Australia: Storage in demand in world’s most volatile electricity market

A recent Australian battery funding programme, which was ten-times oversubscribed, demonstrated the country’s desperate need for energy storage to combat the nation’s violently fluctuating electricity prices



November 10, 2023

  • Australian battery funding programme was ten-times oversubscribed
  • Demand due to country having world’s most volatile electricity market, as studies prove
  • Market is responding to demand, with recent announcements from Octopus, Fluence and Hydrostor
  • However, limited ‘commercially mature’ options for long-duration storage

Australia is a nation that is desperate to install more energy storage capacity. A stark reminder of the country’s dire need for more such assets came last week with an announcement from the Australian Renewable Energy Agency (ARENA) that provided an update on round one of the Community Batteries Funding Program. To provide some context, back in April this year, ARENA opened the first round of the scheme, with the stated aims of lowering energy bills, cutting emissions and reducing pressure on the electricity grid through the development of community battery projects.

The response to the call for funding applications was overwhelming, with ARENA describing the demand as unprecedented. In total, ARENA received 140 eligible applications across all states and territories, with a total grant request of $1.3 billion. It represented more than ten times the $120 million funding available in the first round. In response, ARENA has shortlisted 31 applications to be invited to submit full applications. The agency stated that shortlisted applicants must install a minimum of five community batteries, between 50 kW and 5 MW in size each, and be connected to the distribution network. ARENA hopes that the first battery storage projects will act as knowledge banks that other developers of future projects – across the entire country – can draw upon.

What’s driving the demand for storage?

It’s unsurprising that communities across Australia are anxious to quickly install storage facilities in their local area when you consider that recent research showed that Australia’s electricity market is the most volatile in the world. Research conducted by Rystad Energy concluded that the country’s power market was suffering from unexpected losses of supply from unplanned coal generation outages and transmission line problems caused by natural disasters, with the result being huge price fluctuations. Indeed, the study said that Australia’s National Electricity Market (NEM) – which interconnects power markets in Queensland, New South Wales, Victoria, Tasmania and South Australia – is experiencing the most fluctuations in daily prices of any system worldwide (see chart below).

Source: Rystad Energy

In conducting the research, Rystad analysed public price data from 39 electricity markets globally and discovered that Australia’s NEM is the most volatile with “domestic price spreads for Queensland and South Australia seeing the widest spreads of all markets”. The key metric used to measure volatility is the average one-hour intraday spread for a year of data, that is, the difference between the highest and lowest price during a given hour. Other markets that experience high volatility are Japan and the Philippines, as well as the US states of California and Texas, but none are quite as volatile as the Australian market.

Public opposition to transmission upgrades

Causes of volatility include transmission line problems caused by natural disasters such as cyclonic winds or bushfires, phenomena that have become more devastating and frequent in recent years. If that wasn’t problematic enough, plans to build more transmission lines in Australia are being opposed by protest groups – the proposed Western Renewables Link (WRL), a 190-kilometre project managed by transmission company AusNet Services, which will run from western Victoria into Melbourne, is one such plan that is facing particularly vociferous opposition.

Given the fluctuations in prices, Australia is in need of additional storage capacity – a total of 46 GW/640 GWh of pumped hydro and utility-scale battery storage capacity will be needed to balance the market by 2050, a significant increase from the current 2.8 GW of capacity.

Opportunity for developers to tackle storage shortage

With electricity prices fluctuating so violently – a scenario which, as Rystad Energy highlighted, is unsettling for retailers who lack proper hedging strategies and for consumers who have to bear the brunt of the associated costs – developers are responding to the demand for investment in storage. Last month, Octopus Investments Australia acquired the 1GW Blackstone battery energy storage system in Queensland, which is expected to have an $800 million enterprise value when operational – the project, located 30 kilometres from Brisbane, is being developed by Firm Power. Meanwhile, in September, it emerged that energy storage provider Fluence Energy had been selected by Tilt Renewables to deliver the 100 MW / 200 MWh Latrobe Valley battery energy storage system (BESS) located south of Morwell in Victoria, Australia. Under the terms of the deal, the Latrobe Valley BESS will be developed by Tilt Renewables and will be built, serviced, and maintained by Fluence under a 20-year long-term service agreement. It represented Tilt Renewables’ first battery energy storage system in Australia and demonstrated how the considerable potential of the country’s storage sector is attracting new market entrants.

Hydrostor signs Silver City deal

Elsewhere last month, long duration energy storage developer Hydrostor and mining project developer Perilya entered into a binding agreement to leverage the existing mining assets at Perilya’s Potosi Mine in Broken Hill, Australia to support the construction of the Silver City Energy Storage (SCES) project. The project – which has been selected by Transgrid as the preferred provider of backup power for Broken Hill and the Far West region of New South Wales – is supported by the New South Wales Government under the Emerging Energy Program and by the Federal Government via a grant from the Australian Renewable Energy Agency (ARENA). Also last month, the Australian federal government granted approval for Edify Energy’s Smoky Creek Solar Power Station, a solar and storage project located in Central Queensland – 75 kilometres south of Rockhampton and 40 kilometres north of Biloela – which, once complete, could generate up to 1,200 GWh of renewable energy per year. Meanwhile, Edify Energy and infrastructure investor Sosteneo also completed the AS$400m project financing for the 185MW / 370MWh Koorangie battery storage system that will be built in the Murray River region, near Kerang, Victoria.

Few ‘commercially mature’ options for longer duration storage

With Australia looking to rapidly build out its storage capacity given the volatility of electricity prices in the country, we can expect investment to flood into the sector in the coming years. However, there are significant barriers to deployment that mean Australia may not deploy the storage it badly needs fast enough. The Australian Energy Council has said there are limited commercially mature options for storage of varying durations, which is what is needed to deal with changes in supply and demand. It has also highlighted how, with regard to more remote communities, there will be a need for storage that can “maintain power quality and deliver reliable energy for days or weeks”. Addressing these challenges will be imperative if storage is to successfully tackle the problem of Australia’s fluctuating electricity prices.

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