Challenges in Unlocking the Full Value of Batteries in the NEM

Utility-scale batteries have become increasingly central to Australia’s National Electricity Market (NEM) and electricity grids worldwide. However, despite their potential, many of the batteries are not yet realising their full value.

A recent paper authored by our CEO, Sahand Karimi, sheds light on the operational challenges that limit the revenue potential of batteries in the NEM. This blog post distils key insights from that research, highlighting the significant unrealised opportunities in battery operations, and explores ways to overcome these issues.

Why Battery Operations are Unique

Operating batteries on the electricity grid is uniquely challenging compared to traditional generation sources. For instance:

• While gas and coal plants have extensive fuel reserves, and wind and solar depend on natural elements, batteries are “fuel-limited”, storing only 1-4 hours of energy at full capacity. This means their revenue is highly sensitive to precisely when they are charged and discharged, hence short-term fluctuations in electricity prices.
• Unlike traditional plants, batteries must acquire their fuel (i.e., electricity) in real time from the volatile 5-minute electricity market.
• Batteries also participate in multiple markets simultaneously, including the energy and ancillary services markets, and offer network support services. Engaging in one market can limit the battery’s ability to generate revenue in others and has specific impacts on its cycling and degradation.

These factors coupled with their operational constraints increase the complexity of managing batteries compared to other energy assets, making sophisticated optimisation tools crucial for their efficient operation.

Modelling the Potential: What Could Batteries Achieve?

The research by Sahand and collaborators from the University of Adelaide and CSIRO demonstrates that a large portion of potential revenue is being missed by utility-scale batteries due to suboptimal dispatch strategies. It shows that up to half of the potential energy arbitrage revenue is not being realised.

Using advanced modelling techniques, the research compared actual battery revenue in the NEM with what they could theoretically achieve under perfect market information. Importantly, this involved considering the physical and operational characteristics of batteries, such as their state of charge limits, round-trip efficiency, self-discharge current and the amount of battery capacity used in the market. These were derived by an algorithm that uses AEMO’s 4-second SCADA data, recording the operational output of the batteries, and validated against the self-reported state of charge from some batteries.

Figure 1 Example of operational characteristics derived from 4-second SCADA data

Considering these operational characteristics and other technical and regulatory constraints, a Mixed-Integer Linear Programming (MILP) model (a mathematical optimisation technique) was used to simulate what these batteries could achieve with optimal bids under the same operational constraints over a 6-month period.

Figure 2 Comparing actual revenue to perfect information revenue of batteries over a 6-month period

The results highlight the potential for revenue improvement if dispatch decisions were optimised. While most of the frequency control ancillary services (FCAS) revenue were realised, there was a large gap between actual and maximum potential energy revenue. Operators only captured 40-60% of potential revenue in the energy spot market. With FCAS revenues decreasing over as new batteries come online, revenue from the volatile and harder-to-predict spot energy market will become increasingly important.

Figure 3 Monthly breakdown comparing actual revenue to perfect information revenue for four batteries over a 6-month period

Insights Into Potential Improvements

The study also emphasises the critical role of price forecasting. As price forecasts improve, so do battery revenue outcomes. Current pre-dispatch price signals from AEMO sometimes fail to capture the real-time volatility of the market, leading to missed revenue opportunities, especially during the days with many price spikes. A sensitivity analysis conducted on the Lake Bonney battery shows that relying solely on pre-dispatch prices can result in substantial financial losses compared to more accurate price forecasts.

To address this, advanced price forecasting and optimisation tools are essential. These technologies would allow operators to make better-informed decisions about when to charge and discharge their batteries, maximising their revenue potential.

Why This Matters Beyond Revenue

While improved battery optimisation directly benefits operators, the broader impact on the electricity grid and the energy transition is equally important. Batteries are often described as the “Swiss Army knife” of the grid due to their versatility. When operated efficiently, they provide services that stabilise the grid, facilitate the integration of renewable energy, and defer costly infrastructure investments. These theoretical outcomes can only become reality with sophisticated operations and optimisation technologies.

Better battery scheduling can also accelerate the energy transition by enabling more dispatchable power, which in turn encourages more variable renewable generators such as wind and solar to enter the grid.

And finally, with many new batteries supported by government underwriting through the Capacity Investment Scheme, the efficient operations of these batteries will reduce the financial risk of these underwriting schemes.

The Path Forward

As the research by Sahand makes clear, there is enormous potential to increase battery revenue through better optimisation, price forecasting, and operational modelling. These improvements are essential not only for battery operators to capture the full value of their assets but also for ensuring the efficiency of the broader grid as renewable energy takes on a larger role.

Moving forward, industry stakeholders must invest in the right tools and technologies to unlock the full potential of grid-connected batteries. Doing so will not only maximise financial returns on battery projects but will also contribute to a more reliable and sustainable energy grid for Australia.

The full study is publicly accessible here.

If you’d like to learn more about how advanced optimisation and price forecasting can unlock the full revenue potential of your batteries, we’d love to chat. Reach out to us at hello@optigrid.energy or connect with us on LinkedIn.