Australia’s energy storage market

Key takeaways

The data and insights in this report are based on our survey of 550 investors, lenders, developers, and suppliers across the global energy storage sector. Here, we explore what’s driving decisions on investment in battery energy storage systems (BESS) in Australia (50 respondents).

1. Australian market participants are comfortable with merchant exposure.

53% of Australian respondents to our survey will accept a 41-60% merchant share of revenues, compared with 34% globally. That said, only 15% rate fully merchant BESS as highly attractive, versus 28% globally.

2. Data center demand is a distinctive market driver in Australia.

36% cite data center growth when evaluating BESS markets, compared with 27% overall. 22% select it as the single most important factor, versus just 8% overall.

3. Bankability is anchored in technical durability and private risk cover.

44% of Australian respondents rate augmentation planning and warranties as extremely important – compared with 32% globally. By contrast, only 14% identify government support as necessary, versus 33% overall.

4. Investment appetite is focused on a later point in the lifecycle.

62% favor late-stage or ready-to-build assets, compared with 43% globally. Return expectations are similarly concentrated, with 80% requiring an 11-12% internal rate of return (IRR) versus 50% globally.

5. Confidence falls sharply at the technology frontier.

Only 21% are confident of suppliers delivering next-generation storage on time, compared with 51% overall. 26% are actively evaluating long-duration energy storage (LDES) versus 49% overall.

6. Critical-minerals buyers prioritize downside protection.

42% favor price-floor structures, versus 35% globally. 86% will accept a 5-10% green premium, compared with 63% globally.

Australia demonstrates all the hallmarks of a maturing energy storage market.

Investors are comfortable with merchant exposure and limited government support. And they’re disciplined when it comes to project maturity, return expectations, and technology risk. Data center growth is strengthening the underlying demand case for storage – but confidence in next-generation technologies is lagging behind.

Overall, the market remains highly attractive, but investors are becoming more selective about the risks they take on. They are prepared to accept risk where they believe the potential returns justify it.

Australian investors aren’t averse to merchant risk. But they prefer to see it balanced with contracted or complementary revenue sources, rather than underpinning the entire investment case. 

Australian market participants are far more willing than their global peers to tolerate merchant exposure when investing in energy storage assets. More than half (53%) feel that 41-60% merchant revenue exposure is acceptable, compared with 34% of our overall survey sample (see figure 1). 

This could reflect the maturity of Australia's battery storage market. The ability to supplement or "stack" long-term contracted revenues arrangements with revenue opportunities from wholesale power markets and ancillary services – for example, participation in the National Electricity Market (NEM), frequency control, and emerging system services. As a result, merchant exposure is often viewed as an opportunity to enhance returns, rather than solely as a source of risk.

Not that this translates into enthusiasm for fully merchant projects. Only 15% of Australian survey respondents rate fully merchant BESS as highly attractive, compared with 28% globally. 

According to our research, the Australian market appears to distinguish between accepting merchant risk and relying exclusively on it. Investors seem comfortable accepting a meaningful merchant component but still prefer diversified revenue stacks combining merchant and contracted income.

Data-center expansion is becoming a defining feature of Australia’s storage market, strengthening the role of customer-led and behind-the-meter models. Over time, it may also create a route to market for LDES, alongside the technology’s traditional role in supporting grid reliability. 

Australian sentiment towards behind-the-meter storage is broadly in line with global confidence levels. Around a third of respondents in Australia (35%) and globally (32%) view this market segment favorably. Similarly, 36% see data center growth as a key factor when evaluating BESS markets, compared to 27% overall. 

Yet when asked to select one decisive factor, 22% pointed to data center growth. That’s almost three times the global figure of 8%, making it the most important factor for Australian respondents. 

The stronger emphasis on data center growth makes sense given Australia's growing role as a regional digital infrastructure hub. New data center capacity is expected to drive significant additional demand not only for electricity, but also for firm, dispatchable and continuous power capable of supporting the 24/7 load profiles required by data centers.

This could also strengthen the demand case for LDES. Hyperscale and AI-driven data centers require large volumes of electricity continuously, with little tolerance for interruption. As operators seek, or are being increasingly required by evolving Government policy settings, to match that always-on load with clean power, intermittent wind and solar generation alone will not be enough. 

A long-duration battery can charge when renewable output is abundant and discharge for eight hours or more when output falls, bridging overnight periods and extended renewable shortfalls, smoothing demand peaks and maintaining critical operations through grid disturbances or outages. In that context, LDES can help provide the firm, dispatchable and resilient power needed to support both data center demand while achieving decarbonization objectives.

As Australian federal and state governments move to require data centers to offset their electricity demand through investment in new renewable generation and firmed capacity, LDES could help meet these policy requirements while providing the dispatchable, resilient power needed to operate around the clock, making it critical enabling infrastructure for the next wave of digital investment.

Australian bankability is defined primarily by technical durability and credible private-sector risk allocation. While Australia has established a strong policy case for next-generation storage, emerging projects must still overcome limited operating track records, uncertain and insufficiently contracted revenues, and additional capex costs that are not always matched by market value. Stronger downside protection will be critical to closing this financing gap.

When it comes to protection against delivery and performance risks, Australian respondents place less weight on traditional credit and public-support measures than the global sample (see figure 2). Government guarantees, subsidies or support mechanisms are required by 14% – less than half the global proportion (33%).

This preference is also reflected in how investors assess project-bankability factors. When asked about the importance of different contractual and commercial attributes, only 16% of Australian respondents rated offtaker credit strength as extremely important. Again, that’s below half the global result (33%).;

Instead, they emphasize technical and operational risk allocation. Almost half (44%) see the clarity and bankability of augmentation plans and warranty structures as extremely important, versus 32% globally.

Overall, the survey points to a private-sector-led model of risk mitigation. Insurance-backed solutions are favored by 37% of Australian participants; sponsor balance-sheet support by 35%; and technology-provider guarantees by 33%.

“While Australia has largely solved the policy case for next-generation storage, the financing case remains more challenging,” says Katie Best, Special Counsel at DLA Piper. “Emerging LDES projects still sit uneasily within traditional project-finance frameworks: technologies have limited track records, revenues are difficult to forecast and contract long term, and the higher cost of longer-duration storage is not always matched by higher value. Until these risks are better managed and downside protection improves, bankability will remain constrained.”

Australian capital is converging on RTB projects that offer 11-12% returns – signaling a disciplined and tightly defined investability profile.

Appetite for storage investments is concentrated at the late-development stage in the Australian market.

More than two fifths (62%) of respondents prefer late-stage or ready-to-build (RTB) opportunities, compared with 43% globally (see figure 3). Construction-stage and operational assets attract far less interest (9% and 3% respectively). 

Australia's relatively mature storage market benefits from a substantial pipeline of developers originating projects, and specialist infrastructure investors looking to acquire them. Investors are more comfortable paying a premium for RTB assets – where development risks are resolved but value has not yet fully crystallized – instead of accepting early-stage development risks themselves. 

“Investors have earmarked a significant amount of capital for the energy transition,” says Chris Mitchell, Partner at DLA Piper. “Whilst the maturing Australian energy storage market is providing a steady stream of deployment opportunities, investors remain cautious with investment decisions being underpinned by detailed diligence on key project development fundamentals, project delivery certainty and ultimately credible pathways through construction and ultimately operation – each of which is a hallmark of a project in its later stage of development."

Another factor at play here may be the tendency for battery economics to change quickly as more storage is deployed. Acquiring RTB projects allows investors to enter the market faster, and capture current revenue opportunities, rather than spending years developing a project from scratch.

A similar focus emerged when we asked Australian market participants about their return expectations on BESS investments.

Four fifths (79%) require an 11-12% IRR, compared with 50% globally (see figure 4). Far fewer (17%) want IRRs of 8-10%, and only 4% are seeking 13-15%.

Again, our findings reflect the maturity of the Australian market. The concentration of expectations suggests a clear view of BESS costs and risks; a consensus on the desired returns; and limited tolerance for projects falling outside a defined risk-reward profile.

Australia is seen as a strong future market for next-generation storage. However, technology delivery risk and price volatility are slowing near-term commitment. 

The strongest note of caution emerging from the survey concerns the delivery of next-generation technologies. In this report, “next-generation storage” refers broadly to technologies beyond established lithium-ion BESS, including long-duration solutions and emerging battery chemistries. LDES is therefore one part of this wider category.

Separately, when asked which storage technologies respondents are actively evaluating for deployment or investment over the next 3-5 years, only 26% of Australian respondents selected long-duration energy storage. This compares to almost twice that number globally (49%). 

Confidence in the supply chain for next-generation storage more broadly is also relatively low. Only a fifth (21%) express confidence that component and equipment suppliers can deliver next-generation storage technologies on time and to specification. That’s less than half the global result (51%).

The result is a striking gap between Australia’s mature battery storage market, and its willingness to commit to longer-duration technologies specifically. Our findings suggest that Australian investors are applying a higher threshold to such technologies. That’s due to their longer development periods, less proven delivery models and revenue streams that remain difficult to contract. 

The underlying need case for LDES is strengthening. Coal-fired generation is being retired, and renewable penetration is on the up. Meanwhile, the NEM is experiencing more periods in which wind and solar provide a large share of generation. As such, the question is not whether Australia requires storage, but how much duration the system will need, and how that capability should be valued.

Australian respondents (47%) are considerably more likely than the global sample (8%) to view their local market as attractive for next-generation storage deployment. This may be partly down to greater familiarity with local market dynamic and a degree of home-market bias. But it still suggests that Australian participants see strong long-term potential in the market.

The inconsistency between market and supplier confidence suggests that the constraint is not belief in Australia’s underlying need for storage. Rather, it is a lack of confidence in the technology’s readiness and ease of execution.

“Developers and contractors who reduce delivery risk early will be best placed to secure capital in this selective market,” says Alyson Eather, Partner at DLA Piper. "That means choosing their procurement model at the outset, locking in bankable warranty and augmentation packages, and showing credible supply-chain capability. Success will increasingly depend on demonstrating bankability, credible execution and a clear alignment between risk and reward."

We also asked Australian respondents about their preferred pricing mechanisms for reducing exposure to critical mineral offtake or financing. More than two in five (42%) favor price-floor mechanisms, compared with 35% globally. And an overwhelming 86% are willing to pay a 5-10% premium for green critical minerals (63% globally).

Their approach reveals a preference for mechanisms that reduce exposure to uncertainty – perhaps reflecting wider concerns about the deliverability of next-generation storage technologies. Buyers appear ready to support differentiated supply, but within structures that protect against downside volatility.

Australia’s storage market exhibits many characteristics of a mature investment environment. Investors are comfortable with meaningful merchant exposure, place less emphasis on government support than their global peers, and show a clear preference for private-sector risk mitigation and technically robust project structures. At the same time, capital is concentrating around ready-to-build projects and a relatively narrow return range, reflecting a disciplined and increasingly selective approach to deployment.

The survey also points to a market that distinguishes between long-term opportunity and near-term execution. Data-center growth is emerging as an important investment driver, reinforcing the demand case for storage. Yet confidence declines when investors assess next-generation technologies, where concerns around supplier capability, technology maturity and delivery risk remain significant. Overall, Australia remains a highly attractive storage market, but one where success increasingly depends on demonstrating bankability, credible execution and a clear alignment between risk and reward.

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