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Presentation of Victoria Battery Energy Storage Station in Geely, Australia. Image: Neoen



Australian energy retailer Origin Energy plans to build a 700MW battery storage system on the site of a coal-fired power plant, which has advanced its planned retirement date by seven years.



As the competitiveness of solar, wind, and energy storage in the National Electricity Market (NEM) surpasses fossil fuels, the economy of operating coal-fired power generation is rapidly declining. The company plans to completely exit the coal industry (New South Wales) after the retirement of its 2880 MW Erasing coal-fired power plant in New South Wales.



Origin Energy has submitted a notice to the Australian Energy Market Operator (AEMO), hoping to close Erasing before August 2025 instead of the original plan of 2032. The company notified three and a half years in advance that the program had been initiated.



Frank Calabria, CEO of Origin, stated that the exit of coal-fired power generation reflects "a sustained and rapid transition in our national electricity market (NEM) towards cleaner energy.".



"The Australian energy market today is completely different from the market when Erasing was launched in the early 1980s. The reality is that the economy of coal-fired power plants is facing increasing and unsustainable pressure due to competition for clean energy and low-cost power generation, including solar, wind, and battery storage." Frank Calabria said.



As renewable energy and batteries become more competitive, wholesale energy pricing is being influenced by the growth of wind and solar energy. This may make Origin's energy costs more economical through a combination of renewable energy, battery storage, and peak power plants.



Battery Energy Storage System (BESS) assets are increasingly generating revenue in the National Electricity Market (NEM) through various channels. According to AEMO's market data, it is estimated that battery energy storage earned AUD 14 million (USD 10.08 million) in the fourth quarter of 2021 by providing Frequency Control Assistance Services (FCAS), an increase of AUD 4 million compared to the same period last year. This is equivalent to about 68% of the total revenue of battery storage NEM.




In the wholesale market, battery energy storage and natural gas and liquid fuel power generation are required to cope with the rapid changes in net supply demand, in order to cope with a series of factors leading to intensified spot price fluctuations.



At some point in mid November 2021, large-scale wind and solar energy, hydropower, biomass energy, distributed photovoltaics, and battery storage and discharge accounted for 61.8% of the total electricity generation in the National Electricity Market (NEM), reaching a historic high.



Using the AEMO report as a reference for future events, the energy arbitrage value of battery storage has also driven an increase in net revenue in the South Australian energy market. In that state, the energy arbitrage value of battery storage jumped from AUD 39/MWh in the fourth quarter of 2020 to AUD 138/MWh in the fourth quarter of 2021.



The 300MW/450MWh Victorian Big Battery was also launched in Victoria last year, generating a total revenue of AUD 1.3 million from Frequency Control Assistance Services (FCAS) and energy markets in the fourth quarter of 2021 alone, and benefiting from service contracts to protect the state's network from interruptions, known as the System Integrity Protection Scheme (SIPS).

Origin Energy states that another factor that weakens the competitiveness of coal is that battery energy storage can respond more quickly to signals from the grid to provide electricity, which coal cannot achieve.



Last October, AEMO introduced Five Minute Settlement (5MS) into NEM, which calculates energy and cap prices based on five minutes, instead of calculating every 30 minutes as before.



Although it is still too early to draw conclusions about the impact of 5MS, many people believe that it will be a huge blessing for batteries. AEMO stated that in the fourth quarter of 2021, after high scheduling intervals, it had stopped scheduling prices falling to the lower limit of - AUD 1000/MWh.



Prior to the launch of 5MS, this had become a norm as generator sets were incentivized economically at a settlement load of 30 minutes and bid again every 30 minutes after price spikes.



The revenue of the battery system in South Australia under 5MS is AUD 400000 higher than under the 30 minute system.



Looking ahead, AEMO has recently introduced new regulations to encourage investment in battery energy storage and is preparing to launch a fast frequency response auxiliary service market, which once again benefits the almost instantaneous response time of batteries.



The initial retirement date for Origin Energy in 2032 is based on the expected end of the factory's technical life. The company stated that early shutdown of coal-fired power generation will help it eliminate a significant portion of its greenhouse gas (GHG) emissions, which is in line with Origin's commitment to maintain consistency with the 1.5 ° C path of the multilateral Paris Agreement.



The company initially announced a cost of AUD 240 million to close Erasing, and has stated that it will now make modifications based on the new proposal. The expected 700 megawatt battery energy storage assets may be constructed in stages and put into operation long before the coal-fired power plant ultimately shuts down its four generating units.



The CEO stated that the influx of renewable energy has "changed the nature of the demand for basic electricity".

Frank Calabria stated that Origin's decision was made after careful consideration, including "extensive consultation" with the government of New South Wales. This includes evaluating how retail investments meet the goals of the state government's electricity infrastructure roadmap.



This roadmap may guide the company's investment in renewable energy and energy storage, including the possibility of expanding its pumped storage (PHES) facility in Shoalhaven.



In the past few weeks, there have been media reports that the New South Wales government plans to create a large renewable energy zone (REZ) in the state, and clean energy developers have proposed several tens of gigawatts, including wind, solar, battery storage, and pumped storage.



In the Australian energy transition industry, the next agenda after coal may be to demonstrate that energy storage can effectively provide peak capacity to replace natural gas peak power plants.



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