Investments in battery storage within Australia's National Electricity Market (NEM) are increasingly profitable due to higher power price volatility and changing market dynamics, according to the latest report by Wood Mackenzie.
Australia is a leader in renewables deployment, but battery storage investments have lagged. In the last decade, wind and solar capacity in Australia has grown 6-fold to an estimated 43 GW and now supplies over one third of the country’s power. Wood Mackenzie data shows that renewables capacity in Australia is now equivalent to over 80% of the peak grid load, while battery storage investments have lagged at less than one tenth of this level.
Wood Mackenzie’s latest report focuses on modelling the profitability of new battery investments in the NEM based on revenues from energy and frequency control and ancillary services (FCAS) markets. In the past, revenue uncertainty has been a key constraint for financing battery projects, which were considered high risk. The report shows a growing market for batteries in the NEM, with a massive pipeline of 60 GW of projects under development representing over AU$80 billion (US$50 billion) of potential investment.
Over 60 GW of battery storage projects under development in Australia
Daily price volatility from renewables is supporting a stronger battery revenue outlook
“Our analysis of both the base case and scenarios with increased price volatility indicates that investment returns for 4-hour battery systems will exceed 10% in the top three National Electricity Market (NEM) regions: Queensland (QLD), Victoria (VIC), and New South Wales (NSW). This underscores the profitability of battery storage across various market conditions,” said Max Whiteman, Research Associate, Asia Pacific Power & Renewables at Wood Mackenzie. Results show that going forward 4-hour duration battery systems have higher profitability compared to the typical 1.6 hour duration of projects operating today.
Projected internal rates of return (IRRs) for 4-hour battery systems range from 13% to 15%, highlighting their viability in a volatile energy market. “Our 30-minute price forecasts show daily price spreads consistently over AU$100 per megawatt-hour, with an increasing number of spikes up to AU$400 or more. By 2030 over 80% of battery project revenues will come from energy arbitrage, as FCAS markets saturate” said Whiteman.
Battery project IRR estimates for assets operating in the NEM 2026-45
Battery costs falling even as revenues grow
The capital expenditure (CAPEX) for 4-hour batteries is projected to decrease by 20% by 2030, which will further enhance the economic justification for investment. According to Wood Mackenzie, a 4-hour battery that begins operations in 2026 is expected to generate an average of AU$263,000 per megawatt (MW) annually over its lifetime, with Queensland leading the way at AU$281,000 per MW.
Planned coal retirements create more opportunities for batteries
“Wood Mackenzie forecasts a significant shift in the energy landscape, with 21 GW of coal retirements in the NEM by 2045. This will contribute to higher price volatility and drive demand for flexible technologies like batteries to address capacity gaps and stabilise the grid” said Sooraj Narayan, Principal Analyst, Asia Pacific Power & Renewables at Wood Mackenzie. “As renewable generation share is expected to exceed 60% by 2030, volatility and sharp daily price swings will create ideal conditions for batteries.”
Policy and market implications
Government support policies, such as the Capacity Investment Scheme, provide financial certainty that can help secure funding for battery storage projects. However, the report finds that high daily price volatility in power markets makes battery investments appealing even without government guarantees.
“Battery storage will be crucial in Australia’s energy transition, influenced by the growth of renewable energy and market volatility. Investors can anticipate strong returns across different scenarios, making this an opportunity to capitalise on the changing dynamics of the NEM,” concluded Narayan.
