The merchant investment case for grid-scale batteries in the National Electricity Market (NEM) is changing. Battery revenues are increasingly driven by energy arbitrage, while FCAS now contributes a small supporting share of income.

This shifts the investment case toward the shape of energy spreads, and duration has become the primary driver of returns. Four-hour systems deliver the strongest returns across all mainland states and scenarios, while two-hour systems remain below 10% as short-duration spreads compress.

Project outcomes also depend more heavily on location and cycling strategy. Batteries located in constrained and low-MLF areas can see IRR reductions up to 1.8 percentage points. Operators can also explore different cycling strategies to increase project value while balancing faster degradation.

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Executive summary

• Four-hour batteries deliver the strongest IRRs across every mainland state and scenario. Two-hour systems sit below 10% as short-duration spreads compress.
• Energy arbitrage drives more than 95% of forecast merchant revenues over the asset life. FCAS revenues are small, contributing a stable supporting role.
• Location moves IRRs by up to 1.8 percentage points between Regional Reference Node sites and constrained low-MLF subregions.
• Cycling above once-per-day adds around $38k/MW/year of peak revenue in Victoria, but reduces lifetime project value in Queensland once degradation is factored in.

Key modelling inputs

The assumptions below underpin all internal rate of return results in this report. Full forecast methodology is documented in the April 2026 release notes.