Battery storage growth reshapes Australia's electricity market

The Australian Energy Regulator (AER) reports that the National Electricity Market (NEM) is transforming into multiple distinct markets within each region. This shift is driven by the rapid expansion of battery storage and renewable energy, which are altering wholesale price outcomes.

Battery storage capacity has grown significantly, increasing from 261MW at the start of 2021 to 6.1GW by the end of 2025. This growth has shifted battery revenue models; while earnings were once dominated by frequency control ancillary services (FCAS), energy markets now account for approximately 80% of battery spot market revenue. Additionally, nearly two-thirds of installed capacity now features a duration of at least two hours.

Renewable generation has contributed to lower daytime prices, while battery storage has helped mitigate evening peak prices by providing more mid-priced offers and reducing extreme high-price events. However, coal remains a significant factor in setting overnight prices, particularly in New South Wales and Queensland, where higher fuel costs have limited price improvements compared to 2021 levels.