An illustration of a building and large battery

Community Batteries

This hypothetical case study will be particularly relevant to battery operators, battery providers, community groups, local governments, private investors and other innovators looking for opportunities in this space.

Community-scale batteries are energy storage systems connected at the distribution level which allow, among other things, households that generate their own solar power to store their excess electricity in shared storage for later use. These energy storage systems typically have power capacities of 100kW up to 5MW1 and are used to provide energy storage solutions that deliver benefits to customers, networks and the market more broadly. 

There are several types of community-scale battery installations. In the National Electricity Market (NEM), the most common form is the  ‘in-front-of-the-meter ’ system where the battery is connected to the grid through its own connection point. There are also 'behind-the-meter ' systems which are connected behind a customer’s existing connection point and are generally co-located with load and other distributed energy resources (DER). This case study considers grid connected in-front-of-the-meter community-scale battery systems. The case study on virtual power plants (VPPs) considers aggregated behind-the-meter batteries.

Community-scale batteries may be owned by the local distributor or a third party, including a local council, community group, retailer or other third party.  They could be operated as virtual storage for a community, or for-profit to benefit either a community (if profits flow back to the community) or the battery owner/operator.

Given that community-scale batteries are assets connected to the national electricity system, they fall under the regulatory frameworks governing the National Electricity Market (NEM) – that is, the National Electricity Law (NEL) and National Electricity Rules (NER), and the National Energy Retail Law (NERL) and National Energy Retail Rules (NERR). They are also regulated by jurisdictional energy laws in some states and territories.

Businesses that own, operate or control community batteries and/or who are responsible for the energy services provided by a community battery , will need to have regard to the national energy frameworks, when entering the market.  This includes requirements related to registration and participation in the wholesale and retail markets, network connections and planning, economic regulation of networks, metering arrangements and system security obligations. These parties may also be required to comply with various jurisdictional energy rules and regulations, including licensing schemes, depending on the state or territory in which the battery is located, the technical characteristics and the business model.  They may also be required to comply with Australian Energy Market Operator (AEMO) registration requirements and procedures  and Australian Energy Regulator (AER) authorisation or exemption requirements.

To help identify and unpack some of the key regulatory issues that a community-scale battery Proponent may encounter when navigating the national, as well as relevant state or territory based, regulations, this case study explores a scenario focused on a community-scale battery located in-front-of-the-meter and which provides for peer-to-peer trading where the project is led by a person who is not an existing electricity retailer or distributor.

For this scenario, the following information is provided:

  • a high-level overview of a hypothetical project including the project goals, project facts and ownership and service delivery models
  • relevant authorisation, registration and licence requirements applicable to the hypothetical business model
  • key energy specific regulatory obligations applicable to the hypothetical business model, and
  • potential challenges the hypothetical Proponent may need to navigate when developing this business model.

The Use Cases on this website (‘Material’), are made available for use on the following basis:

  • Purpose: The Material is provided for general information only. It is designed to assist you to gain a basic understanding of the subject matter and is not intended to be comprehensive. You are not permitted to commercialise it or any information contained in it. The Material is not and should not be regarded as legal, business or other professional advice. It should not be relied on and is not a substitute for obtaining independent legal, business or other professional advice relevant to your particular circumstances.
  • Currency: The Material is based on publicly available information as at the date of its preparation. The Material is current as at 3 December 2021.
  • Scope: The Material only covers energy market regulatory obligations that are administered by the Australian Energy Regulator (AER), the Australian Energy Market Operator or the relevant state or territory energy regulator. It does not cover other obligations that may apply, such as safety obligations, general consumer law obligations or obligations under the financial services regulatory framework. It also does not cover associated technical matters such as compliance with Australian standards or connection requirements.
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Scenario : Community battery with peer-to-peer  trading

Project overview

An environmentally conscious and socially engaged community in regional New South Wales intends to establish a shared community battery .  The community has a population of 5,000 people and of the 2,000 households in the area, around 40 per cent have solar panels installed on their rooftops.

Rather than invest in individual household batteries, members of the community expressed an interest in exploring opportunities to store their excess electricity in a community battery, for use by them and others in the community who are not currently able to install solar themselves.

With support from the local council, a local energy co-operative (the Proponent) has been established to lead the project. The Proponent has raised funds from the community to invest in the project and dividends will be returned to those investors based on a proportion of the profits from the various services offered by the battery. The project has also received financial support from various State and Commonwealth Funds.

In addition to the storage and shared (peer-to-peer trading ) services that will be offered to customers of the battery, the battery will also be enabled to provide network support services to the local distributor, and energy and ancillary services to the wholesale market, as a means of providing an additional revenue stream to the community investors and helping support the broader energy system.

The local council has provided a plot of land on the edge of town, enabling the battery to be installed in close proximity to customers.

Project goals

The community battery project seeks to:

  • strengthen social connections within the community through ownership of a shared asset
  • deliver savings on energy bills for households and businesses within the community
  • help the community play its part in reducing emissions through enabling greater renewable penetration in the local distribution system, and
  • through sharing locally generated renewable energy, help the community play its part in addressing inequity of access to distributed energy resources .
Project facts 
Community battery with peer-to-peer trading
Location Regional New South Wales
Population 5,000 people (2,000 households)
Solar PV penetration 40 per cent (800 households)
Proponent A local energy co-operative
Community battery specifications 2MW (4MWh)

Ownership and service delivery 

The community battery would be owned by the Proponent.  However, recognising that it does not have the expertise necessary to manage the storage asset, the Proponent would contract with a local renewable energy provider to operate and control the asset. 

The local energy provider is already an authorised retailer and has an established partnership with an innovative IT provider with the capability to develop the energy sharing and trading platform.

Partnering with an authorised retailer avoids the Proponent needing to obtain all the authorisations and registrations that it would otherwise need to obtain to offer services using the battery, including an energy retailer authorisation from the Australian Energy Regulator (AER) and registrations from the Australian Energy Market Operator (AEMO) as a Customer, Generator or Market Small Generation Aggregator . The authorised retailer can be responsible for those authorisations and registrations, complying with the related regulatory obligations including consumer protections, and billing customers. It will also have the necessary information and communication technology infrastructure already in place.  

Customers wishing to utilise the community battery to store and/or consume locally generated electricity would need to become a customer of the partnered authorised retailer for all the electricity supply at their premises.

There are a several services that would be provided by the community battery :

  • services provided to the customer:
    • virtual storage service (use of the battery to store locally generated electricity for later use by the community)
    • virtual sharing service (peer-to-peer trading of locally generated electricity within the community)
  • services provided to the network:
    • network support service (for example, peak demand reduction, minimum demand smoothing and voltage management)
  • services provided to the market:
    • market generation service (export of locally generated electricity for sale in the wholesale market)
    • market ancillary services (export or import of locally generated electricity for sale in ancillary services markets, for example, frequency control services)

To coordinate the provision of the various services, the Proponent would outsource the provision of these services to the local energy provider (in addition to battery operation). The local energy provider could then choose to provide the services itself, or to enter contracts with other parties for the provision of these services, where it is efficient to do so.

The Proponent or local energy provider would need to negotiate a contract with the local distributor for the provision of network support services from the battery if it wished to be remunerated for providing such services.

Overview of authorisation, registration and licensing requirements

For the purposes of this case study, the local energy provider is already an authorised retailer .  Provision of the retail service by the local energy provider will avoid the need for the Proponent to seek retail authorisation from the Australian Energy Regulator (AER) itself and to establish all the necessary systems (including billing systems) to support that function. The local energy provider, as the authorised retailer, must comply with the relevant provisions of the National Energy Retail Law , National Electricity Rules , and AER Retailer Authorisation Guidelines. Under these instruments, it has obligations in relation to the supply of energy to customers, in particular where they supply energy to small customers. These obligations include requirements related to customer connections, consumer protections (including billing, payments, pricing, customer complaints and dispute resolution) and the terms of retail contracts with customers.

The community battery is less than 5MW and therefore exempt from requirement to register with Australian Energy Market Operator (AEMO) as a Generator .  However, to be able to participate in the wholesale electricity market and ancillary service markets, the battery would need to be classified as a ‘market generating unit’ or a ‘market load’ by a party who is a Registered Participant for that purpose. There are several options:

  • To participate in the wholesale electricity market, a party responsible for the battery will need to be or register as a Market Small Generator Aggregator.2
  • To participate in the ancillary services markets, a party responsible for the battery will need to be or register as a Market Customer or Demand Response Service Provider .3

Importantly, only one entity can be the financially responsible market participant for a connection point. For the purposes of this case study:

  • the local energy provider, as an authorised retailer , would already be registered as a Market Customer with AEMO, and so will be able to provide ancillary services to the market by classifying the battery as a market load, and
  • the local energy provider would need to register as a Market Small Generator Aggregator and classify the battery as a market generating unit to participate in the wholesale electricity market.

The Proponent will need to pay a fee to register with AEMO as a Small Generator Aggregator.4 The processes and requirements for registration is set out on AEMO’s website.5

There are no applicable licensing requirements in New South Wales.

Other energy specific regulatory obligations

In addition to the regulatory obligations that flow from the various registration, authorisation and jurisdictional licensing requirements, the Proponent will also need to be aware of other energy specific regulatory obligations related to of the national and (relevant) jurisdictional energy frameworks. For example:

To provide market ancillary services , the community battery would need to meet Australian Energy Market Operator ’s (AEMO) requirements for the Market Ancillary Service Specification (MASS) and participate in central dispatch, which would require telemetry and sophisticated equipment for the battery. This is required by Chapter 3 of the National Electricity Rules (NER) and is subject to civil penalty provisions.

Connection of a community battery to a local distribution network will require a connection agreement between the battery owner/operator and the local distribution business. These agreements set out the obligations of the distribution business in respect of the provision of customer connection services to the connection point. They also set out various obligations on the customer (in this case, the battery owner/operator) including in relation to information provision and safety. 

The Electricity (Consumer Safety) Act 2004 (NSW) sets out a detailed safety regime for electrical articles and electrical installations, including approval procedures and quality standards. The Service and Installation Rules6 of NSW are also relevant to the connection of batteries to the system. 

Potential challenges for this hypothetical proponent and their business model

The above discussion frames the breadth of regulatory obligations that the Proponent could face for the hypothetical project considered in this scenario.

In this context, there are a series of threshold questions that a proponent considering this, or a similar, business model may wish to consider in the early stages of their project.

The price the community battery pays the local distributor can affect both its profitability and how it is used at different times. Recent and proposed changes to the National Electricity Rules  7 for integrating storage and distributed energy resources (DER) into the National Electricity Market (NEM) mean the local distributor can in the future charge both transmission and distribution network use of system costs for a participant's gross consumed and sent out energy over relevant intervals. This means both the community battery and its customers may need to pay network costs as energy leaves a customer, enters the battery, exits the battery and arrives back at a customer. The distributor’s tariff structures and levels, including the time of day and form of its charges (that is, energy kWh or maximum import or export demand) may need to be considered in the Proponent’s commercial analysis (e.g. customer pricing, customer demand and battery asset payback period). There is no regulatory mechanism for exemption from network tariffs. In limited circumstances the local distributor is:

  1. permitted to develop a bespoke tariff offering or ‘individually calculated tariff’ but this would still require Australian Energy Regulator (AER) approval in its annual tariff proposal
  2. able to implement trial tariffs (which some distributors are presently exploring for community batteries), however these are likely to have a maximum period of up to 5 years before the distributor would need to seek AER approval.

As noted above, there is no regulation compelling the local distributor to procure network support services from community batteries. Whether a distributor is willing to enter such a contract and the amount it is willing to pay for services will depend on a range of factors including whether the local distribution network is facing capacity constraints at times of peak demand and/or voltage issues at times of peak export from solar systems. The local distributor may be required to calculate and pay avoided transmission use for system payments to the battery where its exports lessen peak demand at the nearest transmission network connection point. These income driving factors may change over time and may need to be considered in the Proponent’s commercial analysis.

Community batteries will require a suite of technological capabilities, irrespective of the business model employed. These are likely to include advanced metering, integration, telemetry, and control capabilities. These sophisticated technological capabilities will need to be carefully coordinated by the community battery operator to ensure the provision of services is balanced between stakeholders, while enabling the market and non-market services to be sufficiently monetised to ensure financial viability of the battery.

If the Proponent is not already a retailer, participation in markets requires registration, potentially in multiple participant categories, with Australian Energy Market Operator (AEMO). Alternatively, it requires the Proponent to establish multiple service contracts with other parties already registered with AEMO in the relevant registration categories. The Australian Energy Market Commission (AEMC) is currently undertaking a comprehensive review of the electricity rules to make it easier for energy storage systems and hybrid facilities, including community batteries, to register and participate in the national electricity market . Among other things, the final rule is expected to enable community batteries to deliver a range of services to customers without having to register in multiple categories. A final rule is expected to commence from 2023. 

Additional information

Ongoing reforms and policy developments

Other information

1Final report for the ARENA-funded Community Models for Deploying and Operating DER project, carried out by the Battery Storage and Grid Integration Program, December 2020, p. 11.

2Currently, small batteries are treated as small generating units by AEMO and therefore can be aggregated by SGA’s.  See: AEMO, Guide to Generator Exemptions and Classification of Generating Units, January 2020, pp. 7-8.

3SGAs cannot participate in ancillary services markets.

4Registration fees are set out in AEMO’s electricity market fees schedule. See: https://aemo.com.au/about/corporate-governance/energy-market-fees-and-c…

5See: https://aemo.com.au/en/energy-systems/electricity/national-electricity-…

6The Service and Installation Rules for New South Wales cover the requirements for the connection of electrical installations to the distribution network .

7See the Australian Energy Market Commission ’s (AEMC) August 2021 rule determination for Access, pricing and incentive arrangements and the AEMC draft rule on the AEMO rule change for integrating storage into the NEM.