When is a battery a community battery?

Community batteries are gaining traction. 2021 saw a plethora of initiatives, demonstrations and funding across Australia’s energy sector. Ausgrid installed and is trialling “the first of many” community batteries on Sydney network. The Victorian Government announced $3.68 million in grants to local community groups, councils and industry through the Neighbourhood Battery Initiative. United Energy announced Australia’s largest roll-out of distribution-connected batteries across Melbourne’s East, South-East and Mornington Peninsula.

These initiatives recognise the variety of roles that small to medium-scale, distribution-connected batteries can play in Australia’s energy system, including:

  • as a ‘solar soaker’, charging during times of high PV export and helping to address minimum demand challenges;
  • providing network services to support distribution networks manage voltage; and
  • as flexible capacity underpinning distributed energy resources participation in markets, including new Wholesale Demand Response markets as well as Frequency Control Ancillary Services (FCAS) markets.

While the technological question of how battery technology can play a pivotal role in our transitioning energy system is increasingly being answered, a social licence question arises: when is a battery a community battery?

Providing value to the community

While there is no common definition of ‘community battery’, for a battery to be considered a ‘community battery’ it seems reasonable that there must be some sharing of the value created by the battery with members of a community. The value could be shared from the battery to specific, contributing community members – or to all community members.

The concept appears simple: consumers can jointly use a battery in their local area to store excess PV exported during the day (when the consumers don’t need the energy, and prices are low), and then access that stored energy in the evening (when they do need it – and prices are high).

Within the retail, wholesale and network arrangements that underpin the National Electricity Market (NEM), however, there is an immediate challenge: all energy to and from a customer’s connection point is accounted for by the customer’s retailer and settled on the wholesale energy market. Customers pay retail and network charges and may also receive feed-in-tariffs from their retailer – all calculated with reference to the energy consumed or exported at the customer’s connection point. If a battery is connected in a local area, it is separately metered and settled. There is no local sharing of the energy stored in the battery, and no ability to separately account for the energy for the purposes of separate (lower) network use charges.

Value allocation approach

How, in a national market with regionally determined prices and wholesale market settlement, can consumers share in the value of a local battery?

This is a key question in designing a trial of community battery services to seek to enable customers with PV to share in the value of a local community battery. KPMG has considered this issue to assess the potential options for measuring and settling a community storage service between customers and a community battery (and their retailer / battery operator) and to recommend an approach which could underpin a future community storage service.

Value can be shared from the battery to community members via a simple allocation of value between a community battery and the consumers based on agreed rules. This approach is both off-market as it is outside the wholesale market mechanism, and is dynamic as the rules based approach can permit different arrangements at different times of the day.

For the purposes of a trial, the allocation mechanism could be agreed to by participating retailers and networks, as well as the consumer. The rule book concept can be used to test a variety of possible value sharing and value creation arrangements which could evolve over time.

From a network’s perspective, recognising local flows would reflect the fact that transporting electricity a shorter distance is fundamentally more efficient. The allocation mechanism, firstly, improves management of local hosting capacity of the network and, secondly, improves efficiency by encouraging investment in lower cost solutions.

From a retailer’s perspective, the allocation mechanism facilitates a new approach to recognising the export value from a customer’s connected PV and marks an evolution in retail models supporting a bidirectional energy market. A retail approach which marks a departure from inefficient feed-in-tariffs (which increasingly exceed the value of the energy exported), while continuing to recognise the value of export for customers with PV, is likely to be attractive to many retailers.

From a customer perspective, the allocation mechanism allows customers to enjoy the value of their ‘stored’ PV export at the time they need it. It will be important for the retail and contractual arrangements that underpin the allocation mechanism to be capable of simple explanation and transparent pricing.

In future, the approach could also allow sharing of any excess PV from one consumer to another within its community – on a peer to peer or local market basis. The approach could also be tailored to allow customers without PV to share in the benefit of local batteries.

Focusing on sharing benefits of distribution-connected batteries with local consumers enables networks, retailers and battery operators to unlock new value in these assets. In doing so, the rule book allocation approach supports the future viability of commercial community battery models while sharing value with the customers driving the transition in Australia’s energy system.

Additional author. Eamonn Corrigan

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