The American boss of Australia’s energy market operator AEMO says the country needs a new way to buy electricity on the spot market, as renewable energy generation capacity increases.

Rooftop solar in particular is causing negative spot energy prices in the middle of the day as they feed unused power back into the national grid.

“The Australian electricity spot market was designed around fossil fuels in the 1990s, and it needs to be redesigned for a new market. It’s not that it was a mistake, but we’ve moved on,” said Audrey Zibelman at the New York Hawthorn Club last week.

For example, the market operator is moving to a five minute settlement period — power is sent out into the grid at five minute intervals but bidders had 30 minutes to settle a purchase for the power.

A number of studies have shown that big generators have used that system to make a lot of bids, thereby creating an illusion of energy scarcity and pushing the price up before flooding the market with capacity.

As small cap renewable energy companies such as Genex (ASX:GNX) and Tilt Renewables (ASX:TLT) enter the generation game, these kinds of rule changes are becoming increasingly important for the ways in which they manage their businesses.

Battery mania

Batteries, be they residential or industrial, are not necessarily the solution.

Energy storage systems are creating an “operational challenge” for Australia’s energy market operator, according to Bloomberg New Energy Finance’s (BNEF) report on the event.

Ad-hoc installations by both industrial and residential users is providing the challenge to AEMO because it doesn’t always know where batteries are, particularly when they’re installed in homes.

“The owners give little thought to their impact on the grid,” BNEF noted.

But batteries have not yet come of age in Australia, unlike in countries like the US or Norway.

Even though South Australia’s 100 megawatt Tesla battery is the biggest industrial installation in the world, generally industrial batteries are not yet economical.

At the residential scale, batteries are at an early-adopter stage, with the major barrier also being cost. The payback time to offset the cost of the battery is between 7 and 10 years, which means people have to stay in their homes to reap the benefit.

Most batteries on the market have warranties guaranteeing they will work for between five and 10 years.

Already a range of companies from Protean Energy (ASX:POW) to Redflow (ASX:RFX), both of which are making vanadium redox flow batteries which charge and discharge more deeply and slowly than lithium ion batteries, are looking to sell into the Australian market.

Protean is looking specifically at the industrial market while Redflow is selling to residential users as well.

Need more computing power

Energy companies and consumers will need to be more tech savvy as the energy market changes.

The power companies and AEMO will need to invest in software that can better manage the flows in and out of the grid, BNEF says, as rooftop panels send power in but batteries might be sucking more power to store at the same time.

It will all come down to who has the most, and best quality, data.

“Data can be harnessed to identify what people want, what resources are coming onto the system, and where,” said Woodside Petroleum (ASX:WPL) vice president and CFO Sherry Duhe.

On the residential side, it’s unlikely much behavioural change will happen until more Internet of Things (IOT) software is in place to manage people’s devices, Zibelman says.

“It is difficult for homeowners to think about this for more than seven minutes a year. We really need people in business to be thinking about it. I don’t think behavior will change until we create a true ‘internet-of-things’,” she said.

In other words, it’s currently difficult for consumers to consistently manage how they use electricity during a full 24-hour period in order to maximise the use of solar panels, off-peak and peak periods.

Currently, many energy management systems are geared towards business users and there are vanishingly few that are listed on the ASX.