Australia is set to add 1.2 gigawatt-hours of energy storage capacity in 2020, more than double the 499 megawatt-hours installed in 2019. This will increase the country’s cumulative storage capacity to 2.7 gigawatt-hours this year, according to Wood Mackenzie's latest report on Australia's energy storage market.
For the first time, front-of-the-meter (FTM) capacity, at 672 megawatt-hours, will overtake the 581 megawatt-hours of behind-the-meter (BTM) capacity in 2020, a result of funding from state and federal government programs as well as the Australian Renewable Energy Agency.
BTM installations have traditionally led capacity growth as state governments have been issuing subsidies for rooftop solar and residential storage as well as funding for distributed energy resources. Residential, commercial and industrial customers are also incentivized to install BTM systems to manage rising electricity bills and power outages.
The FTM market’s leading position is likely to be short-lived as the industry faces many uncertainties. Coronavirus-related restrictions and an economic downturn could cause delays or cancellations for the 4.6 gigawatt-hours of announced projects in the pipeline over the next five years.
South Australia, in particular, is at risk, as the majority of the planned deployments are located there. Developers with strong balance sheets are in a position to push ahead with their project developments, but still face grid-connection challenges in the future.
With the Australian Renewable Energy Agency’s advanced renewable funding phasing out, storage developers are pressed to seek private equity to cover 10% to 50% of initial project investments. Revenue uncertainties and risks of grid connection may prevent projects from attracting funding. The FTM market is most acutely affected by this and is likely to contract in 2022.
Still, the future of the FTM market is bright; cumulative capacity could hit 4.2 gigawatt-hours by 2025. By then, most of the FTM capacity would likely come from solar-plus-storage, that is, solar power plants paired with battery storage capacity. Falling battery costs will lead to improved overall capex for the energy storage sector.
The costs of energy storage systems will decline by 27% over the next five years. By 2025, the levelized cost of electricity of both solar-plus-storage and solar-and-wind-plus-storage are expected to be lower than that of gas plants.
In general, we can expect renewables-plus-storage costs to be about 20% to 29% lower in 2025 compared to today.
While coal will still remain Australia’s cheapest source of electricity in 2025, the switch from coal to green energy is more about short-term pain for long-term gain.
As Australia gradually phases out its 31-gigawatt coal fleet, it will need to look for alternatives. Project developers, both domestic and international, are clearly unfazed by the challenges. The number of Australian developers active in the market has doubled to 40 this year.
By 2025, we estimate Australia’s cumulative energy storage investment to hit $6 billion (USD). This translates to 12.9 gigawatt-hours of cumulative storage deployments.
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Le Xu is a senior analyst at Wood Mackenzie.
Learn more about Wood Mackenzie's new report, Australia Energy Storage Market Outlook 2020.
