BESS in Australia: Profit Patterns And Investment Strategies

Investor enthusiasm for battery energy storage  has reached a fever pitch. With a planned capacity of up to 130 gigawatts (GW), this surpasses that of solar energy and wind energy, and even exceeds the total existing installed capacity within Australia's National Electricity Market (NEM). The data clearly demonstrates that capital is pouring into the industry on a large scale. Nevertheless, for investors, the key to making the right decision lies in clearly understanding the dramatic shifts in the market profitability dynamics since 2017.

The evolution of Profitability Models: From single to a diverse combination

1. The Investment Boom and Evolving Role

The planned installed capacity (130 GW) of BESS exceeds the total of all existing technologies in the NEM, reflecting market fervor. The role of batteries in NEM has expanded from energy arbitrage(buy low, sell high) to multiple critical services, including:

• Energy Arbitrage: That is the most basic business model, directly exposed to the price fluctuations in the electricity wholesale market. It aims to capture peak-valley price spreads.
• Frequency Control Ancillary Service(FCAS): This was the core profit source in the early market. It’s essentially a niche market that requires high reactive speed, safeguarding grid stability.
• System Integrity Protection Scheme(SIPS) and Other Services: These typically ​​secure​​ revenue through signing a long-term contract with the grid operator. As an instance, by providing virtual inertia, etc. These contracts provide investors with stable and predictable cash flow, serve as an effective tool ​​to hedge against​​ short-term market volatility.

                                                                                       (Source:Edify)

Koorangie BESS​​

• ​​Background:​​ A battery project located in northwestern Victoria.
• ​​Key Points:​​ Through a long-term contract with a transmission network company, it provides and gets paid for critical system services like virtual inertia and system strength.
• ​​Implications:​​ Demonstrates BESS's capability to deliver advanced grid services and achieve commercialization via contracts.

2. A Significant transformation in the profitability model

• Early Stage(FCAS-Dominated): The first wave of large-scale batteries(Ex: Hornsdale Project) capitalized on the then-underdeveloped Frequency Control Ancillary Services (FCAS) market, which was characterized by high prices and limited competition. During its first five years of operation, 85% of Hornsdale project revenue came from FCAS, enabling a rapid payback period of just ​​three years. That high profitability was largely driven by specific grid events, such as transmission outages, which caused FCAS prices to spike dramatically.
• Current stage(Energy Arbitrage-Dominated): As substantial battery storage capacity has entered the market, the FCAS sector has become more competitive and well supplied and causing the average value decreasing significantly. Nowadays, the energy arbitrage​​ has predictably become the dominant revenue source for battery operations.
• Persisting Opportunities: Although the average price of FCAS has decreased, significant profit opportunities still exist due to the volatility of the National Electricity Market (NEM).  Extreme weather events, Generator set failure, or power transmission interruption situations can still trigger sharp spikes in both energy and FCAS prices. Generating much higher monthly gains to Battery Operators than average, as seen in events during June and July 2025.

The FCAS “Golden Rush”: An Elapsed Golden time

Early entrants reaped an overage reward, it’s mainly because they capitalized on the structural imperfection of the FCAS market. After the major South Australian blackout in 2016, local demand for FCAS increased sharply. While the supply is extremely scarce and causing prices maintaining abnormally high place in a long period.

Take the Hornsdale project as an example, up to 85% of its market revenue in the first five years came from FCAS, allowing it to recover its investment in just three years. In particular months, its revenue could even reach 5 to 11 times the normal. That is the “Super Profit” story that attracts the first wave of investment.

                                                                               （Source： Neoen）

Hornsdale "Big Battery"​​

• ​​Background:​​ South Australia's first large-scale battery project.
• ​​Key Points:​​ Demonstrated the profitability model of early battery projects. ​​85% of its revenue in the first five years of operation came from FCAS​​, allowing it to recover costs within just three years. Its success was driven by capitalizing on high FCAS prices in South Australia post-2017 and price spikes caused by transmission outages in 2020 and 2022.
• ​​Implications:​​ Proved the significant profit potential of BESS under specific market conditions, serving as a typical example of the early FCAS-dependent model.

However, FCAS is just a niche market. The NEM’s average electricity demand is approximately 20GW, whereas the demand for FCAS is merely approximately 1GW. With over 13 GW diverse assets (include battery) enter the market, this small market becomes saturated rapidly. Competition affected prices back to the normal level. In conclusion, the era of using FCAS to gain huge profit has ended. Nowadays, the energy arbitrage has become the primary revenue source for battery assets again.

Current market logics: Find opportunity in Volatility

Despite the average price of FCAS having decreased significantly, the high volatility of the market indicates that the profit opportunity still exists, just the form becoming more complicated and unpredictable form.

• Extreme Events in the Wholesale Market: Market performance in Jun 2025. Demonstrate that when the output of wind power is insufficient, thermal power units are unexpectedly shut down, and peak electricity consumption occurs simultaneously, the surge of wholesale electricity price can allow a battery gain several times the usual arbitrage return within just one month.
• Regional FCAS Opportunity: In July and August 2025, FCAS prices in South Australia experienced abnormal spikes due to local grid demands, proving that opportunities for short-term, regional "superprofits" still exist.

Looking forward, these types of profit events, driven by supply-demand imbalances, will still happen frequently. But investors have to clearly understand that as the scale of installing batteries expands continuously, the profit potential of any single incident(no matter arbitrage or FCAS) might be diluted over time.

The evolution of investment strategies: From individual combat to structured operation

Facing an increasingly complex market, developers and investors are implementing more diverse business models to balance risks and gains.

1. Merchant Model: This represents a high-risk, high-reward strategy that fully exposes assets in market fluctuations. At present, a battery with a two-hour storage duration is considered the optimal balance between cost and benefit. A significant market signal is that commercial banks have begun providing financing for such purely commercial projects(Ex: Bungana BESS Project), indicating that the market's risk assessment and revenue forecasting models for these assets are maturing.

                                                                                     （Source： Enerven）

Bungama BESS​​

• ​​Background:​​ Developed by Amp Energy, achieved financial close in February 2025.
• ​​Key Points:​​ Australia's first fully merchant battery project financed by commercial banks.
• ​​Implications:​​ Signals growing confidence from financial markets in the BESS business model, showing investors and banks are willing to assume market risk even without long-term contracts.

2. Tolling Agreements: That’s a classic risk-transfer strategy. The asset owner transfers the operational rights or revenue streams of the battery to an off-taker (such as an electricity retailer or energy major) in exchange for stable and fixed rental income. That is highly attractive to investors seeking predictable cash flow.

Capital BESS & Rangebank BESS​​

• ​​Background:​​ Have signed Tolling Agreements with AGL and Shell Energy, respectively.
• ​​Key Points:​​ Illustrate two forms of Tolling Agreements: Capital BESS has a 7-year contract (shorter-term), while Rangebank BESS has a 20-year contract spanning the asset's entire lifecycle (long-term).
• ​​Implications:​​ This model is highly attractive for developers seeking stable cash flow, as it transfers market risk to the offtaker.

3. Government Tenders: The federal government's Capacity Investment Scheme (CIS) and the New South Wales Roadmap provide a form of income floor for projects. This mechanism is not intended to replace commercial contracts. Instead, it significantly reduces project risks by guaranteeing a minimum revenue limit, thereby helping developers obtain financing.

4. Assets Portfolio and product updates: That is the most advanced way in the market. The leading participators (Ex: Neoen)are no longer simply sell electricity or auxiliary services. Instead, wind power, photovoltaic power, and batteries are bundled together to offer large customers (e.g., BHP) a 24/7 "baseload-like" green energy product. This model elevates simple asset operation to the level of energy products. enabling the securing of long-term clients and the creation of substantial value premiums.

                                                                     （Source： Neoen Australia）

Neoen's "Baseload-like" Green Power for BHP​​

• ​​Background:​​ Neoen supplies power to BHP's copper mining operations in South Australia.
• ​​Key Points:​​ An innovative renewable energy portfolio case. By integrating output from its wind farm and batteries, Neoen provides BHP with 24/7 green power.
• Implications:​​ Shows how batteries, as core assets, can synergize with other renewables to create high-value, customized energy products meeting the needs of large industrial users.

Conclusion

Utility-scale Battery Energy Storage Systems (BESS) have become one of the most attractive investment opportunities in Australia's National Electricity Market (NEM). However, the business model and revenue sources are evolving rapidly. The profit model, which initially relied heavily on Frequency Control Ancillary Services (FCAS), has now shifted to one dominated by energy arbitrage. Investors and developers must continuously adapt to changes in business and technology to succeed.