Sweet spot for battery storage now 7 hours – growing to 8.5 hours – as coal exit looms

The new sweet spot for battery storage is now seven hours in Australia’s biggest isolated grid, but it may grow to 8.5 hours as the market operator manages the exit of coal in a state with no obvious opportunity for pumped hydro.

The Australian Energy Market Operator has recently increased the storage duration sought to manage the swings and roundabouts of wind and solar, as it also boosts the payments made to battery storage and other firm output in the state’s capacity market.

But the storage duration may need to rise even further to 8.5 hours by the middle of the next decade, a figure that some in the industry say is extremely conservative.

The details came via the latest Western Australian Energy Network (WEM) Electricity Statement of Opportunities (ESOO), which hikes the value of capacity credits for batteries by 35 per cent.

Western Australia’s electricity system is unique in the country as it focuses on a type of capacity market rather than just wholesale pricing settings, meaning AEMO pays credits for every megawatt (MW) of firm capacity to guarantee generator and battery availability at all times of the day.

In this year’s ESOO, the market operator said it will pay full credits for seven hours of battery duration. 

Developers can still build shorter durations batteries, but they are paid only for the portion of time within that seven hour period that they can deliver over that timeframe.

South Australia has proposed a similar system for payments it will make to a handful of four-hour batteries that will be required to supply up to eight hours of storage (at reduced capacity) when called upon.

The details of the payments to the South Australia program have not been revealed, but in Western Australia, the payment rate will rise from $360,700 per MW per year in 2026-27 to $488,500 the following year.

Developers aren’t obliged to take capacity credits or build to the incentives laid out in the ESOO, but the state’s market, which caps spot wholesale prices at $1,500/MW, along with the state’s “shallow offtake pool”, makes it more difficult to build a business case without them. 

“The Economic Regulation Authority’s (ERA’s) determination is based on the estimated cost of constructing and connecting, a 200 MW/1,200 MWh six-hour duration [battery] located along the [Clean Energy Link] North transmission line,” said the ESOO.

“[This is] reflecting the increasing importance of longer-duration storage and transmission considerations in the evolving [South West Interconnected System].”

Western Australia has been a fast adopter of lithium-ion batteries and is rapidly shifting to a long-duration battery market, to compensate for a lack of hydro and isolated grid that can’t lean on a neighbouring state for an electricity injection.

The two big batteries already built at Collie – by Neoen and state-owned Synergy – designed to replace the eponymous coal power plant in the region – remain the biggest lithium ion batteries operating in the country.

Furthermore, project tracker Renewmap lists 78 lithium battery projects in Western Australia in varying degree of development to operation, of which just 12 are sized at 7 hours or longer — including one compressed air concept — and another 25 that don’t yet have a storage duration.

WA grapples with future shortage

The changes come as Western Australia faces an electricity supply gap that rises to a possible peak of 2,161 megawatts (MW) by 2035, according to the 2026 WEM ESOO.

The gap comes as the last of its state-owned coal power stations are to be switched off by 2030, followed by privately-owned Bluewaters coal power station and the Synergy-owned Pinjar gas peaking plant from 2031. 

The ESOO says that if some 600 MW of already anticipated capacity is built, and built on time, that will push out the risk of any electricity shortages to 2031. But it still sees a potential shortfall of 1.6 GW in 2035, which will have to be covered by projects not yet committed or under constructions.

That extra generation may also push up the battery duration that AEMO will pay capacity credits on to eight or even 8.5 hours towards the middle of the 2030s, according to the ESOO. 

VSUN Energy business development manager Zamien Sumich says this is very conservative, based on conversations he’s having.

“The feel that we’re getting is that extension of duration is going to be a lot quicker and extend further over the next five or so years,” he told Renew Economy.

“The expectations are that in the coming years that is going to extent further and further. What that number looks like is anyone’s guess. The feel that we’re getting… we could quite easily see by the end of the decade it exceeding the 10 hour range.”

VSUN is developing vanadium flow batteries, which tend to have longer storage durations, and is one of the bidders for a 10-hour vanadium battery in Kalgoorlie that is being underwritten by the state government.

But AEMO warns that even longer duration batteries can only do so much to help with the forecast supply gap.

“Battery storage, which constitutes a significant portion of the forecast flexible capacity fleet mix is able to ramp quickly but is only effective if sufficiently charged,” the ESOO says. 

“As overall electricity consumption increases and peak demand rises, there is a risk grid-scale batteries will not be fully charged and ready to deploy to meet sudden increases in demand. 

“Batteries therefore must be complemented with a sufficient energy-producing capacity to make sure batteries are charged.”

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