An Insiders Look at the NSW Battery Subsidy

The Peak Demand Reduction Scheme Explained

Marlon Leicester || Operations Engineer

The NSW Government recently announced new incentives for the installation of residential batteries, as well as including them in Virtual Power Plants (VPPs). These new incentives are packaged within the Peak Demand Reduction Scheme (PDRS), which is a much larger mechanism, and involves a lot more complexity than a typical scheme.

So, let's unpack it a little bit!

This article gets a bit in-depth. I think it's important to state upfront that a typical energy consumer shouldn't need to understand the ins-and-outs of a scheme like this in order to benefit, so if you get halfway through and think "I don't understand any of this" - that's OK! Just make sure that if you're planning to get a battery, you use a long-running reputable business (like us, maybe?).

The Goal of the PDRS

The Peak Demand Reduction scheme aims to reduce the “peakiness” (spikiness) of electricity demand in NSW summers, particularly between the hours of 2:30pm and 8:30pm - typically when summer air conditioning loads peak, making the electricity grid hard (and expensive) to operate.

Because demand peak costs a lot to handle, reducing it can significantly reduce energy system costs, which is good for everyone. The PDRS was created to reward activities that help to reduce this demand in NSW, such as installing efficient air conditioning systems, and create incentives for energy retailers to assist with this, too.

Peak Reduction Certificates

Peak Reduction Certificates (PRCs) are a lot like the Small-scale Technology Certificates (STCs), which solar panels are eligible for. You perform an activity, which allows certificates to be created. You can sell these in a marketplace - which means there needs to be demand to buy them. For PRCs, energy retailers must surrender a certain number of PRCs each year, as an indicator of them either undertaking peak reduction activities, or at least paying someone else who has.

One PRC is supposed to represent a reduction in demand of 0.1kW, averaged over an hour, inside the target time window. The target time window is any time between 2:30pm and 8:30pm, on any day between the 1st of November and the 31st of March. 

Instead of actually measuring how much demand is saved by a new air conditioner or a battery, certificates can be created based on some analytical averaging done by the NSW Government team, and certificates can be deemed for the expected lifetime of the appliance as soon as it gets installed*.

*The new BESS2 battery activity works differently - explained further down!

PRCs have been floating around the $2.00/certificate price for a few months, but the new rules that include batteries are likely to result in some significant fluctuations, so we will have to wait and see where that goes.

PRC prices over the last 12 months. Image Source: demandmanager.com.au

Bringing in the Batteries

The new Peak Demand Reduction Scheme Rule published on the 24th of May, 2024, brings in two new Recognised Peak Activities which can be used to create PRCs using battery storage systems. These changes become effective on the 1st of November, 2024.

BESS1 - “store and shift” - allows certificates to be created when a new eligible battery system is installed, based on the usable storage capacity of the battery.

Under BESS1, 1kWh of usable battery capacity is eligible for 79 certificates.

BESS2 - “household annual demand response” - allows certificates to be created when an eligible battery system participates in an eligible Virtual Power Plant. The name is a little misleading - it’s deemed for 3-years at a time, and can be deemed twice by a household.

Under BESS2, 1kWh of usable battery capacity will earn approximately 24 certificates for each 3-year participation. A battery can receive another 24/kWh certificates for a subsequent second participation after 3 years, for a total of 48 certificates per usable kWh.

Battery Eligibility

This bit is the big controversy at the moment. The PDRS has set tight requirements on what kinds of batteries can participate, opting to mandate warranties reflective of high quality, to ensure the cheapest products can’t be used. Many batteries currently in the market will not be eligible, and that’s made a lot of people upset. So what are the eligibility requirements? Let’s break them down.

Important definition - “Usable capacity”: Throughout this article, and the PDRS itself, the term usable capacity is used. This is the energy that can be discharged from the battery system, so if you have a 10kWh battery, with a 10% minimum state of charge, then it has 9kWh of usable capacity (90% utility).

For both BESS1 & BESS2:

1. There must be existing or new solar photovoltaics installed - basically, you can’t have a battery without solar, and claim the PDRS incentives. This won’t impact many people.
2. The site must be residential, in NSW, and connected to the NSW electricity grid.
3. The battery must be on the CEC approved product list, and installed by a CEC-accredited installer. This is already a no-brainer for any battery purchases, so this requirement was to be expected.
4. The battery must have between 2kWh and 28kWh of usable capacity (as listed on the CEC approval listing for that battery model).
5. The battery system must be internet connectable and able to participate in a VPP (specifically defined as a Demand Response Aggregator VPP)
6. The battery must have an operating range of at least -10^oC to 50^oC.
7. The system must have a warranty that: 
   1. Covers 70% battery capacity remaining after 10 years;
   2. Covers a minimum throughput of 3.65MWh per usable kWh; and
   3. Is not voided by participating in a Virtual Power Plant.

For BESS1 specifically, there must not be an existing battery installed at the site (this is monitored via the AEMO DER Register).

For BESS2 specifically, there cannot be any life support equipment on-site, and the battery system must be demonstrably able to be controlled by a Demand Reponse Aggregator as part of their VPP. 

BESS2 allows any battery with 6 years or more remaining on its warranty to participate.

So what does this mean?

Well, those warranty terms, plus the temperature range requirement, rule out a lot of popular batteries! 

Let’s take a look at a few:

*note that SolarEdge specifies that connecting to any third party hardware or software may void their warranty, which would make their batteries ineligible for the PDRS incentives unless they became a Demand Response Aggregator themselves.

It’s likely that some of these manufacturers will issue updated warranty information that conforms to the requirements of the PDRS, so this list may become outdated soon.

One observation, after going through numerous warranty documents, is how mismatched some warranties are. 

For example, AlphaESS will warrant 80% battery degradation over 10 years, which is better than most, but their energy throughput warranty is only 2.92MWh per usable kWh, so most customers would throughput enough energy to void their 10 year warranty after 8 years of daily cycling.

Similarly, Tesla will provide a simple 10 year warranty if a Powerwall2 is used only for self-consumption, but using the battery in any other manner imposes a warranty limit equivalent to 2.74MWh per kWh of throughput.

Are the PDRS requirements justified?

Throughout the years, we’ve seen many subsidies and incentives which incentivise dodgy operators to sell the cheapest products, in order to offer incredibly low prices. The NSW Government appears to be attempting to send a very stern message, that consumers should be protected from risk, and that they will not be offering a subsidy for substandard products. One of the simplest ways to do this, is to ensure products have comprehensive warranties that consumers can call upon.

The 3.65MWh throughput per usable kWh requirement is not a randomly selected number. If we translate it into battery cycles (commonly used in warranty information), it works out to 3650 cycles, or 1 cycle per day, for 10 years, not accounting for battery degradation. This is a good metric for whether a battery is going to deliver value to a customer over its warranty period, and one charge & discharge cycle per day for 10 years is a reasonable expectation for a customer.

The degradation warranty is a little more uncertain. Many battery products and chemistries have not been in production for 10 years yet, so it’s challenging to know what real-world degradation will look like, beyond what lab-testing of the battery cells tells us. This makes many manufacturers cautious. However, as the years go on and we get more data, it’s looking increasingly positive, particularly with newer chemistries and cells. Perhaps it is time these manufacturers put more emphasis on protecting the consumers that invest in their products, and the PDRS is sending a clear signal about this.

Most importantly, perhaps, is that the PDRS is pushing batteries towards Virtual Power Plants, which can be used to share additional value from batteries with the customers that own them. However, as with any kind of product, there can be risks, and strict warranty requirements help ensure that a consumer is not put at additional risk when engaging with a Virtual Power Plant operator.

Claiming the PDRS Incentive

For many people, the question is “how will I claim this subsidy?”. Keeping in mind that it’s not a simple cash-handout subsidy, that is a tricky question to answer.

Right now, there isn’t a clear answer across the industry. Because this is a certificate scheme, it will probably go something like STCs, where a customer signs over the ownership of the certificates generated by their installation, and in return receives a cash incentive or discount on their quote. 

How much that incentive or discount will be, will be heavily dependent upon the market price of PRCs, and the cost of administration that businesses incur to claim and trade PRCs.

In a sense, operators who can handle the administrative costs efficiently, will have the greatest ability to offer product packages at more competitive costs.
At Reposit, it will be pretty simple - all of our hardware meets the PDRS requirements, we’ll look at the value of PRCs when you get a quote, and we’ll take the value of both BESS1 and BESS2 off your quote.

Conclusions

To keep things brief:

• The inclusion of batteries in the PDRS is a good thing. I think they could do more to reduce peak, and create more certificates, but we’ll have to wait and see if a BESS3 activity is added to the mix.
• The value of certificates is uncertain, and it’s hard to nail that down.
• The eligibility requirements are tight, and have upset some of the industry by excluding many popular products, but the requirements seem to be well thought-out for consumer protection.
• The value of the PDRS incentive for any given installation will be quite variable, and at the end of the day, it’ll be up to consumers to choose offers that are most effective for them, and offer them guarantees and protections.

Lastly, if you’ve read this far, all we ask at Reposit Power is that you take a look at our 7-year No Bill product, and if it’s not for you, consider recommending it to friends and family.

Our goal is to remove all the complexity in this space, and create simple offers that our customers can digest and understand. Underneath the hood, there are qualified system designers, engineers, and a fully-fledged Virtual Power Plant, helping stabilise the electricity grid for everyone. On the surface it’s very simple.

No more electricity bills for 7 years. No worrying about whether your solar battery system design was correct. No worrying about what happens if your inverter fails. No worrying about which electricity tariff to choose.

Thanks for reading!

You can find the full PDRS rule here.