systems to tap into.
Dave Moretto agreed that other than bilateral agreements with governments or network owners, the most profitable revenue stream for grid-scale batteries so far has been the FCAS market. However, moving forward, Mr Moretto believes that the focus on FCAS is going to diminish, and the need for new revenue streams will arise. This is because of the limits on the amount of supply that can be injected into this market without causing a price shift.
Besides participating in the FCAS market, another way revenue is earned from grid-scale BESS is through energy arbitrage. Mr. Nguyen highlighted the main issue faced in terms of maximising revenue through arbitrage, is the fact that operation and maintenance (O&M) costs remain high. Even when the battery is idle, there are still operating costs to consider. These costs tend to stack up and sometimes, the earnings from arbitrage are not sufficient to offset them.
Presently, the most profitable business model for grid-scale batteries in Australia would be one that involves contracted services with the government or transmission network service provider (TNSP). Mr. Nguyen observed that the two biggest batteries in South Australia are currently operating under this model where 30% capacity is reserved to provide protection to the grid during emergencies and 70% is allocated for market services. For Mr. Nguyen, this framework is ideal because it ensures a fixed income for battery operators.
One of the biggest challenges faced in capturing the full value of battery energy storage systems (BESS) today is, systematically monetizing the multiple services being provided. A lot of the benefits that batteries deliver are not currently defined in a market sense and therefore not remunerated.
According to Mr. Moretto, in order for big battery projects to become more economically viable, there needs to be more standardisation across the industry in terms of what exactly batteries are capable of doing and which markets they can participate in. As it stands today, most battery projects in Australia require customisation based on the customer’s needs, and most revenue streams can only be accessed through bilateral negotiations. This means that there is a lack of transparency in the market that is crucial for market competition and price discovery.
Several trials are currently being undertaken to pave the way towards a more clearly defined energy storage market. Among these trials are South Australia’s Hornsdale Power Reserve and the Dalrymple ESCRI battery. AGL is also working on a 50MW battery project in Broken Hill and collaborating with the University of New South Wales to build a digital twin of the system in order to simulate different events and study how the battery and overall system reacts to these different scenarios.
As the Australian energy storage market evolves and more trials are carried out, more systematised markets and revenue streams are bound to emerge, eventually leading to a more sustainable and successful business model for utility-scale BESS.
If you want to know more about this and other topics directly from end users of energy storage technologies join us at one of these annual events: The Energy Storage World Forum (Grid Scale Applications), or The Residential Energy Storage Forum, or one of our Training Courses.