The location of battery energy storage in Australia’s National Electricity Market (NEM) plays a critical role in revenue earning potential. Grid curtailment can prevent a battery from dispatching during high regional price events - over the last 12 months this has cost New South Wales BESS up to 10% of potential revenue. Locational Marginal Loss Factors (MLFs) also affect both the competitiveness of a battery’s bids and the value it earns for its generation.
For developers, understanding this locational ‘grid risk’ and mitigating it through different commercial and bidding strategies is essential.
In this piece, we explore how grid constraints and MLFs have shaped battery energy storage revenues across the NEM, highlight the most effective bidding strategies, and explore the trade-offs developers face when deciding where to build.
Executive summary
- Location is a key driver of battery energy storage revenue in the NEM. Grid constraints and MLFs can significantly impact a battery’s ability to earn. In some cases, constraints and MLFs have reduced revenues by up to $75k/MW, particularly in constrained regions like South-West New South Wales.
- Smart bidding strategies can reduce the impact of constraints. Several batteries have successfully avoided or minimised revenue loss through ramp rate rebidding, maximising dispatch ahead of constraint intervals, and bidding competitively during over-constrained dispatch periods.
- Developers are still building batteries in weak-grid areas despite the risk. Developers are balancing locational challenges with incentives like co-location savings, early access to valuable grid positions, government-backed revenue contracts, and opportunities to provide system strength services.
Location has cost battery energy storage up to $75k/MW in the last year
Over the past 12 months, many batteries in the NEM have seen substantial reductions in potential revenue due to constraints and MLFs. The cost is highly dependent on connection location and supporting grid infrastructure, varying from asset to asset. Riverina 1 has experienced the largest revenue impact, with potential earnings reduced by $35k/MW due to constraints and a further $40k/MW from MLFs.
