Australia Leads Global Market for Battery Energy Storage Systems

Australia leads the global market for battery energy storage systems (BESS), with the total pipeline of announced projects now exceeding 40 gigawatts (GW), according to the latest analysis from global research and consultancy group Wood Mackenzie.

“The recent surge in renewable energy and competitive market design has made Australia one of the most attractive markets for grid-scale energy storage globally. Helped by the presence of competitive wholesale and frequency control markets offering diverse revenue streams for battery storage, and significant funding from the Australian government providing revenue certainty to storage projects. Because of this, we expect a 28% increase in the country’s battery storage capacity from now until 2032,” Kashish Shah, senior research analyst at Wood Mackenzie said.

Two-hour grid-scale batteries are currently the most prevalent technology in Australia as project owners mainly target the high-value frequency control and ancillary services (FCAS) market.

Battery module pricing is expected to decline by more than 40% in Australia and South Korea by 2032 for both LFP and NMC chemistries. This in turn will drive overall system costs down by 18% to 21% on a US$ per kilowatt hour (KWh) basis over the next ten years – becoming the largest cost reduction driver of CAPEX.

Current pricing conditions are due to softening electric vehicle (EV) demand growth and a downturn in lithium prices, which have seen nearly a 46% decrease since November 2022. Further systemic price declines from additional refining and production capacity are expected by 2025.

Wood Mackenzie expects the commodity price declines and technology improvements to also reduce battery module prices in the coming years.

Grid Connection Challenges

By comparison, battery system costs for grid-scale storage in Australia are 30-40% higher than in China – China is the cheapest region, with prices expected to drop 50% by 2032. A prolific domestic module manufacturing and intense competition amongst the market participants will mean that costs in China will fall faster than anywhere else in the world.

“China’s system costs benefit from a booming domestic supply chain whereas import dependence in Australia and South Korea will continue to be a bottleneck. In addition, Australia’s high labour wage rates will mean EPC cost inflations which dilute cost reduction gains in modules,” Shah added.

Going forward, Wood Mackenzie expects renewables plus storage to undercut coal and gas in 2028, which is when the capacity buildout of battery storage will accelerate in the Australian market.

“However, there are some barriers to Australia’s uptake in energy storage. Such as getting a grid connection in time and at a desired network point is a big challenge. It can be costly too. The cost of building a substation is about 12-13% of the total CAPEX. But overall, high battery costs are going to be an ongoing challenge for Australia compared to the rest of the APAC region,” Shah concluded.