Hamilton Locke’s Matt Baumgurtel warns of a seismic shift as distributed energy resources with “zero marginal cost” reshape grid dynamics and push developers toward 6+ hour battery storage and hybrid strategies.
The Australian energy storage market stands at a critical inflexion point, where the explosive growth of rooftop solar and home batteries threatens to fundamentally undermine the business case for utility-scale generation, forcing developers to radically rethink project economics, duration strategies, and who they’re selling power to.
Matt Baumgurtel, partner and new energy lead at law firm Hamilton Locke, paints a stark picture of the challenge facing utility-scale developers: they’re now competing against distributed energy resources (DER) whose owners assign zero value to exported electricity, creating what he describes as an existential pricing threat.
“The brutally scary thing is that people who put solar on their roof and a battery storage system in their basement don’t build those assets to export electricity to the network. They do it to produce and consume their own energy,” Baumgurtel explains.
Try Premium for just $1
- Full premium access for the first month at only $1
- Converts to an annual rate after 30 days unless cancelled
- Cancel anytime during the trial period
Premium Benefits
- Expert industry analysis and interviews
- Digital access to PV Tech Power journal
- Exclusive event discounts
Or get the full Premium subscription right away
Or continue reading this article for free
“The marginal value, therefore, of that energy spilt onto the grid, or that available capacity to the person who owns that asset, is zero.”
This dynamic creates a perverse competitive landscape. When aggregated through virtual power plants (VPPs), these residential systems become “the single largest generator” in the market – one that will bid electricity prices down aggressively because homeowners view any payment for exported power as pure profit on energy they weren’t planning to sell anyway.
“Any dollar an owner of rooftop generation or home battery storage gets from the grid for that generation, or use of that storage capacity, is a bonus, i.e., these assets were not acquired in order to generate revenue, and hence any revenue has a perceived marginal cost of AU$0”, Baumgurtel says.
“It’s great, unless I own utility-scale assets, because now I’m competing with assets which will be traded as if they have a zero marginal cost.”
The flat duck question: where will prices settle?
This competitive pressure feeds into what Baumgurtel identifies as the single most important question facing the Australian energy market: at what price level will the supply-demand curve eventually flatten once sufficient storage enters the system?
Several industry stakeholders have coined this “the flat duck” question, a reference to the famous duck curve that shows the gap between solar generation and evening demand. While everyone agrees the curve will eventually flatten as storage proliferates, enormous uncertainty surrounds the price point where equilibrium occurs.
“The question that everyone is trying to solve for when everyone has an opinion, and no one will be right, is: at what height or price will the flat duck fly?” Baumgurtel says.
“If you go back in time, back to when coal was the only source of electricity, coal ran 24/7 at about AU$64 (US$45.61). The question is, if you accept we’re going to get back to a flat price curve, at what price is that market going to settle? If the LCOES of your project exceeds the market-clearing price, you have a problem.
“This uncertainty stymies investment, particularly with continued reductions in BESS CapEx and substantial reductions in PV CapEx being forecast. So, investors wait, but if they wait too long, they will miss the window and will struggle to deploy capital.”
Whether that price settles at AU$45/MWh or AU$85/MWh represents “an enormous question” that will determine project viability across the sector. Baumgurtel notes that current market forecasts have a statistical probability of correctness around 64%, meaning the actual outcome could fall anywhere within a massive range.
Duration is king: the shift to 6+ hour storage
Against this backdrop of uncertainty, Baumgurtel identifies three major trends reshaping the Australian energy storage landscape. The first and most significant: “duration is king”.
“The game of 2-hour battery storage is done. That was two years ago. Last year was the year of the 4-hour battery storage system. This year is the year of six-plus hours of storage,” Baumgurtel says.
“Unless your project is 6-hours+ of storage, then you’re not going to get away.”
This shift reflects the evolution of the storage value proposition. Early batteries were built primarily for frequency control ancillary services (FCAS) – grid stability services that commanded premium prices.
Baumgurtel recounts how developers would install 2-hour lithium batteries at substations specifically to avoid FCAS charges, with some projects paying AU$3-5 million per quarter in penalties.
But that market has been saturated. “FCAS has been dead for two years,” Baumgurtel says bluntly. “People are now publishing articles about who killed FCAS. FCAS was six feet under the ground a year ago.”
Today’s storage market is about energy arbitrage – shifting solar generation from the midday glut to the evening peak.
“That’s shifting generation from typically 10:00 till 14:00, moving to 18:00 till 22:00,” Baumgurtel explains. “And your ability to arbitrage requires you to have a much bigger energy ‘bucket’ to fill up and empty each day.”
Longer duration also opens the door to alternative storage technologies beyond lithium-ion.
“You don’t need lithium anymore. Lithium becomes quite expensive on a MWh basis because the balance of plant cost is linear,” Baumgurtel says. “You can go to different forms of energy storage: sodium, flow [batteries], liquid air, even modular/small-scale pumped hydro.”
Battery-led hybrid: building storage now, solar later
The second major trend Baumgurtel identifies is what Hamilton Locke has coined “battery-led hybrid” – a development strategy that flips the traditional solar-plus-storage model on its head.
“Build the battery now for 4-6 hours, have approvals, or at least the land available to put PV on later, like [in] five years,” Baumgurtel explains.
Developers sign five-year tolling agreements with trading houses, which provide stable revenue to support project finance, while securing land rights and approvals for future solar development.
“You build a battery, you sign your tolling agreement, you can finance off the back of the tolling agreement, and in five years, you’ve got an asset which is probably 50-60% repaid, and then add solar PV,” he says.
The strategy hedges against current market uncertainty while positioning developers to capitalise on expected improvements in solar economics. Baumgurtel notes that Bloomberg forecasts the levelised cost of energy (LCOE) for ground-mount solar will decline 30% by 2030, driven by automation and robotics. However, he believes the actual reduction will exceed 40%.
“The LCOE on solar is going down substantially, driven by economies of scale, AI-enabled automation/robotics, including remote piling and panel installation. Construction becomes automated and runs 24/7 with onsite labour only required for repairs and troubleshooting,” Baumgurtel says.
In five years, developers can either sell the battery-plus-land package as ‘PV ready’ or build out the solar themselves and refinance under a hybrid power purchase agreement (PPA).
“Most people say that energy prices will pick up over the next 10 years,” Baumgurtel notes. “So, they’re saying that the flat duck is going to fly at closer to AU$80 than AU$40.”
If that forecast proves correct, developers building solar at an LCOE of AU$38/MWh, combined with long-duration storage at AU$20/MWh, could profitably sign PPAs at around AU$90/MWh.
“Now, is it going to be 90? Is it going to be 80? There’s the game, right?” Baumgurtel says.
“If it’s 40, game over. But it probably will not be, and it will not be because there will not be enough energy generation built in that time period. After all, everything is delayed for the grid and planning.”
DER penetration supercharged by federal rebates
The third trend – continued penetration of distributed energy resources – has been “supercharged” by the federal government’s Cheaper Home Batteries Program, which Baumgurtel says will drive the installation of 100,000 home batteries starting in January, with month-on-month growth expected.
Hamilton Locke recently advised on the Aware Super-Birdwood transaction, which saw AU$2 billion of pension fund capital flow into DER assets, which Baumgurtel claims is “the single largest DER investment in the world”.
However, he warns of potential safety and quality concerns reminiscent of Australia’s ill-fated home insulation scheme.
“There’s always a risk in deploying huge amounts of small projects, because you rely on a workforce which is probably not that experienced, if not qualified to do it,” Baumgurtel says.
Despite these concerns, the DER rollout will continue, facilitated by regulatory changes and VPP aggregation platforms that are making residential resources increasingly grid-interactive.
Market consolidation and the cost of capital advantage
Beyond these three primary trends, Baumgurtel identifies significant consolidation occurring among independent power producers (IPPs), driven by the reality that “cost of capital is king in this game now”.
“You need to get big, or you need to find someone who’s big to buy you,” Baumgurtel says. Low-return institutional capital, pension funds, sovereign wealth funds, and insurance companies are increasingly dominating the sector, seeking steady returns and taking long-term views with less project gearing.
Meanwhile, traditional energy retailers are moving in the opposite direction.
“Look at what AGL and Origin are doing. They are becoming asset-light. They do not want to own generation. They want to be retailers, not manufacturers of electricity because the margins are made way, way, way bigger and better,” Baumgurtel explains.
“They’re signing PPAs. They’re not owning assets.”
This consolidation creates a regulatory challenge, as concentrated ownership of generation assets raises competition concerns, even as the sector requires exactly the kind of patient, low-cost capital that only large institutional investors can provide.
A market in transition
The picture Baumgurtel paints is of a market in profound transition – one where the old rules no longer apply and the new equilibrium remains uncertain. Utility-scale generators must now accept that they primarily serve commercial and industrial loads rather than residential customers, who are increasingly energy self-sufficient.
With 65% of Australia’s current generation capacity coming from coal, which will likely disappear within 15 years, there will be room for utility-scale renewables. But exactly how much room – and at what price – remains the multi-billion-dollar question keeping developers awake at night.
For now, the smart money is betting on battery storage first, solar later, and duration above all else.
The Energy Storage Summit Australia 2026 will be returning to Sydney on 18-19 March. It features keynote speeches and panel discussions on topics such as the Capacity Investment Scheme, long-duration energy storage, and BESS revenue streams. ESN Premium subscribers receive an exclusive discount on ticket prices.
To secure your tickets and learn more about the event, please visit the official website.