Batteries, Interconnectors and Institutions: The Case of South Australia

In South Australia rapid expansion of grid-connected and distributed renewable generation has contributed to the closure of coal-fired electricity production and placed greater reliance on the remaining fossil-based generation and imports on meeting demand when South Australian renewable production is low. Concentrated wholesale markets and gas scarcity now explain higher wholesale electricity prices and lower security of supply. Possible solutions include expansion of distributed and grid-scale batteries, pumped hydro generation, dispatchable flexible generation, increasing demand-side participation or expanding transmission connection to the bigger electrical systems in New South Wales and Victoria. In Australia, the process for interconnector development is self-assessed proposals by transmission companies and regulatory approval of the outturn expenditure for inclusion in the regulated asset base. However, these self-assessments do not provide appropriate incentives. In particular, they are likely to crowd out unregulated solutions including grid-scale batteries. An independent transmission planning authority that does not have a financial interest in network expansion is likely to assess competing alternatives more objectively. Introducing competition for the development (and ownership) of new network assets also merits consideration. Experience in other countries in this area is encouraging.