Market momentum remains strong for storage

20 May 2025

The energy storage market continues to experience significant momentum, driven by the global push for decarbonisation and the increasing integration of renewable energy sources.

As grids transition away from fossil fuels, the need for reliable storage solutions that can firm renewables and provide power over extended periods has become critical.

Whilst the economics for short and medium duration batteries continues to improve, at AEMO Services we are still seeing the need for support to get more long-duration storage into the system.

Our General Manager Commercial, Thimo Mueller, recently gave the keynote speech at the Energy Storage Summit Australia where he highlighted the continued strength in the short to medium duration storage market and the investment challenges still faced by long-duration storage projects.

He also provided insight into what we are seeing in our tenders. While long-duration batteries have been the dominant force to date, technologies such as compressed air storage, and pumped hydro are gaining traction, supported by our long-duration storage LTESA.

What creates value for long duration storage projects?

At AEMO Services, we have seen four key metrics that are driving value in long-duration storage projects:

• Duration: the longer the storage duration of a project, the higher its benefits to the market. As coal-fired plants retire over the next ten years, long duration storage will play a critical role in energy system reliability.
• Location: projects that are well-located create value in the system by supporting load centres, and reducing reliability risks and the need for investment in transmission infrastructure.
• Timing: we need new storage now, so the earlier a project can achieve commercial operations, the better value for the system and consumers.
• Social licence: projects that positively impact local communities.

How AEMO Services helps improve the business case   

Whilst we have a clear need for more long-duration storage to enter the system, revenues that developers expect to receive, are generally not yet sufficient to meet investment returns while coal-fired generators are still operating.

The good news is that, through Long-Term Energy Service Agreements (LTESAs), financial viability of long duration storage projects can be improved.

Long-duration Storage LTESAs are long-term revenue support contracts, of up to 14-years for battery storage projects and up to 40 years for pumped hydro projects. The Long Duration Storage LTESA provides a capped annuity payment in the form of a top up to a project’s net operational revenues, reducing the project’s risk of cash flow volatility and mitigating against the lack of forecast revenues.

As Australia moves toward a cleaner energy future, it is critical that energy storage solutions are already in place and operational when coal-fired power plants switch off. Investment today in long duration storage will play a crucial role in ensuring a resilient, cost-effective electricity market today and for the future.