Essential system services ensure that the network is operated in a safe and reliable manner and includes:

Frequency Control Ancillary Services (FCAS): keeps the frequency of the power system within its normal operating band by quickly injecting supply or reducing demand to maintain supply and demand balance. The NEM has 8 FCAS markets currently.

Inertia: allows the power system to instantaneously resist and prevent changes in frequency and is provided by devices that are synchronised to the frequency of the system.

System Strength: ability of the power system to manage fluctuations in supply and demand while maintaining stable voltage levels.

Where these services are not provided through normal operation, AEMO is required to intervene and the costs of those interventions are borne by the market.

The Energy Security Board (ESB), in its recently released Post 2025 Market Design Consultation Paper, recognised that the National Electricity Market does not currently have a market for or signals of the need for all required essential system services. As such, AEMO is having to increasingly intervene and procure these services on an ad-hoc basis and at high cost to consumers. Options are being considered to create markets for these essential system services, including a spot market for inertia. This is seen as essential to continue to transition away from traditional generation.

The South Australia battery (which was installed in December 2017) has participated heavily in the FCAS markets. This participation provides benefits to consumers, by supporting the network to operate safely and reliably and allows the battery to access and market and therefore a revenue stream.

The key driver for the Victorian Big Battery, is the AEMO-identified market need for increased reliability, specifically over peak summer periods. The 2019/20 summer saw AEMO activate the Reliability and Emergency Reserve Trader (RERT) Scheme in Victoria on two separate occasions as hot temperatures, outages at Loy Yang Power Station and constraints on the VIC-NSW Interconnector (VNI) caused over 2000 MW of energy to become unavailable to meet Victoria’s demand.

The battery is primarily being developed to provide System Performance and Integrity Services (SIPS) under contract between the Victorian government, AEMO and battery project developer Neoen.

SIPS services provided by the battery will increase the thermal limit of the VNI and allow more flows of electricity through to Victoria. The thermal limit of the interconnector is the maximum amount of electricity that can flow through it. The higher flow electricity on the interconnector, the increased likelihood of faults and issues. The battery’s SIPS service will act as a backup for the interconnector, if a fault occurs, the battery discharges preventing the interconnector from tripping and thereby maintaining the flow of electricity into the Victorian network.

The TransGrid battery will provide fast frequency response and inertia to the network. This battery is part of a trial (with TransGrid receiving funding support from ARENA and NSW Government) to provide technical information relating to the provision of these essential services with an aim of establishing that these types of batteries are the most efficient means of providing these essential services.

The Victorian Big Battery, TransGrid’s trial and AGL’s Torrens Battery, together with the changes proposed by the ESB to create and incentivise essential services, can provide a path forward to hasten the energy transition and place another nail in the coffin in the argument that our system will always need coal.

Despite the benefits emphasised by the Victorian government in announcing their battery, industry stakeholders have begun to express their concern about government intervention in the market impacting private investment decisions going forward.

As Victoria seeks to recharge its own batteries in response to COVID-19, the government seeks to align the Victorian Big Battery with state-wide recovery and job creation. With questions outstanding on both the market need for the battery and total costs and benefits of the project, the energy industry transition continues to grow in both complexity and… in size of batteries.

However, we do not yet know the implications of state-based policies that promote investment in batteries not based solely on the economics of the battery alone – will these government interventions aid in increasing efficient investment or crowd out private investment (like the TransGrid and AGL batteries) to the detriment of the market and consumers?

[1] Hornsdale battery has since then been upgraded to 150MW/ 194 MWh in size.