In 2022, we sat down with Marija Petkovic, founder and Managing Director of Energy Synapse, to discuss the challenges and opportunities of incorporating Battery Energy Storage Systems (BESS) in renewable energy projects. In this new three-part New Energy Expert Insights series, we reconnect with Marija to explore how revenue streams for BESS have evolved over the last three years, the current state of the market and the role of emerging energy storage technologies in the energy transition.
Marija is one of the nation’s leading energy analysts and her advice is often sought by government and major public and private actors in the energy sector. Energy Synapse is an Australian firm specialising in market analytics and market/revenue modelling for renewable and storage projects.
In Part II, we will examine the current state of the Australian energy market, and how investors and owners are navigating the shifting value proposition of their BESS assets.
What is driving market demand for BESS?
Australia’s energy market continues to rely on BESS as a critical enabler of grid stability and flexible supply. Some of the core needs that are shaping the current landscape are:
- Grid stability and firming: BESS remains essential in backing up variable renewable generation (e.g. wind and solar). As coal continues to exit the system and renewable penetration grows, BESS play a critical role in providing fast response to fluctuations in supply and demand.
- Peak shaving and arbitrage: Price volatility in the National Electricity Market continues to create strong arbitrage opportunities for BESS, due to a high differential between cheap daytime prices and the evening peak.
- Localised network support: Increasing focus is being placed on grid services that support specific zones or weak parts of the network. Rather than relying solely on system-wide solutions, network operators are targeting local congestion and stability issues with strategically placed BESS.
- Revenue strategy: Market players are weighing the benefits of short-term market exposure against the certainty of longer-term contracts. Spot market participation offers flexibility and upside but comes with revenue risk. Structured agreements provide revenue stability that increase project bankability but may cap potential returns.
What are the current government support and incentives at the state and federal level?
Government support at both the federal and state levels continue to reshape the investment landscape for energy storage in Australia. While revenue volatility and market risk remain, a growing number of policy levers is providing BESS proponents with a stronger footing and faster timelines for decision-making and deployment.
Federal: Capacity Investment Scheme
The Capacity Investment Scheme (CIS) is a cornerstone of Australia’s clean energy policy. It provides eligible projects with revenue certainty through government-backed contracts.1 This helps unlock financing by improving bankability and reducing merchant risk.
Tenders have been consistently oversubscribed, signalling strong confidence from developers and a high degree of latent project capacity across jurisdictions.2 In June 2025, the federal government confirmed that future CIS tenders will move to a streamlined one-stage process, cutting the assessment period from nine months to approximately six.3 This shift is expected to give proponents faster clarity on outcomes and greater flexibility to participate in upcoming rounds.
State: Long-Term Energy Service Agreements
At the state level, particularly in New South Wales, Long-Term Energy Service Agreements (LTESAs) provide a pathway for BESS proponents seeking financial certainty.4 These agreements:
- Guarantee a minimum floor price for eligible services (such as dispatchable capacity or firming);
- Offer downside protection while preserving some market participation upside; and
- Help de-risk projects, including for long duration (8+ hour) storage.
What are project proponents currently asking for?
As the market matures, investor questions have become more targeted. For example:
a) How hard should the battery be cycled to maximise revenue?
Owners are currently trying to balance revenue generation with battery degradation risks. However, modelling shows limited benefit in aggressive cycling, especially for systems with two or more hours of storage. For many projects, staying within warranty cycling parameters captures most of the available market value without shortening asset life or voiding warranties. However, it is important to note that this does not mean performing one cycle every single day.
The chart below shows the cycling behaviour of the Torrens Island battery in South Australia as calculated in the Energy Synapse Platform. Like most batteries, Torrens Island cycles harder (approaching two cycles) when there is higher volatility in the energy market, such as at dual morning and evening peak. In contrast, when prices are relatively flat throughout the day, the battery holds back on cycling (e.g. less than half a cycle). Despite this variability in cycling, the battery sticks to an average of 1.1 cycles per day.
Graph 1: Average number of battery cycles per day for the Torrens Island BESS
b) Do long-duration batteries offer better risk-adjusted returns?
With growing renewable penetration, investors are questioning whether 4–8 hour systems can better capture value from extended price events. Energy Synapse modelling finds that the business case for four+ hour batteries is very sensitive to the pace of coal closures. At present, high price events tend to be relatively short-lived. However, as more coal exits the market, peak prices are likely to last longer. Although there is a fundamental need for medium and long duration storage as coal exits the market, many investors are rightly concerned with the risk of government interventions to extend the life of coal as we have seen in recent years across Victoria, NSW, and Queensland. This is a key area that requires greater policy certainty.
c) What is the optimal project configuration?
Project proponents are increasingly interested in understanding the trade-offs between standalone vs hybrid projects, AC vs DC coupling, and the impact of sizing on returns. Project proponents are being smarter in working through these questions much earlier in the project development cycle, before key parameters are baked into the design. Energy Synapse specialises in this type of modelling and works closely with developers to inform optimal project configuration.
What decisions do project owners need to make in the current market?
A major decision point for many BESS project owners today is whether to lock in structured agreements or stay nimble. LTESAs or Network Support Agreements can contribute to project bankability, improved debt service coverage and stable, forecastable cashflows. But they may also limit upside, particularly in a volatile market where frequent price fluctuations create opportunities for higher returns through spot trading and ancillary services. Project owners may miss out on lucrative spot revenue or market services and committed revenue can affect capital structure by increasing gearing (debt-to-equity ratios).
Ultimately, it is a trade-off. It depends on whether the project values cashflow certainty or wants the flexibility to chase dynamic price signals.
In Part III, we will gain Marija’s insights into scenario modelling and the future of the BESS industry. With these market dynamics in play, BESS owners are now turning to scenario modelling to navigate long-term uncertainty and plan for what comes next.
1Department of Climate Change, Energy, the Environment and Water, ‘Capacity Investment Scheme’ (Web page, February 2025) https://www.dcceew.gov.au/energy/renewable/capacity-investment-scheme.
2The Hon Chris Bowen MP, ‘Opening address, Australian Energy Week’ (Speech, Australian Energy Week, 18 June 2025).
3Ibid.
4NSW Government, ‘Long-Term Energy Service Agreement Design’ (Consultation paper, August 2021).
