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The real reason our power companies block battery systems

If you're wondering why battery storage is still on the fringe of the energy debate in Australia, and why power prices are high, just ask Dr Tony Marxsen, the head of the Australian Energy Market Operator (AEMO).

He made it plain earlier this week the big power companies have invested hundreds of millions of dollars on quick start power stations, so-called "gas peakers" and they aren't going to be giving up their sway over the market any time soon: they want to make sure they get a return on their money.

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Richard Turner, the founder of Zen Energy, a renewable energy outfit, asked Marxsen on Tuesday when the electricity market would shorten to five minutes from the present 30 minutes the settlement period. Sound technical? Sure, but that change would see a rapid rollout of battery storage with the potential to bring down power prices.

At the heart of the electricity market is a 30-minute settlement period. Power generators bid to supply electricity in five-minute blocks but the price they receive is averaged out over 30 minutes. Pressure is building for change, but the power generators don't want to budge since the status quo gives the coal and gas generators a return over a longer period, while batteries which can be turned on, and off, quickly, are penalised.

"The fundamental challenge is it will affect adversely the business model of investors in gas peaking plants," AEMO's Marxsen said of any change. "They've entered into contracts based on existing arrangements therefore there is the need for transition.

"A five-minute [interval] is the long term future of Australian energy but it is a matter of transition – in a matter of years."

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The trouble is Australia's thermal power generators are a powerful oligopoly and have been lobbying hard to keep storage out and to prevent the market operator from changing the rules. The overseer of the energy market, the Australian Energy Market Commission has just extended for the second time, now until mid-year, a review into the vexed issue.

"Transition can be painful," Grattan Institute's energy program head Tony Wood said of the roadblocks to changing the competitive landscape. "The losers will shout louder than the winners will."

But the way Zen Energy's Turner sees it the lack of access to the electricity market is forcing some states, like South Australia, to put $150 million on the table to back battery storage. He expects Victoria to follow suit with the closure this week of the giant Hazelwood power station.

"Governments are putting money on the table ... to substitute for what should be available on the grid," he said. "The rules have to change quickly."

"Last Wednesday in Adelaide, we had four 30-minute periods when in the first five minutes the wholesale electricity price hit $14,000 a megawatt hour. When those events happen, the big generators power up to meet that demand. Even if the price is negative in the final few minutes of that 30-minute window, the generators receive the average price for that 30 -minute period of, say, $2500.

"Is that market manipulation? Maybe, but they get away with it. If there was five-minute pricing, the battery would come in, grab that demand and eliminate that pricing event. Batteries just help make the system more stable rather than wait for generators to fire up and get going. Even after averaging the price out over 30 minutes they're making a ridiculous amount of money, protecting their investment – and preventing the introduction of new technology."

Chaired by Ross Garnaut, who headed up the federal government's climate change review, Zen has teamed up with Santos to use gas as a back-up for renewables. It is also working up plans for solar farms as it evolves towards becoming a power utility.

"What people don't understand about renewables is the need for diversity of sources. You can't just have wind," he says. You also need solar for when the wind doesn't blow and batteries to help smooth the energy flows to meet demand."

So removing the half-hour ­average settlement rule and allowing payment in five-minute blocks would tilt the playing field towards batteries, which store output from wind and solar systems, and save energy users money.

The road blocks slowing the penetration of renewables in the energy sector comes as the Commonwealth Bank has raised $650 million through an issue of five-year green bonds, carrying an interest rate of 3.25 per cent on the fixed rate portion of the raising and 2.715 per cent on the floating rate portion of the raising. The funds are to be invested in renewable energy and low carbon assets.

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