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UPDATE 1-Australia sues Neoen for lack of power from its Tesla battery reserve

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(Adds penalty details, Neoen comment, Tesla no-response)

By Sonali Paul

MELBOURNE, Sept 23 (Reuters) - Australian Energy Regulator (AER) has filed a lawsuit against Neoen SA, saying the French firm's Tesla "Big Battery" in South Australia did not provide backup power during four months in 2019 for which it had received payment.

Neoen said it was disappointed with AER's decision. It did not comment on the actual allegations.

On-demand power from storage is critical for preventing blackouts in Australia which is increasingly dependent on wind and solar farms from which energy is not always available.

Neoen's Hornsdale Power Reserve was the world's biggest battery when it was switched on in 2017, built after Tesla Inc Chief Executive Elon Musk said his firm could prevent blackouts in South Australia with its "Megapack" batteries.

AER said Hornsdale Power Reserve had offered to provide market services and was called on by the Australian Energy Market Operator to dispatch power in July to November 2019 during frequency disturbances - or power drops on the network - but that the energy was not supplied as needed.

"It is vital that generators do what they say they can do if we're going to keep the lights on through the market's transition to variable renewable generation," said AER Chair Clare Savage.

The regulator is seeking fines and court costs for a "significant number of breaches" over the four-month period. Each breach of national electricity market rules carries a maximum penalty of A$100,000.

Neoen Australia Managing Director Louis de Sambucy said the Hornsdale Power Reserve has proven to be essential in helping to maintain stability in the grid. He pointed to its role in supporting system security in early 2020 when an interstate transmission line went down during a heatwave, and when a coal-fired power plant in Queensland suffered an explosion in May.

"Whilst we are disappointed by the AER decision, Hornsdale Power Reserve has and will continue to deliver important services for the electricity network and we will continue to work collaboratively with the regulator," he said in a statement.

The AER action comes as Neoen faces potential delays with what will be its biggest battery in Australia, the 450 megawatt hour Victoria Big Battery, following a fire in one of its Tesla Megapacks.

The Victoria Big Battery was due to be switched on in time for the southern hemisphere summer, which starts in December.

Tesla did not respond to requests for comment. (Reporting by Sonali Paul; Editing by Christopher Cushing)

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