‘One market into many’: AER says battery storage systems are reshaping Australia’s NEM

The report attributes the improvement in evening peak prices in part to an increase in mid-priced offers from the entry of new battery storage systems, alongside fewer very high-price events.

Daytime prices fell further, driven by low-priced offers from new wind and solar generation, with battery charging load increasingly influencing price outcomes during those hours.

Coal set the wholesale price less often overall, particularly during the day, but the AER found it remains important overnight, especially in Queensland and New South Wales, where higher coal fuel prices limited how much overnight prices could improve compared with 2021.

Battery storage power output has grown from 261MW to 6.1GW in five years

The AER’s data illustrates the scale of the shift. At the start of 2021, there were just five utility-scale battery storage systems in the NEM, totalling 261MW, most of which derived their revenue from frequency control ancillary services (FCAS) markets rather than energy trading.

By the end of 2025, installed battery storage power output had reached 6.1GW, up from 2.2GW at the start of that year alone, a jump the AER said had a material impact on wholesale market outcomes.

As installed output grew, so did the average duration of battery storage systems entering the market, with the AER noting that nearly two-thirds of installed capacity now has at least 2-hour duration.

That shift has changed where battery storage revenue comes from: energy markets accounted for around 80% of battery spot market revenue in 2025, up from a market once dominated by FCAS earnings.

The first 8-hour battery storage began operating in June 2026, supported by the New South Wales Energy Road Map, with the AER noting that further long-duration battery entry over the coming years will be shaped primarily by that scheme and South Australia’s Firm Energy Reliability Mechanism (FERM).

The report found that battery storage generation and charging load, combined, set the wholesale price in the NEM 16.3% of the time across 2025, up from around 1% in 2021, displacing gas and hydro as more frequent price setters.

During the evening peak specifically, battery storage systems set the price 25.5% of the time in Queensland in 2025, up from roughly 1% four years earlier. FCAS conditions were also more favourable in 2025, with costs falling to their lowest level since 2016, as battery storage systems and other new technologies drove prices down in that market, though the AER flagged localised spikes in South Australia, showing regional cost pressures can still emerge.

The AER also found that new battery storage capacity is reducing market concentration during peak periods, with new entries more than doubling since mid-2024 and a more diverse range of owners entering the market.

However, the regulator cautioned that lower average concentration does not mean competition risks have disappeared; they are increasingly concentrated at particular times, services and locations, with competition remaining more limited overnight and during the evening peak when solar output is low and the system relies more heavily on dispatchable generation.

Firming services, in particular, remain highly concentrated, with the largest providers still controlling a substantial share of capacity across the NEM.

Looking ahead, the AER identified 6.5GW of committed battery storage power output in the pipeline, most with at least 2-hour duration, alongside a further 11.3GW of anticipated output, with some entering over the next three years.

The regulator’s key recommendation was that policy attention needs to focus on reducing overnight and evening price pressure, warning that while battery storage systems and hydro make up most of the committed near-term capacity, they are better suited to easing evening peak pressure than overnight conditions, where wind, which faces its own approval and delivery challenges, plays a more relevant role.

Findings echo a broader pattern of battery-driven market change

The AER’s findings sit alongside a run of recent data pointing to the scale and pace of battery storage deployment across the NEM.

NEM-wide battery price spreads fell 85% in a single year to average AU$51/MWh (US$35/MWh) in the second quarter of 2026, as grid-scale battery storage output passed 9,000MW for the first time, according to AEMO’s Quarterly Energy Dynamics report.

Battery discharge set prices in 46% of dispatch intervals during the evening peak over that period, compressing arbitrage margins consistent with the AER’s own observation that new mid-priced battery offers are increasingly setting prices at peak times.

That expansion has continued at pace. Australia’s NEM connected 9.1GW of new generation and storage to full output in the 2026 financial year, more than double the FY25 result, with battery projects dominating the technology mix and now accounting for 52% of the 75.4GW NEM connections pipeline, according to AEMO.

Day-to-day system operation also reflects the scale described in the AER’s report in aggregate: NEM-wide battery discharge reached a record 4,325MW on 11 August 2026, with the fleet’s intraday operating swing between midday charging and evening discharge reaching roughly 8.3GW, according to analysis from energy transition adviser Geoff Eldridge.

The pattern the AER describes for Australia mirrors a global relationship between solar and storage.

A report from climate consultancy Ember published in August 2026 found that battery storage systems are turning solar power into an “anytime” resource, with Australia ranked among the world’s leading markets for shifting solar generation into non-sunny hours, installing enough battery storage in 2025 to shift 60% of its new daily solar generation into other parts of the day, behind only Bulgaria and Chile globally.

Despite the scale of recent battery storage deployment, the AER’s report makes clear the transition remains incomplete.

6GW of coal capacity is scheduled to exit the NEM over the next three years, concentrated withdrawals, the regulator said, increase the risk of market volatility and reliability pressure if replacement capacity, including long-duration storage, wind and transmission, does not arrive in the places and at the times needed to fill the gap.

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