In December 2025, Melbourne Renewable Energy Hub A3 became the NEM's first four-hour battery to begin trading. A month later, Origin's 460 MW Eraring battery followed. These are not one-off projects: the future asset pipeline is shifting in favour of four-hours and beyond, driven by a changing investment case for BESS of different durations.

In Modo Energy's Central scenario, four-hour projects clear typical hurdle rates while most two-hour projects no longer do. Three things explain these diverging outcomes: falling Capex premiums, compressing price spreads, and operational realities that favour longer duration.

This article explores these three dynamics and why they shifting the investment case towards four-hours.

The shift in project duration is increasing the average duration of the NEM's BESS fleet. It passed two hours for the first time at the end of 2025, and will exceed three hours in 2029 when the majority of new systems entering operations are four hours or longer.

Key takeaways

• Four-hour BESS projects clear hurdle rates across the NEM, returning 10–11.5% IRR in Modo's Central case without event-driven volatility upside. Most two-hour projects fall short at 6–9%.
• The Capex premium for four hours over two has shrunk by 20–30% in two years, now only 1.5x the cost of a two-hour. The revenue gap needed to justify longer duration is narrower than it ever has been.
• Two-hour spread premiums are compressing: from up to 60% historically to 19–37% in 2025, and a projected 11–18% in 2026. That eats into the core revenue advantage of shorter-duration systems.
• Real operational data evidences the shrinking gap. At Melbourne Renewable Energy Hub, the four-hour unit has earned 96% of the $/MWh of the adjacent two-hour units in its first four months of operation.
• Two-hour projects can still work with smart contracting strategies, alternative cycling approaches and revenue from system strength services, but there is less room for error.

Four-hour projects continue to clear hurdle rates; two-hour mostly do not

Modo Energy's modelled IRRs across the NEM show four-hour projects returning 10-11.5% in our Central case, excluding event-driven volatility upside. Two-hour projects return 6-8%. That gap is wide enough that four hours is now the default duration for new investment, and two hours requires a specific investment outlook or use case to justify.