New Energy Insights: AEMC Ruling on Network Fees to Harm the Business Case for Big Batteries?

This article is part of our New Energy Insights series from our Energy, Infrastructure and Resources team. Stay tuned for regular updates and commentary on topical issues across the sector.

On 2 December, the Australian Energy Market Commission (AEMC) issued its final ruling on how network charges would apply to energy storage technologies (i.e. large scale batteries) and hybrids.

The ruling essentially confirmed that the existing framework – allowing transmission connected storage to choose between connecting under a negotiated agreement at a negotiated price or the prescribed service and corresponding prescribed transmission use of system (TUOS) charge – was appropriate.

The effect of the ruling is that by being required to pay transmission charges, there is a real risk that these storage providers will have their business case eroded as such charges will affect the profitability between the price they pay for power (when charging) and how much they can sell it for (when pumping).

While the Australian Energy Market Operator (AEMO) has advocated for exempting energy storage technologies from network charges, the AEMC ultimately did not consider that this would support the National Energy Objective (NEO) as it argued that exemptions would distort price signals.

Reactions from industry stakeholders including storage providers have been largely negative, the main criticism being that increased network fees will reduce the economic viability of renewable projects and counteract any potential revenue gains from these technologies stood to gain in the market, including from the recent shift to 5 Minute-Settlement (5MS). The knock-on effect will be to potentially present a barrier to decarbonisation especially considering that coal and gas generators do not face network charges.

The AEMC has left the door open to future reforms, noting that existing frameworks for network charges were not designed for dynamic loads such as storage.

We will be closely monitoring the impacts of this ruling and the actions our clients will need to consider for their renewable generation businesses.

The Hamilton Locke team advises across the energy project life cycle – from project development, grid connection, financing, and construction, including the buying and selling of development and operating projects. For more information, please contact Matt Baumgurtel.