Battery systems in the National Electricity Market

We know there’s a lot of interest in community batteries, which is why we have a community batteries regulatory use case to help step through what these sort of projects might look like. 

Still have questions? Use our Regulation Navigator Tool for instant guidance or come and talk to us.

What is a battery?

Like the AA battery you know, just bigger! Importantly, batteries are used to store electricity and can either be installed as a single battery or as a system (that is one or more batteries that are connected to the electricity grid). 

Energy stored in a battery system may be generated from assets located on the same site as the battery, or imported from the National Electricity Market (NEM, sometimes referred to informally as the “grid”).

Battery systems are an important part of the NEM and their role in firming energy from intermittent sources (such as solar and wind) will continue to grow as the industry works towards decarbonisation by reducing emissions and boosting renewable energy.

This is often why batteries are included as part of hybrid system installations. For example, a hybrid system may include solar generation and a battery behind a single connection point, or a combination wind and solar farm. The term hybrid system refers to grid-scale (large) facilities and not to small customers with solar panels and batteries, or to the aggregation of those customers’ resources through a virtual power plant. 

How are batteries used?

Battery systems provide multiple benefits to the market and opportunities to earn revenue. They have fast response times which enable them to help maintain the power system in a secure state faster than other technologies (although they cannot provide sustained generation). Put simply, when there is a shortfall from conventional generators, batteries can export power to address this, but as they themselves do not generate power this is limited to their base capacity. 

Batteries can be installed either behind-the-meter (BTM) or in front-of-the-meter (FTM). This all depends on what stage of the supply side a battery is installed at (see figure 1 below)

(Source: ARENAWIRE, Is big really better when it comes to batteries?, July 2020).

FTM batteries (sometimes referred to as utility scale batteries) are installed directly onto a distribution or transmission network. As well as the standard benefits batteries can provide, FTM batteries can provide an alternative to investment in peaking generation and can defer investments in grid reinforcements by providing a tool to manage grid congestion. They can also provide an alternative and competitive resource in the provision of ancillary services in the wholesale electricity market.   Through these different mechanisms, batteries can help to reduce the overall costs of providing electricity to customers. 

Batteries can also provide system security and stability services which have been traditionally provided by fossil fuel -based generation (e.g. coal fired generation). A useful discussion about the role of FTM batteries is included in the International Renewable Energy Agency’s paper on utility-scale batteries. Due to their size and cost, FTM battery systems are generally developed in conjunction with the private sector and different levels of government.

Enquiries received by the EIT often include a battery system component – both FTM and BTM – as innovators consider new ways to utilise the technology. Check out our regulatory use cases on microgrids, and virtual power plants to understand how batteries may be integrated into a project.

How do FTM battery systems generate revenue?

FTM battery systems can generate revenue in a number of ways, including:

• providing retail services like powering EV charging stations
• engaging in energy arbitrage in the electricity wholesale market, namely buying electricity when wholesale prices are low and injecting into the grid to supply electricity at times when wholesale prices are high 
• providing services to networks (for example, to help manage grid congestion)
• supplying market ancillary services in the NEM. These include services to maintain the frequency of the electricity system, manage voltage and power stability and system restart services. 

How do BTM battery systems generate revenue?

BTM battery systems are installed in residential, commercial, and industrial settings. They enable the owner to store excess energy generated on site, or to import energy from the grid when prices are lower, to consume during subsequent peak pricing periods. In this way, batteries can provide a mechanism for consumers to reduce the costs of their usage of electricity from the grid. 

Depending on the configuration of the battery system there are also options to generate revenue or reduce energy costs. For example if your battery has its own connection point to the grid, you can sell energy to a Small Generation Aggregator (SGA). SGAs are market participants that supply energy aggregated from multiple generation sources. These generation sources must be exempt from registering as a generator and are usually under 5MW each. 

Where a battery system shares a connection point, for example a house with rooftop solar all behind a single electricity meter, they can sell excess energy to their electricity retailer, or they could participate in a Virtual Power Plant (VPP). In this way, through aggregation services, BTM battery systems can provide an additional source of electricity supply to the wholesale electricity market, potentially reducing the costs of electricity for all consumers. 

The role of BTM battery systems in the energy transition

Since 2022, around 30% of detached homes in the NEM have rooftop PV, generating approximately 15GW of capacity whereby excess energy is exported back into the grid. By 2050, this figure is expected to reach 65% with 69GW of capacity, and with most systems complemented by battery energy storage.¹

As the transition continues, it will be important for Consumer Energy Resources, such as BTM battery systems to be effectively integrated into the energy system to reduce costs for all consumers. Energy Security Board analysis has found the potential benefits of harnessing flexible demand and the successful integration of Consumer Energy Resources to be around $6.3 billion in reduced system costs over the next 20 years.² Similarly, another report commissioned by AEMO highlighted the significant potential benefits from better integration of Consumer Energy Resources of up to $6.5 billion in reduced system costs by the end of 2039.³ However, it also noted that if the uptake of Consumer Energy Resources follows a lower trajectory the corresponding benefits will be lower ($2.5 billion).

The successful integration of Consumer Energy Resources provides both direct and indirect benefits to consumers. Direct benefits will include consumers using their Consumer Energy Resources to reduce their energy costs by using less power from the electricity grid at times when it is more expensive. Indirect benefits will stem from the successful integration of Consumer Energy Resources to optimise the energy system. As noted above, Consumer Energy Resources can be utilised through aggregation and new energy services, to help operate the energy system and thereby avoid higher generation, network or intervention costs. This reduces the cost for all consumers.

Who can own a battery system?

Generally anyone can own, operate or control a battery system – with or without certain authorisations depending on the size of the system – however, the electricity rules impose specific obligations on regulated electricity network businesses, including in relation to the leasing of batteries owned by these businesses.  These obligations are known as ring-fencing. The purpose of ring-fencing is to prevent regulated businesses from discriminating in favour of their related parties to disadvantage competitors operating in these markets and using revenue earned from regulated services to cross-subsidise contestable services. You can read more about ring-fencing here.

How do I connect a FTM battery system to the NEM?

Connecting a FTM battery system to the NEM is arranged through the relevant Network Service Provider (NSP) based on the location of the project. Most projects will seek to connect with a distribution NSP rather than to a transmission network. 

While connection of a battery system may not necessarily be a complex endeavour, each connection process is dependent on the requirements of the individual project and the technical specifications of connection to that unique point in the network. 

The terms and conditions for a network connection and the provision of network services are negotiated as private commercial agreements between the two parties of the agreement. The NSP is responsible for providing information to an applicant and we encourage innovators to contact the relevant NSP as early as practicable to discuss their project requirements. A list of Distribution NSPs and their contact information is published here and Transmission NSPs here.

Do I need to register a battery system with the Australian Energy Market Operator?

Generally, anyone that owns, operates, or controls a battery system with nameplate rating of 5 MW or above will need to register with AEMO. In some circumstances, an automatic or deemed exemption from this requirement may apply depending on certain factors including size of the system.

A battery that is connected to the grid is typically considered for registration purposes to be a generating unit (market generator) when it exports electricity, and as a load (market customer) when it imports from the grid. 

For anyone who wishes to participate directly in the NEM, including associated trading activities facilitated by AEMO under the National Electricity Rules (NER), registration is required in one or more participant categories. 

Registered participants are obliged to abide by requirements set out in the NER, including compliance with performance standards, maintenance and restoration requirements and operating standards to ensure the stability and safety of the national energy grid. 

AEMO produces handy guides that specify some of these requirements:

Will the registration process get any easier?

Determining which participant categories apply to your project can be complex. A new participant category – the Integrated Resource Provider (IRP) - is currently being implemented to make the process easier. 

The IRP category will provide hybrid systems and bi-directional units with a fit-for-purpose market registration category that accommodates different generation capabilities and bi-directional flows. Units with bi-directional flows are units capable of both generating energy and consuming energy.  Hybrid systems are systems in which multiple types of generation, batteries or load exist behind the same power grid connection point. 

The IRP category is being implemented as part of the Integrating Energy Storage Systems rule change. Full implementation of the rule change will commence on 3 June 2024.  In the meantime, we’ve provided some information about registering as a market customer and as a generator, which often apply to battery systems. You can read more about the rule change and new participant category on our website.

Are there any jurisdictional requirements for my battery system?

Separate to registration with AEMO, jurisdictional requirements to register as a generator or obtain a license may also apply. We encourage innovators to contact their state or territory regulator to discuss this aspect of their proposed project.