Battery energy storage buildout in the NEM is accelerating, and on course to hit 18 GW by the end of 2028. This will fundamentally change market pricing dynamics in the NEM, as BESS undercuts gas peaking capacity and competes for dispatch.
On 6th August, we held a livestream to explore what is driving this shift, what it means for the future of BESS, and to introduce our long-term NEM price and revenue forecast, now live.
A recording of the live stream is available below, and Modo Energy subscribers can find the full presentation to interact with at the end of the article. The Q&A from the session can be found here.
We summarise five key takeaways from the livestream below.
1. Battery energy storage capacity on course to hit 12 GW, with double this further back in the pipeline
With the announcement of the commissioning of the first 350 MW of Waratah Super Battery this week, the NEM has now hit 3.1 GW and 5.4 GWh of operational battery energy storage capacity. Beyond this, there are a further of 8.8 GW of projects either in commissioning, construction, or to have confirmed FID.
This means the NEM looks set to hit 12 GW of BESS capacity - regardless of what happens with the remainder of the pipeline. Even conservative assumptions on the conversion of these other projects leads to buildouts of 16-18 GW by 2028 - which will transform pricing dynamics in the NEM.
2. June price spikes showcased value for long-duration BESS
All battery energy storage capacity deployed so far this year is two-hours in duration, however extreme price spikes in June lasted for up to four hours. This showcased some of these new pricing dynamics at work, even with substantially less capacity online today.
​While the BESS fleet was dispatching into the market, it was mostly responsible for setting prices at between $9,000-$10,000/MWh. It did this by undercutting more expensive capacity (mostly gas peaking plant). However this could not be sustained throughout the whole evening peak, and as battery discharged fell away prices spiked further, above $15,000/MWh.
In the short-term, this shows how the first four-hour batteries online can profit from being able to dispatch across the entirety of events such as this. In the long-term, it shows how battery energy storage acts to reduce volatility and undercut gas peakers in the market.
​3. Price spreads to fall with increase in BESS capacity but thermal retirements change the picture post-2027
In the next few years, the significant ramping up of battery energy storage capacity will act to reduce average spreads across the NEM. This effect is most significant in New South Wales, which will quickly jump from the mainland state with the least BESS capacity to the most.
Thermal retirements, especially the 2.8 GW Eraring coal power station in 2027, then change this picture. Volatility increases again in New South Wales, and to a lesser degree in South Australia and Victoria.
Ultimately, the level of BESS buildout will play a significant role in where spreads end up following these retirements. Just a 7% reduction in BESS capacity is enough to increase spreads by up to 40% in New South Wales, while a larger 20% reduction (resulting in 14 GW of BESS by end of 2028) amplifies volatilty across all mainland states.
​4. Tomago announcement shows BESS Capex declines are continuing
With declining spreads in the market, construction costs of new battery energy becomes critical for the business case of new investments. Last week AGL announced that they had reached financial investment decision (FID) for the 500 MW, 2000 MWh Tomago battery. The announced cost is a record low for a four-hour battery (beating the previous low stated by Eraring 2), and for all systems on a $/kWh basis.
This latest datapoint shows that BESS Capex is continuing to fall in the market - even further than the 20% annual reduction reported by CSIRO in their 2024-25 GenCost report released last week.
Capex has continued to fall following significant reductions in lithium costs in the last few years. Advancements in manufacturing and packaging techniques are improving energy density and lowering costs. We expect additional cost reductions seen in markets such as China to filter through in the next few years, before Capex begins to stabilise after 2027.
5. Cost reductions are driving shift to 4hr+ systems
This changing Capex picture, alongside the projected squeeze in spreads, has shifted the business case towards longer-duration BESS. Whilst in 2026 the majority of the new battery capacity (by power) is expected to be two-hours in duration, from 2027 onwards four-hour plus projects dominate.
Even as increased BESS buildout reduces the most volatile prices, there remains a fundamental long-term price spread available driven by solar generation in the middle of the day. This means the asset class remains investible but may increasingly look towards downside protection available from the Capacity Investment Scheme (or similar provided through the Nelson Reforms).
And... The Energy Academy: Australia is now live
We’ve released the first season of The Energy Academy: Australia. It brings you everything you need to know to get up to speed with how the NEM operates, including: how the market is governed, how prices are formed, assets are dispatched, and the increasing role played by consumer energy resources. The full series is available now on YouTube.
wendel@modoenergy.com
Explore the full slide deck
Modo Energy subscribers can access the slides from the session by clicking the link below.
