Community batteries: feel good solution or financial folly?

Updated: 4 days ago

Community batteries have been in the news lately, thanks largely to lofty government funding promises. And - at face value - they seem to be a wonderful idea, offering the potential to solve a range of local energy issues from improving grid solar hosting capacity and reliability, to boosting local renewable energy independence and financial resilience. But are community batteries a feel-good solution to these problems, or a financial folly? Let's find out.

The Orkestra team was asked by the Central Victorian Greenhouse Alliance (CVGA) to assess the viability of community batteries connected to the local distribution network, as part of the Victorian Government Neighbourhood Battery Initiative. For this report we use the term 'neighbourhood batteries' as it is a more accurate description of project scale, and a subset of the broader category of community batteries.

Download the full report here

Six communities with anecdotal evidence of solar PV connection limits and frequent outages were selected for participation in the study. Within these communities, load data was obtained from Powercor from 118 transformers, servicing an almost two-thirds of customers in those communities. At each transformer, we constructed hypothetical projects from a range of battery sizes and battery control algorithms. All in all, 11,640 hypothetical projects were assessed - in what is perhaps the most intensive study on neighbourhood battery economics conducted to date.

A holistic assessment of neighbourhood batteries

What sets this study apart is that we assessed the economics of community batteries holistically - that is - assessing both the direct values which flow to the project developer, as well as the indirect values which flow to other stakeholders within the community.

The value streams assessed in the study are summarised in the figure below:

The project assessed the following value streams:

Direct value streams are collected as revenue by a project developer (i.e. a community group):

  • wholesale price arbitrage,

  • network tariff arbitrage (using Powercor's special neighbourhood battery tariff), and

  • frequency market services (contingency FCAS).

Indirect value streams are benefits which flow to other parties, such as the distribution network, or customers connected to the grid within the transformer, or to the community. This included:

  • soft network capacity provision (value to the network of avoided transformer upgrades)

  • increased solar hosting capacity due to soft network capacity provision (value to customers who are now able to install solar)

  • increased energy independence (value to customers of locally produced electricity), and

  • back up power provision (value of reduced outages, assuming simplistically that the battery could provide back-up power to the customers behind the transformer).

See the full report for all of our assumptions.

So, are neighbourhood batteries worth it?

No. We didn't find a single project that came close to breaking even over a 15 year lifespan. (We must stress that this answer only applies to the projects we assessed).

In the chart below we rank project locations from best to worst (left to right). The best project only repays about half of the initial $96,000 investment, in Net Present Value terms.

A few observations help explain this disappointing outcome:

  1. Rarely did a transformer have the full spectrum of issues, limiting the potential increase in value. Yes, some transformers were prone to blackouts, and some had serious solar hosting capacity issues, but rarely did these factors occur severely together.

  2. There are physical limits which prevent a battery from doing everything at once. For example: a battery focusing on the provision of soft network capacity / solar hosting capacity will be charging from the reverse flow of excess solar at the transformer. This activity is not at all complementary with market facing battery activities during the daytime, as the transformer will typically be maintained at its capacity will no room for additional export. This strategy is also not complementary with back up power services in the evening (when many blackouts occur), as the battery state of charge is reduced to empty in order to create as much room as possible for charging the next day. Conversely, a battery pursuing a strategy of market revenue optimisation is not going to be complementary with the provision of soft network capacity / solar hosting capacity.

  3. Batteries need to be very large in order to reliably provide soft network capacity which is generally far more expensive than upgrading transformer capacity. See example below.

Cost comparison - Battery vs Transformer upgrade

To highlight the third point above, let's walk through a simple example whereby a transformer is constrained due to reverse flow of solar exports exceeding its nameplate capacity. The network often responds to such cases by preventing new solar connections. Left unrestrained, solar output might breach the transformer capacity for up to 6 hours on the longest of summer days.

A 120kWh/36kW neighbourhood battery, if charging from empty and including losses, could provide ~18kW of sustained soft network capacity for 6hrs - enough for only 3 or 4 additional solar PV systems to safely connect the grid behind that transformer. At an assumed battery install cost of $800/kWh ($96,000), the cost of soft network capacity provision is ~$5,300/kW. However, simply upgrading the transformer capacity would be much cheaper, costing $250 to $1000/kVA, ($3,375 to $13,500) depending on the size of upgrade.

Ok, so neighbourhood batteries aren't the solution. Is there even an underlying problem in these communities?

Yes, there is. Whilst the neighbourhood battery projects we assessed were not viable, the anecdotal grievances we heard from Central Victorian communities were validated by the data.

Network capacity constraints are already limiting new solar PV connections and solar export.

14% of transformers are already at, or near, their solar hosting capacity. Pomonal and Lyonville has 44% of their transformers already at solar hosting capacity. As solar uptake increases in the future, this problem will worsen as shown below.

Transformers at the their solar hosting capacity

Grid reliability is well below Powercor's stated targets

The average grid outage time in 2021 was approximately 8 hours for all transformers. Lyonville saw grid outages of up to 126 hours (over 5 days) with the longest continual outage being for 3 days. This performance is far worse than Powercor’s 2022/23 targets for unplanned outages:

  • 104.14 minutes (just under 2 hours) for short rural feeder lines.

  • 240.14 minutes (4 hours) for long rural feeder lines.

Energy independence is currently estimated at 24%

This is the current percentage of energy consumed within the transformer which was generated from within the transformer. Whilst respectable, there is clearly room for improvement here in communities which are seeking to achieve zero net emissions by 2030. Interestingly, average solar PV self-consumption at the transformer level was 97%, indicating that additional solar at the right locations (i.e. at unconstrained transformers) would likely do more to boost energy independence than neighbourhood batteries would.

What should communities do to solve these problems?

Instead of feeling disheartened by our findings, communities should pursue other approaches:

Suggestion 1: Explore other types of community battery projects

The definition of a 'neighbourhood battery' as part of the NBI initiative is limiting and locks out projects from additional value streams. Community battery projects worthy of investigation include:

  • At a business or community facility. Such projects enable ToU arbitrage and peak demand reduction, and could provide back-up power at a community building which could double as an emergency shelter. See Yak01 project. Could also provide indirect benefits.

  • A community-led virtual power plant for residential batteries. Residential batteries are already viable for high energy users with solar on time-of-use tariffs and/or market facing revenues. Could also provide indirect benefits.

  • Liaise more closely with the distributor to find and deliver network-connected community battery projects. Networks are privy to potential additional benefits not visible to the public. Batteries could additionally resolve issues such as voltage correction, upstream constraints, or other power quality concerns, which might improve the economics beyond what was assessed here.

Suggestion 2: Advocate for non-battery solutions to the identified issues
  • Advocate for network upgrades which will likely be lower cost than battery storage and meet community drivers related to solar carrying capacity, voltage rise issues, and grid resilience.

  • Advocate for longer term activities or reforms which support local solar uptake, such as Dynamic Operating Envelopes (DOEs), dynamic export limits, local energy trading, or cost-reflective network charges for locally produced energy.

What should governments do with their community battery funding commitments?

Good question but not one for us to answer. The two things we will say on the matter are this:

  1. Funding is required to unlock more solar PV hosting capacity given that distribution networks don't have sufficient incentives to do this themselves.

  2. Governments should always use data analysis to guide decision making and funding allocations. A platform like Orkestra can help!


Download the full report here

Orkestra creates software for easy, fast and accurate feasibility analysis of new energy projects.

This report was commissioned by Central Victorian Greenhouse Alliance (CVGA) as part of the Victorian Government's Neighbourhood Battery Initiative. This article is a brief summary of the full report. The results are highly contextual, and limited by modelling assumptions and the data available.

The author would like to say thanks to the Orkestra team for contributing to this massive analysis and report: James Allston, Michael Jurasovic, Kelvin Liao and Georgina Hale. In addition, thanks to Taryn Lane (Hepburn Wind), Manny Pasqualini (Hepburn Shire), David Gormley-O'Brien and Rob Law (CVGA) and Ruchika Deora (C4NET) for your input.