Australian distributed battery rollout gets political

Decorated in bright murals and located in public spaces, community batteries are a tangible demonstration of Australia’s world-leading adoption of distributed clean energy. However, as the Australian Renewable Energy Agency (ARENA) rolls out the latest round of its community battery subsidy program, questions are being raised about whether it is money well spent.

There is no doubt that batteries are needed to support the continued uptake of rooftop solar. With residential installation rates remaining high, hitting roughly 3.2 GW of sub-100 kW installations in 2024, price cannibalisation is seeing feed-in tariff rates during daylight hours drop close to zero. Additionally, regulators are raising mounting concerns of “minimum grid demand” falling so low in the middle of the day that measures to curtail rooftop solar output at certain times will become commonplace.

“Batteries are going to be really important to continue to keep the [rooftop] solar industry going and presenting a compelling value proposition for householders,” Tristan Edis, the director of analysis and advisory for Green Energy Markets told ESS News. “There are a few threats on the horizon to this industry meaning that batteries are going to be really important.”

By adding battery energy storage on the distribution network, the solar produced during the day can be effectively utilised, rather than being fed into the grid where its value is limited or it may be curtailed. But while the need is clear, the way in which the government should incentivise those batteries is contested.

Community or community-scale

Larger battery systems installed in the Australian suburbs appear a good solution to this problem and have attracted recent government support. Referred to variously as community or neighbourhood batteries, the federal government allocated AUD200 million ($125 million) in 2022 to support the development of around 400 such projects, with ARENA tasked with administering much of the funding.

Last week, ARENA opened the second round of funding for batteries sized 50 kW and 5 MW under the Community Batteries Funding Initiative, with AUD46.3 million of grants being made available. The first round saw AUD143 million allocated for 370 community batteries across 21 projects, awarded in July 2024. Electricity network system operators were successful with front-of-the-meter projects, while the non-network projects, energy retailers, traders, and government bodies won funding with behind-the-meter batteries.

“While one in three Australian households have already embraced rooftop solar and are accessing cleaner and cheaper energy, less than one in 40 households have battery storage,” said Federal Energy Minister Chris Bowen in announcing the first round of the program. “Community batteries are the next stage in ensuring all communities get the benefit of the energy transformation.”

However, the full extent to which these batteries are benefiting communities is not apparent. ARENA itself noted, in its Market Snapshot ARENA Community Battery Funding Round 1 report, that it is unclear what is encapsulated in the term community battery, and suggested that community-scale is equally applicable. The report was prepared by enX Consulting, was published on Feb. 28. In a 36-page presentation, it presented and analysed the outcomes of the first round of the program.

Community battery value

The report found that the community value touted by program applicants varied greatly between projects and that full transparency as to these benefits is only built into a very small number of them. Although facilitating more rooftop solar features as a benefit in the majority of successful applications.

The value of the behind-the-meter projects, from the non-network projects, appear to be most clearly demonstrated. Sites such as swimming pools or industrial centres could reduce electricity demand charges by the addition of the battery system. Electricity bill reduction was also expected from projects at retirement villages, shopping centres, and sports facilities.

Only two of the ten successful network, or front-of-meter, projects set out how the battery would reduce customer bills. And ARENA did not provide details as to how and to what extent savings would be made.

In terms of cost, all of the successful projects were more expensive than utility-scale batteries funded by ARENA in 2022. Notably, many were more expensive by capacity than a residential battery – with the Tesla Powerwall 2 used as a reference.

The successful battery projects received ARENA funding of between AUD3 million and AUD20 million, with grants covering up to the full cost. There was a wide range of costs among the projects, from AUD0.73 up to AUD4.10/Wh.

ARENA concluded that through the program it is clear that “community batteries will be competitive with utility-scale and residential-scale storage systems,” although systems larger than 500 kWh in capacity and when installed behind-the-meter are most competitive.

Limits to utility

While community batteries are appealing to both community members and politicians due to their visibility in neighbourhoods, much of their value isn’t realised due to Australia’s regulatory landscape and market incentives, argue critics. The result being that electricity system cost reductions as a result of their deployment are limited.

“The regulatory and political situation means we won’t necessarily build the lowest cost option,” engineer and Australian energy futurist Saul Griffith told ESS News. “A battery on the distribution grid will get higher utilisation than a battery in a person’s house – because it should be used twice as well, therefore come at half the cost.”

However, Griffith argues that community groups struggle to monetise community batteries through participating in ancillary markets and arbitrage trading because of existing regulations and grid fees. And if network operators own the asset they have little incentive to operate it in a way that will bring down system costs.

“In this case, the free market the world aspires to doesn’t exist,” Griffith lamented.

Griffith is the co-founder and chief scientist at Electrify Australia. A major advocate for community electrification programs, he is frustrated by the roadblocks in the effective deployment of community batteries.

Residential initiatives

The politics around residential battery adoption in Australia is looking more encouraging. New South Wales is offering an incentive via installers, although there are reports that the program is cumbersome and the rollout slow. Western Australia, with an election set for March 8, is set to see a subsidy of around AUD5,000 to households purchasing home batteries if the current Labor government is returned as expected. The state of Victoria offers interest-free loans.

The likelihood of a federal home battery program being put in place is also increasing. In recent weeks, various media outlets have reported that the federal government is set to announce an extension of the small-scale renewable energy scheme (SRES) to batteries. The SRES has long underpinned the success of rooftop PV throughout Australia. The federal Liberal opposition has confirmed that it too is considering policies to support residential battery adoption.

Green Energy Markets’ Edis said that a rebate for home batteries around AUD3000 to AUD4000 could deliver sustained demand, bring sufficient volume into the market, and see adoption become mainstream.

“If it’s a decent-sized, long-term rebate, companies will adopt a direct-to-customer model, causing other suppliers to sharpen their pencils and bring prices down,” said Edis. “If manufacturers can bring a unit to Australia to sell retail, fully installed for AUD6000, the customer will pay AUD3000 out of pocket after the rebate. We’ll end up with a very lively market.”

While the federal election campaign hasn’t yet begun, an election must be held before May 17. 

“There is still a degree of uncertainty,” Edis continued. “It does look like something is likely, but the problem is what shape.”

Under existing arrangements, the residential storage market in Australia has been exhibiting steady growth. Preliminary data from local industry analyst Sunwiz shows that residential battery attachment rates, meaning solar systems installed with a BESS, approached 20% in 2024 for approximately 60,000 installations.