Australia: Lengthening durations, renewable hybrids and the need for revenue certainty

However, system modelling shows that longer-duration resources are needed, and work is being done to facilitate their deployment in the coming years as the market opportunities for them gradually deepen.

“Australia’s NEM favours shorter duration [assets], such as 2- to 4-hour duration, but we’re seeing longer durations being supported via schemes like the Long-Term Energy Service Agreement (LTESA) contracts,” Niall Brady, head of solar and battery storage at the Clean Energy Finance Corporation (CEFC) said during a panel discussion.

Brady’s perspective is supported by research and analysis conducted by Elias Saba, chief technology officer at Eku Energy, who told ESN Premium last month that various factors, including systems’ cost structure, have enabled a shift toward longer durations within the NEM.

A rise in revenue for longer-duration systems coincides with previous research conducted by Wood Mackenzie, which said last year that 4-hour battery systems would be more profitable than the typical 1.6-hour duration of current projects.

Despite the potential for longer-duration energy storage, the market conditions in the NEM still favour 2-hour-duration systems, particularly for arbitrage energy trading.

“It’s a case-by-case basis for energy storage duration, but there has generally been a shift towards longer durations in recent times. But 2-hour duration BESS still makes sense for arbitrage,” said José Luis Herrero, head of origination and execution Australia at Cubico Sustainable Investments.

The opportunity for solar-plus-storage

Another topic on the panel discussion featured the co-location of energy storage systems with variable renewable energy generation plants, namely solar PV and wind.

Brady said: “Batteries are changing the game. They’re developing quickly, and the costs are coming down. Compared to wind, solar-plus-storage with a 4-hour duration BESS could be very competitive.”

This increasing competitiveness of solar-plus-storage in Australia has been reflected in the numerous projects announced and under development over the past few months. These include projects from developers Lightsource bp (450MW), Acen Australia (100MW), and TotalEnergies (320MW).

Brendan Warn, managing director and co-founder of developer DIRECT Infrastructure, explained that solar-plus-storage projects will experience more significant cost deflation over the next decade than wind and offshore wind, which could surge their appeal to investors.

Warn also mentioned that Australia’s cities, which he said are amongst the most significant generators in the country owing to Australia’s impressive rooftop solar PV deployment, could see BESS utilised in varying ways to capture this. Although not explicitly mentioned by the panellists, one of the most popular ways of doing this is using community batteries.

‘Macquarie, BlackRock, Brookfield, that’s mega-scale for energy storage’

Earlier in the day, a panel discussion centred around the Capacity Investment Scheme, and some of the incentives for energy storage technologies took place.

Tim Buckley, director of the think tank Climate Energy Finance (CEF) and a recent interviewee for ESN Premium, explained that big players in the financing world are starting to notice Australia’s energy storage market.

“When I look at wind or solar-plus-storage, when I see the likes of Macquarie, the BlackRocks, the Brookfields of the world involved in energy storage. That, to me, is mega scale. There’s more than enough money. We need the right policy, the right tender terms, and the right approval speed,” Buckley said.

Buckley also turned his attention to one of the major announcements in Australia’s energy storage market in recent weeks: the offtake agreement between Rio Tinto, a British Australian multinational mining company, and Edify Energy to secure 2.1GWh of BESS capacity from an asset in Queensland, Australia.

“It was only five years ago that the journalists were trying to pit me against the CEO of Tomago Aluminium, saying you cannot run an aluminium refinery for more than eight minutes on a battery,” Buckley said.

“But Rio Tinto, the major majority owner of Tomago, the majority owner of the Gladstone refinery, are changing their tune as they’re seeing the scale of batteries, the duration of batteries, enabling low-cost solar to majority run their operations.”

Thimo Mueller, general manager of commercial at AEMO Services, another recent interviewee on ESN Premium, noted that while BESS assets are becoming an attractive option for investors, contracts awarded through state government tenders need to be structured to help fill gaps where the market doesn’t yet fully value the characteristics of storage, particularly at longer durations.

“If you think about battery projects, and then some of the generation projects, what we are doing at AEMO Services is providing that extra confidence that the revenues will be there when the project is operational, and that can be a substitute to some of the things that are missing at the moment. From a consumer’s perspective, it’s a good deal if you provide structure,” Mueller said.

AEMO Services, a purpose-built subsidiary of the Australian Energy Market Operator (AEMO), was established to help deliver an energy system capable of supporting Australia’s energy transition.

The organisation supports the energy transition in numerous ways. Perhaps the most notable are the Capacity Investment Scheme and the multiple state tenders undertaken to provide investor confidence in Australia’s energy storage and renewable energy generation market.