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The volume of large-scale battery energy storage projects under construction in Australia passed that of solar and wind projects combined in 2023 and the trend has intensified this year, with batteries attracting federal support. As coal-fired power plants are shuttered, developers and suppliers are enjoying a battery bonanza.
The boys at the back of the bus were locked in debate about the prospects for Australian energy storage. In June 2024, on a tour of Shanghai organised by Australia’s Smart Energy Council, Tim Buckley, boss of think tank Climate Energy Finance, and renewables financier Oliver Yates were deep in discussion.
Yates was convinced batteries were poised to dominate all forms of energy storage, with Buckley musing that might have been the result of their visits to battery producer CATL and power electronics giant Sungrow. Yates, the first CEO of federal government-owned green bank Clean Energy Finance Corporation, has financed energy storage facilities. His prediction that batteries would outshine gas peaker plants and offshore wind in the supply of evening power was, therefore, notable.
Buckley agreed. “There’s been such a dramatic rate of technological improvement with batteries, coupled with scaling up, that any advantage other technologies may have had, to meet the evening demand peak, from five to six years ago is gone,” he said. “Batteries will do a huge amount more heavy lifting than even thought a few years ago.”
High volume
The volume of battery energy storage capacity connecting to the grid, being constructed, and reaching final investment decision confirms that thesis. Business intelligence company Rystad Energy has said that almost 4 GW of utility-scale battery energy storage systems (BESS) entered construction in the first nine months of 2024. That equals the full-year figure for 2023.
BloombergNEF has confirmed the rapid buildout of big batteries, recording 7.8 GW of utility-scale BESS currently under construction in Australia. It says installed big battery capacity will grow from 1.7 GW today to 18.5 GW in 2035.
The picture is replicated in mature renewables markets in California and Texas, where large-scale BESS have firmed electricity supply and evened out wholesale market price spikes.
Down Under, favorable economics for colocation with solar and wind power sites, the attractiveness of long-duration energy storage, supportive policy, and falling battery pack prices all support large-scale BESS growth. With the government targeting an 82% renewable energy mix by 2030, big batteries will be essential. Yates’ back-of-the-bus prediction looks likely to be proven right.
Long(er) duration
Australia’s big batteries are getting bigger, with storage capacities rising from one hour to two, four, and even eight hours, thanks to changes in battery revenue streams. Sites have switched from deriving income from short-term markets for grid-firming frequency control ancillary services (FCAS) to energy arbitrage – storing electricity when prices are low for sale during peak periods.
Energy economist Bruce Mountain confirmed that big batteries are attracting investors in Australia and capacities are growing.
“As a proportion of our peak electricity demand, we are level-pegging with California and Texas, with the rate of large-scale storage and we are seeing a similar increase in energy-to-power capabilities as they are seeing in those regions,” said Mountain. The director of the Victoria Energy Policy Center added that while these are positive developments, the volumes are not yet large enough to drive up increasingly depressed daytime wholesale electricity prices.
Outlining the development of the large-scale BESS market segment, from FCAS to arbitrage, Leonard Quong – BloombergNEF’s head of Australian research into energy transition and trade – said that a “tsunami of rooftop solar” and utility-scale solar has “reshaped power price dynamics in Australia.” As a result, he claimed, the arbitrage opportunity for big battery storage systems has become compelling.
“Across all of 2023, wholesale prices on the east coast were below zero around 9% of the time,” said Quong. “In some states, that was more than 25% of the time. So increasingly, batteries are being built to participate in the wholesale market to arbitrage prices. As a consequence, we’re seeing bigger batteries.”
Quong added that while attractive, the business model for arbitrage trading for batteries is “extraordinarily complicated and dynamic,” meaning that supportive policy measures remain important.
Rystad Energy numbers also confirm a trend of increased attractiveness for arbitrage opportunities. David Dixon, a Sydney-based renewables analyst at Rystad, said that most Australian states registered more than 1,000 hours of negative electricity prices in 2023, “with South Australia at 2,165 hours.”
Co-location the norm
The growing incidence of negative electricity prices is also driving the co-location of large BESS with PV and wind. With rooftop PV installations in Australia appearing to be settling at a volume of around 3 GW per year, and installation sizes expanding up to 9 kWp for each system, Quong’s rooftop “tsunami” has become an enveloping wave. Australia’s world-leading rooftop segment is cause for celebration, but it has created significant headwinds for large-scale renewables. |
