Due to higher power price volatility and changing market dynamics, investments in battery storage within Australia’s national electricity market (NEM) are becoming increasingly profitable.
That’s according to a report by data and analytics firm Wood Mackenzie, which focused on modelling the profitability of new battery investments in the NEM based on revenues from energy, as well as frequency control and auxiliary services (FCAS) markets.
The report shows a growing market for batteries in the NEM, with a pipeline of projects totalling 60 gigawatts currently under development, which represents more than $80 billion of potential investment.
Wood Mackenzie’s report found that renewables capacity in Australia is now equivalent to over 80% of the peak grid load, while battery storage investments have lagged at less than one tenth of this level.
The company reports wind and solar capacity in Australia has grown six-fold over the last decade to an estimated 43 gigawatts, and now supplies more than one third of the nation’s power.
“Our analysis of both the base case and scenarios with increased price volatility indicates that investment returns for four-hour battery systems will exceed 10% in the top three NEM regions: Queensland, Victoria, and New South Wales,” Max Whiteman, a research associate at Wood Mackenzie, says.
“This underscores the profitability of battery storage across various market conditions.”
Typically, a four-hour battery system has shown higher profitability compared to the typical 1.6-hour duration of projects operating currently.
The projected internal rates of return for four-hour battery systems range from 13-15%, highlighting their viability in a volatile energy market.
Whiteman also noted that Wood Mackenzie’s 30-minute price forecasts show daily price spreads consistently over $100 per megawatt-hour, “with an increasing number of spikes up to $400 or more.”
“By 2030, over 80% of battery project revenues will come from energy arbitrage, as FCAS markets saturate,” Whiteman adds.
By 2030, the capital expenditure for four-hour batteries is projected to decrease by 20%. Wood Mackenzie says this will enhance the economic justification for investment.
According to Wood Mackenzie, a four-hour battery that starts operating in 2026 will generate $263,000 per megawatt on average annually over its lifetime. In Queensland, that figure could be higher, at around $281,000 per megawatt.
Wood Mackenzie is focused on providing insights for renewables, energy, and natural resources.
