Why community batteries are a bad idea

With a surge in public interest in community batteries, we look at why they are unlikely to realise the promise of true community empowerment.

The promise

Community batteries have caught the attention of many. The need for energy storage is widely accepted. Community ownership of energy assets is also appealing. So, it’s not surprising that many have formed the view that community-owned energy storage is an idea whose time has come. Community batteries are thought to be able to:

  • soak up surplus solar;
  • stabilise the grid by reducing voltage issues;
  • reduce electricity market price volatility;
  • facilitate the deployment of more solar;
  • alleviate localised grid constraints;
  • sell locally generated solar back to the neighbourhood after dark.

Community batteries, as usually conceived involve a battery installed:

  • as a stand-alone energy asset;
  • within a local neighbourhood;
  • at medium-scale, i.e, sized typically in the hundreds of kilowatt-hours; and
  • with some way of transacting the energy flow for direct community benefit.

The reality

Community batteries face overwhelming practical disadvantages. In reality the operating model comes unstuck because they:

  • have non-trivial establishment and grid-connection costs;
  • need to pay to charge from the grid;
  • need to cover their operating costs in selling the energy they discharge;
  • are net consumers of energy;
  • lack sufficient economy of scale.

Paying to charge

Even a system operated not-for-profit needs to cover its costs. By operating as a stand-alone energy asset means a community battery is a ‘front-of-the-meter’ device. So-called ‘behind-the-meter’ assets, on the other hand, operate on the customer side of the meter along with other electricity demand and (possibly) solar generation.

A community battery would need to have its own metered connection, and corresponding retail energy account. Every unit of energy has to be billed and include the same network and other charges of any other electricity customer. Even if a community battery were provided with a special operating tariff, that won’t exempt it entirely from network and other charges.

Covering costs

To cover its costs, including paying off its own cost of establishment, a community battery needs a clear positive operating margin, i.e., the energy it sells to the grid needs to cover:

  • full incurred retail cost of purchased energy;
  • project financing costs spread over the life of the system;
  • energy lost due to round-trip efficiency (charge up with 10kWh might only give, say, 9kWh to sell);
  • operating overheads including perhaps third-party specialist operator’s margin, governance and insurance costs;
  • off-taker’s margin on sale of electricity.

Even if establishment of a community battery is grant-funded, most of these overheads still remain.

Economies of scale

The discussion above probably begs the question – how are big batteries viable? Grid-scale batteries:

  • have economy of scale lacking in community batteries because they are often hundreds of times bigger;
  • connect to the grid in places that let them completely avoid paying for costs associated with use of the distribution network;
  • operate as large-market customers, giving them access to more competitive tariff arrangements.

Alternative scenario

Imagine if, on the other hand, a community-scale battery is installed, on-premises, at a large electricity consumer who have a big roof full of solar panels. In this scenario the battery:

  • leverages an existing grid connection (avoiding significant establishment costs);
  • can charge from surplus solar power, completely avoiding network charges;
  • can discharge behind the meter to avoid retail energy purchase at the normal retail tariff;
  • might also discharge in a way that reduces site demand charges;
  • avoids the need for complicated arbitrage arrangements;
  • avoids the need for third-party operator, because operational control can be focussed on the simple task of offsetting retail electricity costs of the site;
  • can provide blackout protection, giving another big justification.

In so doing, the battery in this scenario is still providing comparable net benefit to the local grid by soaking up solar etc as in the case where it’s in front of the meter. But the economics of operating the battery are fundamentally different.

The sweet spot

Batteries within the grid make the most sense where they can:

  • charge to absorb surplus solar behind the meter;
  • discharge to directly avoid retail grid imports;
  • piggy back off an existing grid connection.

Aggregation

This sweet spot is most commonly found on small premises with rooftop solar. The benefit to the grid can then be amplified when lots of small batteries are managed in aggregate and coordinated for the benefit of the grid. This is called a virtual power plant (VPP). There are many providers of VPPs, allowing battery owners to team up.

When operated at scale, batteries or VPPs also potentially allow access to other value streams such the frequency-control market, known as FCAS.

Moral of the story

Energy storage, located in the grid, is a good thing. However, batteries located behind the meter, where there is surplus solar power are at a fundamental advantage compared to units operated as stand-alone units in front of the meter.

It is possible that changes of network rules of special tariffs will improve the economics of community batteries, but they will still be at a disadvantage compared to batteries deployed behind the meter on sites with surplus solar.

I think it is unlikely that community batteries, as usually conceived, will realise their promise because of the fundamental operating disadvantages they have.

Distributed batteries are much better placed in the sweet spot location – on premises supporting existing load and rooftop solar PV.

This article was first published by New Energy Thinking. You can read it here.

Author
Richard Keech
Consultant in building energy efficiency and renewable energy
November 27, 2023
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