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 III, Marija shares how scenario modelling is informing investor strategy, and what longer-duration solutions might look like in the coming decade.
Do you predict a shift toward longer-duration storage and what would that look like?
For years, two-hour batteries have been the industry standard, largely due to cost, bankability, and market design. But there are clear signs that this is starting to change:
- Renewable firming will increasingly require longer storage windows to support evening demand and manage ramping as solar drops off, especially as more coal exits the market; and
- the Capacity Investment Scheme (CIS) is already accelerating the shift toward four-hour batteries by rewarding longer-duration dispatchable capacity. Similarly, the NSW Long-term Energy Service Agreement (LTESA) is supporting eight-hour storage through its long duration product.
Going beyond four hours, however, remains a challenge. The longer the storage duration, the higher the revenue uncertainty. Furthermore, investors and lenders are cautious about backing alternative chemistries given their higher costs, limited track record, and perceived technical risk compared with lithium-ion.
What do you see as the viable alternatives to lithium-ion storage?
Investor interest in alternative storage technologies is growing as we progress through the energy transition. A policy-driven phase-out of coal plants is expected to strengthen the commercial case for deeper storage solutions capable of supporting multi-hour renewable firming.
According to the Australian Energy Market Operator, up to 90% of coal-fired generation in the National Electricity Market could retire by 2035, with the entire fleet expected to close by 2040.1 In response, Australia is accelerating investment in renewable generation, storage, and transmission infrastructure to ensure firm capacity is in place ahead of these retirements. This structural shift is driving strong demand for utility-scale batteries and long-duration storage technologies capable of delivering secure, low-cost electricity during the transition to a net zero economy.
Several long-duration technologies such as flow batteries, compressed air, and gravity storage are being actively trialled in Australia and internationally.2 While these technologies offer the advantage of storing energy for six hours or more, widespread commercial deployment remains limited.
The primary barriers are currently cost and bankability. Most alternatives still have higher capital costs, lack proven long-term performance, and are not widely supported by financiers. As a result, lithium-ion still remains the default choice for energy storage projects due to its established supply chains, known degradation profiles, and favourable economics on a $/MWh basis.
It is also worth noting that lithium-ion technology was once restricted to relatively short durations. However, in recent times we have seen the emergence of longer duration lithium-ion projects. For example, Stoney Creek is a proposed 1 GWh (125 MW, eight‑hour duration) lithium-ion facility backed by a 14‑year LTESA in NSW, which demonstrates growing momentum for long-duration asset types.3 Once constructed, it will be among Australia’s first utility‑scale, firm-capacity systems over six hours which signals a significant systemic shift.
That said, ongoing state government policy uncertainty around the timing of coal closures remains a key risk for long duration storage.
What role will pumped hydro play in the energy mix?
While Australia has a significant pipeline of pumped hydro energy storage (PHES) under development, how many of these projects will be built and when remains highly uncertain.
When developed at scale, PHES has the potential to store vast amounts of energy at a cost that is highly competitive with, and in many cases cheaper than competing technologies for long-duration storage.
Yet despite strong theoretical economics, most major PHES projects are still years away from financial close, let alone construction or operation. Delays are common due to complex planning approvals, environmental impact assessments, First Nations consultation requirements, and cost overruns.
In this context, the race for the dominant long duration storage technology is very much open. BESS remains essential in the near to medium term, particularly for firming renewable output and supporting grid stability during evening peaks or high-demand periods. Batteries also offer faster ramp times and more locational flexibility, making them a key technology in the interim.
Even if pumped hydro is the endgame for deep storage, BESS are the backbone of today’s energy transition. We cannot wait a decade for firming capacity.
Once deep storage eventually comes online at scale, market dynamics will likely be reshaped significantly:
- Wholesale price spreads will likely compress, especially during periods currently marked by high arbitrage potential. This will erode one of the key revenue streams for project owners. It is important to note that this is the market working as it should. High price spreads send a signal to investors that the market needs more storage. Once we have built enough storage, spreads will reduce to a point where further investment in storage will not be justified.
- BESS owners may need to cycle their assets more frequently or aggressively to maintain profitability, particularly for older batteries nearing end-of-life, where degradation risks are already baked into financial models.
- BESS may increasingly shift toward roles in grid support services or become part of hybrid projects where revenue stacking smooths the impact of reduced arbitrage margins.
How should BESS owners approach the next decade with the market uncertainty?
With increasing uncertainty across policy settings and market dynamics, scenario modelling has become a vital tool for BESS owners. Rather than relying on a single outlook, stakeholders are using modelling to test asset performance under a range of possible futures. These include changes to price spreads, firming requirements, contract structures, and technology pathways.
Owners are asking important strategic questions:
- How do we remain profitable in the near term?
- What might the storage market look like in five or ten years?
- How do we position assets today to stay commercially viable tomorrow?
Short term
In the current environment, flexibility is essential. High-cycling strategies on volatile days, particularly for two-hour lithium-ion batteries, allow owners to take full advantage of market events. Offtake structures that allow asset owners to access some or all of this upside are proving to be lucrative.
Medium term
Looking ahead, the challenge is not only how to operate but how to adapt to changing conditions. Hybridisation is gaining traction. Pairing batteries with solar or wind can bring significant benefits through innovative offtake structures, monetisation of curtailed energy, efficiencies gains, and reduced connection costs.
Forward-thinking project owners are also closely monitoring policy developments. The structure of future CIS and LTESA tenders, timelines for coal retirement, and potential changes to market design will all influence future investment strategies.
Scenario modelling allows project owners to prepare for these possibilities. It helps assess risk, but just as importantly, it can highlight where new value may emerge. Storage is not a bridging technology anymore. It is fast becoming core infrastructure. But how you operate, contract, and position a BESS today could determine its long-term viability.
2030 and beyond
Battery storage remains at the heart of Australia’s clean energy transition. As the grid moves toward 82% renewable generation by 2030, batteries offer the flexibility and responsiveness needed to manage variable supply and replace retiring thermal generation. Success will require careful planning and the adaptability to respond to changing conditions. Project owners who adopt this mindset will safeguard project returns whilst also shaping the future of Australia’s electricity system.
1Daniel Westerman, ‘AEMO 2024 Integrated System Plan’, (Report, 26 June 2024) < https://aemo.com.au/-/media/files/major-publications/isp/2024/2024-integrated-system-plan-isp.pdf?la=en>.
2Neil Martin, UNSW, ‘How long-duration batteries can power a more reliable renewable energy future’ (Web Page, May 2025) https://www.unsw.edu.au/newsroom/news/2025/05/Long-duration-batteries-cleaner-reliable-sustainable-energy.
3George Heynes, ‘Energy Vault acquires 1GWh BESS in New South Wales, Australia’, Energy Storage News (online, 20 March 2025) <https://www.energy-storage.news/energy-vault-acquires-1gwh-bess-in-new-south-wales-australia/>.
