Energy storage systems as instantaneous reserve

The Electricity Authority is developing a proposal to amend the Electricity Industry Participation Code (the Code) to enable energy storage systems to participate fully in the national reserve market. Over the long term, this will significantly benefit consumers by promoting competition amongst reserve providers in the wholesale market, and reliable electricity supply.

The grid operates with a risk that a large generator or the inter-island HVDC link may develop a fault and trip offline without warning. This happens rarely, but when it does happen, it creates a sudden imbalance between electricity supply (generation) and demand (consumer load). Without spare – or ‘reserve’ – capacity to replace the lost generation very quickly, the grid may collapse. To manage this risk, Transpower procures spare generating capacity that can automatically and very quickly ramp up to rebalance supply and demand. We have defined a new term for this type of reserve, it is called generation reserve.

The same rebalancing effect can be achieved by quickly tripping large blocks of load offline – this is called interruptible load. Together, generation reserve (i.e. reserve that decreases grid injection) and interruptible load (i.e. reserve that decreases grid offtake) are the two types of instantaneous reserve.

There is a specific market for reserve in New Zealand, and every half hour Transpower in its role as system operator procures enough reserve from the market to cover the capacity of the largest risk on the system at that point in time. 

The cost of battery ESSs has markedly decreased in recent years and will continue to do so. Global levels of investment are rapidly increasing. Some parties in New Zealand have already invested in grid-scale battery ESSs to explore their potential practically, and several others are investigating doing so. In particular, Contact and Meridian have been investigating investment in a very large ~100 MW battery ESS in the North Island. 

A grid-scale battery ESS is already able to participate fully in the energy market, as either generation or dispatchable demand. A battery ESS can also offer interruptible load while it is charging. However, it cannot offer generation reserve. This is because the Code defines which specific technologies can offer instantaneous reserve, and those definitions were written before ESSs were contemplated. Increasing the amount of instantaneous reserve in the market will be critical if the smelter load at Tiwai exits the market: if that happens more South Island generated electricity will be available to be exported to the North Island. This will increase Northward flow across the HVDC link, but only if there is enough reserve available to cover the risk of the HVDC link tripping.

The target date for enabling battery ESSs to participate is 1 April 2022.

There are several other implementation steps that must occur before batteries can begin to offer generation reserve. Transpower must amend its procurement plan, and plans to complete a first round of consultation for those changes in September 2021. The Authority is then required to carry out a second round of consultation on the revised procurement plan. The Authority will need to commence this second consultation by the end of 2021 to meet the target project completion date.

Changes to market systems are also required: Transpower must change its reserve management tool, and NZX must change its wholesale information and trading system, WITS, and possibly change its clearing manager system, CHASM.

At this stage, the Code and system changes are focussed on enabling grid-scale battery ESSs to fully participate in the reserve market. Small batteries may also provide instantaneous reserves if they are aggregated into much larger capacity blocks via an aggregator, but rules governing their performance, testing and monitoring will need to be developed in cooperation with Transpower before they would be permitted to participate. 

This project supports the proactive steps the Authority is taking to open opportunities for new technology to participate and compete in the electricity market.