Australia’s energy storage market began its journey in 2016, driven by key factors such as weak grid infrastructure, abundant renewable energy resources, and high electricity prices for consumers. These elements have fueled rapid development in the energy storage market. First, Australia’s National Electricity Market (NEM) has a narrow and sparsely distributed transmission grid. Power generation and load centers are dispersed across the country, and the five state-level transmission networks are interconnected via transmission lines. A disconnection in these lines can significantly impact the grid. In recent years, extreme weather events such as bushfires and storms have increased in frequency, threatening the stability of the electricity system and the interconnection between state grids. As a result, Australia is seeking to enhance grid interconnectivity through the addition of new energy storage systems. Additionally, in support of renewable energy integration, Australia’s Prime Minister announced a net-zero emissions target by 2050. According to Australia’s Integrated System Plan (ISP), the country’s energy system requires 1-2 hours of storage to smooth the intermittent nature of renewable energy in the short term. In the future, as coal-fired power plants retire, mid- to long-duration energy storage (4-12 hours) will play an even more critical role in energy shifting over larger time scales. On the user side, Australia’s abundant sunlight, high electricity prices, and widespread distributed PV installations present new opportunities for home energy storage systems to support self-consumption of solar power.
Multiple Revenue Models Drive the Rapid Growth of Australia’s Energy Storage Market
Rapid Increase in Large-Scale Battery Storage Projects
In recent years, large-scale battery storage projects on the grid side of Australia have seen rapid growth. As of June 2023, the total installed capacity of battery storage projects in Australia reached 1,526 MW, marking an 85.64% year-over-year increase. From 2022 to 2023, 704 MW of new battery storage entered the market, setting a new record high.
Frequent Electricity Price Fluctuations Enhance Energy Storage Profits
Before 2021, more than 80% of total revenue from battery storage in Australia came from the Frequency Control Ancillary Services (FCAS) market, with the remainder from energy market arbitrage and negative pricing charging profits. In recent years, as renewable energy installations have increased and international energy prices have fluctuated, frequent electricity price changes have expanded arbitrage opportunities for battery storage in the spot market. At the same time, FCAS revenue growth has been slower due to the limited overall market size. In the third quarters of 2022 and 2023, energy market revenues surpassed FCAS market revenues. By the third quarter of 2024, energy market revenues are expected to continue exceeding FCAS revenue, with the energy market’s share being six times larger than FCAS revenue.
Continued Growth in User-Side Energy Storage
In the first three quarters of 2024, the number of new rooftop PV installations with paired energy storage systems reached 18,900, a 15% year-over-year increase. Given that the fourth quarter is a peak installation season for PV and energy storage, annual user-side energy storage installations are expected to reach a new record. From a regional perspective, New South Wales and Victoria saw the highest growth in the installation of paired energy storage systems, accounting for 46.6% of the total new installations. South Australia and Queensland ranked third and fourth, respectively. Key drivers for the growth of user-side storage in Australia include rising electricity prices, subsidy policies, concerns about power security, and decreasing storage product prices.
Strong Incentive Policies Promote Residential Energy Storage Development
In 2023, Victoria offered interest-free loans of up to AUD 8,800 for residential energy storage, South Australia provided a subsidy of AUD 500 per kWh (up to AUD 6,000) for residential storage, and the Australian Capital Territory offered subsidies of up to AUD 3,500 or 50% of the investment in next-generation energy storage systems. Additionally, Victoria implemented a variable feed-in tariff for solar energy, with lower feed-in tariffs during midday peak solar generation and higher tariffs in the evening when there is no sunlight. These measures are expected to further drive the growth of residential energy storage in Australia.
Lower Storage Product Prices Fuel User-Side Energy Storage Growth
Due to improvements in raw material and logistics costs and an increasing supply of energy storage systems, the prices of residential storage systems in Australia have continued to decline. For example, the price of a Tesla Powerwall energy storage system with a gateway dropped by 30%, from AUD 16,230 in October 2022 to AUD 11,350 in August 2023 (after Tesla’s subsidy). This reduction in storage costs helps promote the adoption of residential energy storage in Australia.
Market Outlook for Energy Storage in Australia
Limited Market Space for Large-Scale Storage
In March 2023, the Commonwealth Scientific and Industrial Research Organisation (CSIRO) projected energy storage needs based on the Australian Energy Market Operator’s (AEMO) 2022 Integrated System Plan (ISP). Under the baseline scenario, by 2050, Australia’s National Electricity Market is expected to require 44 GW / 550 GWh of energy storage (excluding user non-VPP storage), and Western Australia (WA) is projected to need 12 GW / 74 GWh of storage capacity (excluding non-VPP storage). By 2050, the total installed energy storage in Australia (56 GW) will be similar to China’s cumulative new energy storage installed capacity for the first half of 2024 (48 GW). This suggests that the space for large-scale storage in Australia will be relatively limited. However, this forecast may adjust depending on the pace of renewable energy installations in Australia.
Increased Arbitrage Opportunities in the Energy Market
The 2022 “Power Spot Market Suspension Event” indicated that the current wholesale electricity price caps are no longer adequate to handle the current power supply-demand balance. In September 2023, the Australian Energy Market Commission (AEMC) released a draft amendment to the National Electricity Rules, proposing to gradually increase the price caps and cumulative price thresholds to accommodate the increasing share of renewable energy generation in the electricity system. These adjustments are expected to increase arbitrage opportunities for energy storage in the market.
New Ancillary Services Provide Additional Revenue Sources for Storage
In October 2023, Australia’s energy market operator introduced two new frequency ancillary services markets for the NEM: the Very Fast “Up Emergency Ancillary Service Market” and the Very Fast “Down Emergency Ancillary Service Market”, with a response time of 1 second (previously, the response time for emergency services was 6 seconds). The introduction of these services will help maintain the safety and reliability of the future power system while providing new revenue opportunities for battery storage and other fast-response technologies, driving investment in battery storage and fostering innovation in rapid-response technologies.
Inertia Markets: A New Business Model for Storage
The Australian Energy Market Operator and the AEMC are considering introducing an inertia spot market. In August 2021, the AEMO published a white paper on the application of grid-forming inverters in the NEM, proposing that these inverters could provide synthetic inertia to the grid. In recent years, the Australian Renewable Energy Agency (ARENA) has supported battery storage paired with grid-forming inverters, which help stabilize the grid by providing inertia services.
Aggregated Energy Storage Systems: New Market Participation
In August 2023, the Australian Energy Market Operator established the Integrated Energy Storage System (IESS), which allows aggregated systems to register as Aggregated Dispatchable Resources (ADC). This reduces the complexity of system dispatch and allows small generation and storage units to aggregate and provide services to the grid, opening up additional revenue opportunities and promoting competition in the electricity market.
Insights and Implications for China
Although Australia’s grid structure differs from China’s, there are similarities in the flexibility and regulation needs for both countries in achieving net-zero emissions. Australia’s market environment, with its well-established energy storage commercialization, offers valuable insights for China in the following areas:
- Clear Participation Framework for Storage in Power Markets: The dual identity registration of storage as both generators and consumers presents challenges, especially in terms of market competition fairness. China should carefully define the identity of energy storage systems in the market to avoid unfair competition.
- Timely Introduction of Spot Market Mechanisms: China’s electricity pricing system does not adequately reflect real-time supply and demand, which affects the market’s ability to value flexibility resources. In China’s spot market development, time and location-sensitive price mechanisms should be considered.
- Expansion of Ancillary Services as Renewable Energy Increases: As renewable energy penetration increases, China should consider introducing new ancillary services, such as frequency control, voltage control, and inertia support, to stabilize the grid.
- Energy Storage Cost Allocation Mechanism: Australia’s approach to assessing the costs and benefits of energy storage and directing those costs to the appropriate beneficiaries offers a useful model for China to enhance policy effectiveness and sustainability.
