We are pleased to present Aurora’s new strategic insight report, Storage economics in the NEM: When and where do storage technologies become viable? The report presents our findings on the economics of storage assets, looking at the major revenue streams as well as three archetypal investment cases for a standalone grid-scale battery, co-located solar + battery, and a pumped hydro asset.
The analysis draws upon our market experience, with much of the content developed through a detailed consultation process across market participants. The report was first presented during a Group Meeting in August 2019 and was subsequently updated to reflect feedback from the Group Meeting.
Key messages to emerge from the analysis are:
- 1 and 2 hour standalone grid-scale battery investment cases can stack up in the NEM but require revenues from at least one of FCAS markets, bilateral contracts (such as congestion-management contracts with the grid operator), or sustained levels of historic high prices over $300/MWh
- The investment opportunity for co-located solar + battery assets in the NEM varies materially according to configuration and connection specifics – with the optimal sizing of the solar vs the battery vs the grid connection dependent on the use case of the battery, and whether it will be optimised across both FCAS and wholesale markets
- The opportunities for pumped hydro assets differ from the investment cases involving grid-scale batteries – with revenues focused almost entirely on energy arbitrage, and potentially with access to a lower cost of capital. The economic optimum duration for a generic pumped hydro asset was determined to be ~6 hours of storage, however this is highly asset-specific as the capex details vary significantly between prospective pumped hydro projects
- There are a number of uncertainties for battery investment cases, with exposure to “overbuild” from other batteries and potential rule changes (e.g. changes to Primary Frequency Control) as the key downside risks.
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