Battery Storage in Australia’s National Electricity Market Becomes More Profitable Amid Higher Power Price Volatility

Investments in battery storage within Australia’s National Electricity Market (NEM) are becoming increasingly profitable, driven by higher power price volatility and changing market dynamics, according to a new report by Wood Mackenzie.

Australia, a leader in renewable energy deployment, has seen a sixfold increase in wind and solar capacity over the past decade, now totaling around 43 GW and providing over a third of the country’s electricity. However, battery storage investments have lagged, representing less than a tenth of the renewable capacity in development.

Wood Mackenzie’s latest report highlights a growing market for battery storage, with more than 60 GW of battery projects under development in the NEM, representing over AU$80 billion (US$50 billion) in potential investment. This surge is attributed to the increasing profitability of batteries, supported by the revenues from energy and frequency control and ancillary services (FCAS) markets.

Max Whiteman, Research Associate at Wood Mackenzie, stated, “Our analysis shows that investment returns for 4-hour battery systems in top NEM regions like Queensland, Victoria, and New South Wales are projected to exceed 10%. This makes battery storage highly profitable under various market conditions.” Projections suggest internal rates of return (IRRs) for 4-hour systems will range between 13% and 15%, compared to 1.6-hour systems that dominate the market today.

Daily price volatility due to renewable generation is expected to further boost battery revenue, with projections indicating that over 80% of battery project revenues will come from energy arbitrage by 2030. The report also notes that capital expenditure (CAPEX) for 4-hour batteries is set to decrease by 20% by 2030, improving the economic case for investment.

The report highlights that planned coal retirements, expected to total 21 GW by 2045, will contribute to higher price volatility, creating more opportunities for battery storage to address capacity gaps and stabilize the grid. As renewable energy share exceeds 60% by 2030, daily price swings are expected to rise, making batteries a crucial solution.

Government policies like the Capacity Investment Scheme are expected to help secure funding for battery projects. However, Wood Mackenzie notes that the increasing price volatility in the power market is making battery storage investments appealing even without government guarantees.

Sooraj Narayan, Principal Analyst at Wood Mackenzie, concluded, “Battery storage will play a crucial role in Australia’s energy transition, providing strong returns as the renewable energy share grows and market dynamics evolve.”