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
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
Businesses that own, operate or control community batteries and/or who are responsible for the energy services provided by a community battery
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
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
An environmentally conscious and socially engaged community in regional New South Wales intends to establish a shared community battery
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
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.
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
Distributed Energy Resources (DER) are assets and resources that connect to the network from behind a customer’s meter (ie.: are located at the customer’s premises). They can be: small/medium scale generation assets such as solar photovoltaic (PV) or hydrogen fuel cells; energy storage that can store and deliver energy such as batteries or electric vehicles; or controllable loads that have flexibility and controllability in the times they can operate such as pool pumps or hot water units. Common examples of DER include rooftop solar PV units, battery storage, electric vehicles and chargers, and home energy management technologies..
Community batteries (also called 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 5MW and can be used to provide energy storage solutions that deliver benefits to customers, networks and the market more broadly.with peer-to-peer trading
|Location||Regional New South Wales|
|Population||5,000 people (2,000 households)|
Solar panels capture the energy of sunlight which is converted into electricity. This is known as a photovoltaic system, usually called 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
The local energy provider is already an authorised retailer
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
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
Peer-to-peer trading is the direct buying and selling of energy between two or more grid-connected parties.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
Services that are essential to the management of power system security, facilitate orderly trading in electricity and ensure that electricity supplies are of acceptable quality. These services are managed by the Australian Energy Market Operator (AEMO) to maintain standards for frequency, voltage, network loading, and system restart processes.(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
The community battery
- 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
Services that are essential to the management of power system security, facilitate orderly trading in electricity and ensure that electricity supplies are of acceptable quality. These services are managed by the Australian Energy Market Operator (AEMO) to maintain standards for frequency, voltage, network loading, and system restart processes.markets, a party responsible for the battery will need to be or register as a Market CustomerA market customer is a registered participant within the National Electricity Market (NEM) that purchases electricity supplied through a transmission or distribution system to a connection point. Retailers and end users who buy electricity in the spot market must be registered with the Australian Energy Market Operator (AEMO) as market customers.or Demand Response Service ProviderA Demand Response Service Provider (DRSP) delivers market ancillary services and wholesale demand response services. A DRSP is a registered participant category within the National Electricity Market (NEM), administered by the Australian Energy Market Operator (AEMO)..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
Under the National Energy Retail Law (NERL), a person must hold a retailer authorisation (unless exempt from the requirement) prior to engaging in the retail sale of energy (electricity or gas). A retailer is generally a person (ie: a company) that engages in the activity of selling energy to customers for premises (see s.88 of the NERL for further information about selling of energy). The Australian Energy Regulator (AER) administers retailer authorisations., 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 Generation Aggregator
A Small Generation Aggregator (SGA) is a person registered with the Australian Energy Market Operator (AEMO) to supply electricity aggregated from one or more small generating units, which are connected to a distribution or transmission network. A small generating unit is owned, controlled and/or operated by a person who AEMO has exempted from the requirement to register as a Generator.and classify the battery as a market generating unit to participate in the wholesale electricity market. As of 31 March 2023, Market Small Generation Aggregators may be eligible to provide some market ancillary services.
The Proponent will need to pay a fee to register with AEMO as a Small Generation 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
Connection of a community battery
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
- permitted to develop a bespoke tariff offering or ‘individually calculated tariff’ but this would still require Australian Energy Regulator
The Australian Energy Regulator (AER) regulates electricity networks and covered gas pipelines in all jurisdictions except Western Australia. The AER sets the amount of revenue that network businesses can recover from customers for using these networks. The AER also enforces the laws for the National Electricity Market (NEM) and spot gas markets in southern and eastern Australia, as well as monitoring and reporting on the conduct of market participants and the effectiveness of competition.(AER) approval in its annual tariff proposal
- 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
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
If the Proponent is not already a retailer, participation in markets requires registration, potentially in multiple participant categories, with Australian Energy Market Operator
Ongoing reforms and policy developments
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
3As of 31 March 2023, an SGA may be eligible to provide some market ancillary services
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…
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
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