“In Australia, we could potentially see the value of flexible energy storage assets higher than what most investors generally anticipate in their initial business case modelling,” Thimo Mueller, general manager of commercial at AEMO Services, tells Energy-Storage.news ahead of the Energy Storage Summit Australia 2025.
AEMO Services, a subsidiary of the Australian Energy Market Operator (AEMO), is purpose-built to help support the transformation of Australia’s energy system so that it can adapt to a net zero world.
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The organisation supports the energy transition in numerous ways. Perhaps the most notable are the Capacity Investment Scheme (CIS) and the multiple state tenders undertaken to provide investor confidence in Australia’s energy storage and renewable energy generation market.
Another key part of the energy transition is AEMO’s 2024 Integrated Systems Plan, which forecasts that 49GW and 646GWh of dispatchable energy storage will be needed by 2050.
“Dispatchable capacity, including energy storage, is required to complement an electricity system dominated by solar and wind generation to respond quickly to changes in supply and demand. Storage also plays a critical role in enabling the build-out of more variable renewable energy,” Mueller says.
“At AEMO Services, we act as an intermediary between governments and the private sector. We incentivise renewable energy projects like storage by de-risking investment through Long-Term Energy Service Agreements (LTESAs) and Capacity Investment Scheme Agreements (CISAs).”
Mueller also says that AEMO Services’ work through supportive planning mechanisms helps create investor confidence in Australia’s energy storage market.
“AEMO Services also support investment by providing certainty to the market through our planning mechanisms, such as our Infrastructure Investment Objectives (IIO) report for New South Wales. Our tender processes are designed and run independently from the government, with projects assessed and recommended on both financial and non-financial criteria,” Mueller says.
Bids into tenders are becoming increasingly competitive
Another key aspect of AEMO Services’ work on Australia’s energy transition is the competitive tenders for energy storage and renewable energy generation. Mueller explains that in New South Wales, the organisation has “awarded over 18GWh of LTESAs to support long-duration storage projects.”
“The most recent long-duration storage tender was our largest to date and the largest of its kind in Australia.”
In a preview Energy-Storage.news released earlier this week, we identified that the adoption of LDES will be one of the upcoming trends at the Energy Storage Summit Australia 2025, with Mueller set to talk at the event on several panel discussions.
Mueller says the LTESA tenders have become increasingly competitive in recent months. This is backed up by Eku Energy’s chief technology officer, Elias Saba, who told ESN Premium last month that the tender’s competitive nature meant the company had to be sharp on its technical solution and price.
“There aren’t a lot of 8-hour systems in the NEM, so we had to ensure we had the right design and ran our competitive processes with the right potential partners to provide a cost-effective solution that’s a safe, secure and reliable solution,” Saba said.
Adding to this, Mueller says: “At the end of each LTESA tender, we release a market briefing note that provides information on how successful bids performed. This also shows that the annuity caps (the maximum available support payment in a year) have continued to decrease across tenders.”
‘Missing money issue’ impacts New South Wales LDES
Despite the positives of long-duration energy storage (LDES) certain technological barriers remain. Indeed, to some, the finances are deemed not to be in the correct position for wide-scale investment in the technology, something Mueller agrees with. Mueller adds that AEMO Services is actively trying to resolve via the LTESAs.
“One of the key barriers and risks we are working to mitigate in New South Wales is the missing money issue for long-duration storage. Whilst the economics for short and medium-duration storage have improved, there is still a gap between the revenues required for the commercial business case for longer duration and the forecast revenues developers are expecting to earn in the market,” Mueller says.
“This is where an LTESA can provide significant value for long-duration storage projects. It is designed to provide long-term revenue support and certainty for projects, up to 14 years for lithium-ion batteries and 40 years for pumped hydro. It provides a capped annuity payment in the form of a top-up to a project’s net operational revenues. This mitigates cash flow volatility and a lack of forecast project revenues.”
This coincides with research conducted and released by Wood Mackenzie and Modo Energy. Wood Mackenzie said last year that 4-hour battery systems would be more profitable in the future than the typical 1.6-hour duration of projects operating currently.
Wood Mackenzie’s research outlined that a 4-hour battery that starts operations in 2026 is projected to generate an average annual revenue of AU$263,000/MW (US$165,000/MW) over its lifetime. Batteries in Queensland are expected to lead at AU$281,000/MW.
On the other hand, Modo has said that the capital expenditure (CAPEX) for 4-hour batteries is expected to decrease by 20% by 2030, making investments in this technology more economically attractive.
‘Incredible demand for batteries’
Despite some of these barriers for LDES, batteries have undergone a transformation in Australia, with many recognising the potential of the technology in withdrawing coal-fired power stations dotted around the country. This potential has seen an “incredible demand for batteries”, Mueller says.
“We’ve continued to see incredible demand for the development of batteries in the National Electricity Market (NEM). The CIS dispatchable tenders have been very competitive and oversubscribed. We’ve also continued to see batteries be competitive in our long-duration storage tenders in New South Wales, and we’ve awarded our first-ever LTESA to a pumped hydro project.”
However, with an eye to the future, Mueller accepts that this is hard to predict due to the ever-changing energy and political landscape. Despite this, he remains optimistic that the finances behind energy storage projects will become more favourable.
“Anything can happen in the space of a year. What we could potentially see is that the value of flexible storage assets will be higher than what most investors generally anticipate in their initial business case modelling. This is due to the assets having a time (option) value, which will increase due to more volatility of market prices.
“There are good times ahead for storage investors, but as I said earlier, it is difficult to anticipate changes,” Mueller says.
Readers of Energy-Storage.news can follow the link here to get at 20% discount on tickets with the code ESN20 for the summit. Energy Storage Summit Australia 2025 takes place next week, 18-19 March, at Sofitel Sydney Wentworth.
