The Victorian Big Battery

How big is the battery?

The 300 megawatt/450-megawatt hour battery will be the largest lithium-ion battery in the Australia. It will be around twice the size of the 150 MW / 194 MWh Hornsdale Power Reserve in South Australia.

When will the battery be operational?

The battery is contracted to begin operating by 1 November 2021.

How will the battery work for Victoria?

To reduce the chances of unscheduled power outages over the peak summer months, the Victorian Big Battery will reserve 80% of its capacity to increase the power flow through the Victoria-New South Wales Interconnector by up to 250 MW

This service is known as the System Integrity Protection Scheme (SIPS).

During the summer months (1 November and 31 March), 250 MW of the battery will be reserved to provide the SIPS service.

The remaining 50 MW can be deployed in the market by the operator on a commercial basis. This will help lower electricity bills and smooth out renewable generation. Outside of summer, the full 300 MW battery will operate on a commercial basis.

Why is the SIPS needed?

Climate change is leading to longer, hotter summers, with more days of extreme heat causing increased peak demands. At the same time, Victoria’s ageing coal-fired generators are increasingly unreliable and the failure of a large coal generator during the summer peak can lead to unscheduled load shedding. To avoid this, we need to modernise the grid and secure additional capacity to meet the state’s reliability and security needs.

What are the benefits of the SIPS?

The SIPS delivers up to 250 MW of additional reliable electricity supply to Victoria by increasing the import limit of the Victoria New South Wales Interconnector (VNI) when we need it most. This reduces the likelihood of blackouts and the need for costly market interventions by the Australian Energy Market Operator (AEMO).

The SIPS brings forward investment in Australia’s largest battery and will create over 80 regional jobs. The battery will also help reduce wholesale prices and balance renewables by storing renewable energy when it is plentiful and discharging it when it is needed.

How will the battery help AEMO manage any faults on the VNI?

In the event of a network contingency event (e.g. a transmission line trip), AEMO has 15 minutes to secure the system and prevent overloading VNI, potentially avoiding large-scale blackouts. The battery could be discharged (at 250 MW for 30 minutes), keeping the system stable while AEMO reroutes energy flows or arranges a new contingency plan.

How will the battery contribute to renewable energy deployment?

Victoria has a legislated net-zero emissions target by 2050 and 50% renewable energy target by 2030. Increased interconnections and energy storage technologies, such as batteries, support variable renewable energy and will help unlock the full potential of Victoria’s world-class wind and solar resources. The ‘Victorian Big Battery’ will contribute to both roles.

When operating as part of the SIPS during the summer months, the battery provides increased transmission capacity, which helps balance geographical variability in wind and solar resources in NSW and Victoria.

When not part of the SIPS, the battery will charge when renewable energy is cheap and plentiful during the day and discharge when the power is needed.

How long can the battery provide power for?

Long-duration energy storage technologies will play an increasingly important role in our electricity system as we switch from coal-fired generation to renewables. However, over the next decade, batteries are only required to provide energy for short durations to balance the network.

Batteries are able to respond to short-term market demands more rapidly and more cheaply than other technologies, such as gas. This will lower overall system costs.

Is the battery safe?

While grid scale batteries are relatively new, lithium battery technology is proven and has an excellent safety record. The battery will be located away from residential areas and will be required to comply with strict fire and electrical safety regulations.

How much will the SIPS cost?

The cost of the service is $84.8 million which will be paid over 10.5 years.

This compares favourably to other Australian battery energy storage system projects.

How can the community be sure the SIPS represents value for money?

Consumers will pay for use of the battery through their power bills, but the reduction in wholesale energy prices delivered by the battery will mean that Victorians pay less for their power

Independent analysis demonstrates a benefit to cost ratio of $2.40 for every $1 spent on the SIPS service.

AEMO conducted a competitive technology-agnostic two stage tender process to ensure high quality offers were obtained, and the best value for Victorian electricity consumers achieved.

Who will pay for the SIPS?

The cost of the SIPS will be recovered from electricity consumers as part of their electricity bills, although the impact of the battery on wholesale prices will result in net price benefits for energy users.

What is the likely impact on residential electricity customers?

Independent analysis demonstrates that the costs of the SIPS service will be substantially outweighed by the lower wholesale electricity prices delivered by the battery.

The average residential consumer will therefore see lower electricity bills over the life of the SIPS service.

What is the likely impact on business electricity customers?

Small businesses will save approximately $5 a year on their bills and medium businesses will save $100 a year.

What is the likely impact on large industrial energy users?

Larger businesses are typically on bespoke contracts and the benefits will therefore differ for each customer; however these customers are estimated to save between $5000 to $280,000 depending on their usage.

Where will the battery be located?

The battery will be constructed near the Moorabool Terminal Station in the Geelong region.

Who will operate the Victorian Big Battery?

The battery will be operated by Victorian Big Battery Pty Limited, a subsidiary of Neoen. The company is a global renewable energy specialist that owns and operates several batteries and generators in the National Electricity Market, including the Hornsdale Power Reserve in South Australia.

How many jobs will the project create?

The battery will generate over 80 direct jobs during construction and 6 jobs during operation.

What happens if the battery is not built in time?

AEMO and Victorian Big Battery Pty Limited have agreed to a comprehensive regime to incentivise successful ongoing delivery of the SIPS service. If the SIPS service does not commence on time or perform as expected, Victorian Big Battery Pty Limited will pay financial compensation.

Why does the Ministerial statement of reasons for the Order indicate that the battery is 350 MW/377 MWh but there are references to 450 MWh in other media articles?

450 MWh is the nameplate energy reserve for the project, however, the 377 MWh is the total useable energy while operating at 300 MW. In order to discharge 300 MW of active capacity, the facility needs to leave a minimum state of charge level in the battery.

What impact will COVID-19 have on the project?

Analysis by AEMO found that COVID-19 has resulted in only a modest reduction in electricity demand, around 2% lower than 2019, as higher residential demand has offset lower industrial and business demand. Economic recovery over the next 12 months is expected to result in demand recovering. On that basis, COVID-19 is unlikely to impact the need for the SIPS.

AEMO’s 2020 ESOO did not identify a supply gap. Is the SIPS really necessary?

AEMO’s 2020 electricity statement of opportunity (ESOO) did not identify a significant supply gap over the next 10 years. However, the ESOO is based on a probabilistic methodology which does not properly account for the real-world consequences of high impact, low probability events such as the sudden failure of an ageing coal-fired generator, or extreme weather events. The 2018 ESOO, for example, did not forecast the
blackouts of 24 and 25 January 2019, or the separation of Victoria from New South Wales in December 2019.

The SIPS will provide insurance against these high impact low probability events, which are becoming increasingly common as Victoria’s coal-fired generators age and become less reliable.

The National Electricity (Victoria) Act

How was the National Electricity (Victoria) Act used in the procurement process?

The SIPS was the first time that Victoria has used its powers under the amended National Electricity (Victoria) Act (NEVA). The use of the NEVA enabled the Victorian Government to work with AEMO and industry to deliver an innovative solution to the pressing problem of system reliability.

Why did Victoria amend its electricity laws?

The National Electricity (Victoria) Act 2005 was amended in March 2020 to give Victoria the power to expedite urgent transmission network projects, such as the SIPS.

The reform of the NEVA allows the Government to override the complex and outdated national regulatory regime, which causes excessive delays in delivering transmission projects and fails to properly account for the full benefits of investments.

Why does Victoria’s transmission network need to be upgraded?

Climate change is increasing the frequency, severity and length of summer heat waves, putting pressure on our electricity systems. The Bureau of Meteorology reports that 2019 was the hottest and driest year on record, with the mean maximum temperature for Australia being more than two degrees Celsius above the average.

As temperatures rise, so too does electricity demand, placing more pressure on the electricity system to deliver reliable supply. However, Victoria’s ageing, coal-fired generators are increasingly prone to failure.

This means that, during high demand periods, interconnectors to neighbouring states are of increased importance.

What is wrong with the national transmission network regulatory regime?

The national framework (set out in the National Electricity Law and National Electricity Rules) has thus far failed to deliver the investment needed to support electricity reliability in Victoria.

This is because the regime sets up lengthy processes which parties must follow. It can cause excessive delays in delivering transmission projects and fails to properly account for the full benefits of investments.

In particular, the regulatory investment test for transmission (RIT-T) was designed for an electricity system that was effectively in a steady state, with large generators delivering electricity to load centres. Circumstances have changed markedly since the RIT-T was first designed.

Given the current pace of change in the electricity system and the unreliability of Victoria’s ageing coal-fired generators, the RIT-T process is not always capable of delivering the urgent transmission investments necessary or respond to emerging challenges in a timely way to ensure reliability of electricity supply.

What is the current regulatory process?

Currently, AEMO is required to apply a cost benefit analysis, in the form of the RIT-T, where there is an identified need for investment in Victoria's declared transmission system, and where the estimated capital cost of the most expensive option to address the need is $6 million or more.

The RIT-T process is a regulatory mechanism overseen by the Australian Energy Regulator (AER) designed to test the economic efficiency of proposed investment options to avoid consumers of electricity paying for inefficient investment options.

The RIT-T process can be time consuming. At a high level the RIT-T requires:

  • identification of a need for investment
  • identification of a set of credible options to meet the identified need, and characterisation of the base case against which the credible options can be compared
  • identification of reasonable inputs to be included into the cost-benefit analysis
  • quantification of the expected net economic benefit of each credible option and identification of the preferred or 'best' option with the highest expected net economic benefit.

How will Victoria’s reforms help deliver urgent transmission investments?

The National Electricity (Victoria) Amendment Bill 2020 amended the National Electricity (Victoria) Act 2005 in March 2020 to introduce a head of power for the Minister for Energy, Environment and Climate Change to make Orders modifying or disapplying parts of the National Electricity Law and Rules in respect of specified transmission projects.

In particular, a Ministerial Order under the legislation may modify or disapply the RIT-T under clause 5.16 of the National Electricity Rules, and contestable procurement rules for transmission projects under Part H of Chapter 8 of the National Electricity Rules.

The RIT-T and contestable procurement processes generally require approximately 18 months and 9 months respectively to complete. Modifying or disapplying these processes will significantly reduce the time required for transmission projects in appropriate circumstances.

What safeguards will be in place where the State-specific powers are used?

Any proposal to use the State-specific powers will be put through a rigorous analysis to make sure it delivers clear benefits to Victorian households and businesses.

In addition, the Bill provides that the Minister must consult with AEMO as well as the Premier and the Treasurer before making an Order.

The Minister will also be required to publish the Order, together with reasons for making it, in the Government Gazette and on the Department of Environment, Land, Water and Planning’s internet site.

Will Victoria always use its State-specific powers to deliver transmission investments?

No.

It is expected that most transmission projects will progress through the existing national framework.
Victoria will use its State-specific powers where it considers that the national regime is incapable of delivering the urgent transmission investments necessary to ensure reliability of electricity supply.

The need to use State-specific powers in relation to other investments will be considered on a case by case basis.

Page last updated: 05/11/20