Australia Global Leader in Battery Energy Storage Systems: Report

Wood Mackenzie predicts a 28% increase in Australia's battery storage capacity from now to 2032


Australia is a leader in the global battery energy storage systems (BESS) market, with the total pipeline of announced projects surpassing 40 GW, according to the latest analysis by Wood Mackenzie.

Australia has witnessed a notable surge in renewable energy and has implemented a competitive market design, which has positioned it as one of the attractive markets for large-scale energy storage on a global scale.

The presence of competitive wholesale and frequency control markets has created diverse revenue streams for battery storage projects.

Additionally, significant funding from the Australian government has provided revenue certainty to support these storage initiatives.

Wood Mackenzie predicts a substantial 28% increase in Australia’s battery storage capacity between now and 2032.

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Figure 1 Source: Wood Mackenzie

Cost Competition with APAC

Wood Mackenzie anticipates a price reduction in system and battery modules in the Asia Pacific.

The report said that currently, two-hour grid-scale batteries hold the dominant position in Australia, as project owners primarily focus on the high-value frequency control and ancillary services (FCAS) market.

Projections indicate that battery module prices for both LFP (Lithium Iron Phosphate) and NMC (Nickel Manganese Cobalt) chemistries are expected to decrease by over 40% in Australia and South Korea by 2032.

As a result of these price drops, overall system costs are predicted to decline by 18% to 21% on a U.S. dollar per kWh basis over the next decade. The report mentioned that this cost reduction is set to become the most significant driver of CAPEX (capital expenditures) reduction in the region.

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Figure 2 Source: Wood Mackenzie

The current pricing conditions for BESS are influenced by two key factors: a decline in electric vehicle (EV) demand growth and a downturn in lithium prices. Since November 2022, lithium prices have experienced a significant drop of nearly 46%.

This trend is expected to continue as additional refining and production capacity come online by 2025. As a result of these developments, the report predicts further declines in commodity prices and technology improvements, leading to reduced battery module prices in the upcoming years.

Comparatively, battery system costs for grid-scale storage in Australia are 30-40% higher than in China, where prices are expected to see a substantial 50% decrease by 2032.

China benefits from a flourishing domestic supply chain, resulting in prolific domestic module manufacturing and intense competition among market participants. Consequently, costs in China will decline more rapidly than in any other region worldwide.

Kashish Shah explains that Australia’s higher labor wage rates and import dependence create bottlenecks in achieving cost reductions.

Labor wage rates contribute to inflation in engineering, procurement, and construction (EPC) costs, which can offset gains made from reducing module prices.

At present, the levelized cost of energy (LCOE) for standalone grid-scale energy storage in Australia remains relatively expensive compared to other dispatchable generators. However, the report’s findings suggest that by 2032, standalone energy storage will become more cost-competitive and will undercut gas-fired power generation.

Renewables combined with storage are expected to surpass the cost of coal and gas in 2028, accelerating battery storage capacity buildout 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.

Australia recently repurposed a retired thermal power project site in the Latrobe Valley of Victoria for a 150 MWh battery energy storage project.

In April this year, the Australian Renewable Energy Agency invited expressions of interest for the first round of Community Batteries Funding of up to AU $120 million (~$80.74 million) to deploy community batteries across Australia.