On Friday Elon Musk and Lyndon Rive (a Tesla VP) claimed that energy storage could solve SA's electricity problems. Tesla is offering to install the 100MW of battery storage needed to prevent blackouts in SA within 100 days, if asked to do so. The rough cost of the batteries for such a project is around $200 million. You could be forgiven for thinking that this is a marketing ploy (Tesla have just launched the Powerwall 2 in Australia). But another company, Zen Energy, are already looking at installing a 50150MW battery storage farm in SA to support their large scale solar generation plans. So this isn't all puffery.

The plan is a bit of a regulatory headache though, if it is to be commercially viable. One of the main problems is that the market for the wholesale buying and selling of electricity is skewed in favour of fossil fuel generators, who lobby to maintain the current system. Specifically, the current spot market for electricity is structured so that generators and users bid every five minutes on the price of electricity, which is then averaged over 30 minutes. In short there is no competitive market for the fast response frequency control that batteries can provide to the energy market.

The energy sector is one of the most regulated areas of the economy. However the rules set by the market operator need to keep pace with changing technology. Storage technology is just one example of where the rules fall behind. SA Premier Jay Weatherill has suggested that to resolve its energy nightmare the state might leave the National Energy Market altogether, and nationalise the system. We think a better option is to reform the National Energy Market so that it is fit for the energy system we have today. It's down to the Council of Australian Governments to make the changes.

Let's hope, for SA's sake, it makes changes sooner rather than later.