The NEM’s electricity grid is becoming more vulnerable to disturbance as inverter-based technology replaces synchronous generation. Falling system strength and declining inertia are raising costs for new projects and creating uncertainty for developers. Grid-forming (GFM) batteries are proving to be more than just a technical solution; they’re also unlocking new sources of value for developers. By avoiding system strength charges and securing network support contracts, GFM systems are accessing revenue streams that grid-following (GFL) batteries cannot reach.

For an introduction to grid-forming in the NEM, read our explainer here.

This second part of the GFM series explores how batteries capture value from GFM. It covers network support agreements, system strength charge avoidance, international benchmarks, and the role GFM will play in shaping the future NEM grid.

Executive summary:

• GFM inverters allow batteries to access out-of-market revenues. Network support contracts and system strength charge avoidance are emerging as key revenue streams.
• System strength nodes act as locational signals for GFM batteries. Areas with high system strength pricing and requirements guide developers to where GFM batteries are most valuable.
• Developers can avoid up to $13.5k/MW/year in system strength charges by installing GFM inverters. GFM batteries can remediate their impact on the local network, thereby avoiding system strength charges.
• International benchmarks for network support contracts were valued at $16.9k/MW/year. The Great Britain (GB) Stability Pathfinder tenders provide a useful benchmark for network support contracts in the NEM.
• Grid-forming batteries can deliver system support much cheaper than dedicated assets like synchronous condensers. Batteries were contracted for $9,960/MVA/year, compared to $77,275/MVA/year from synchronous condensers.

Out-of-market revenues are driving batteries to adopt grid-forming inverters

Grid-forming is becoming the default for new entrant batteries in the NEM. Existing GFL batteries are also joining the shift by upgrading their inverters to become GFM. The most notable example being the Hornsdale Power Reserve expansion in 2020. To date, grants, network support contracts, and system strength charge (SSC) avoidance has driven this shift.