Delivering on Australia’s Promise of Net-Zero: The Future of Battery Energy Storage

Mark Netto, Freya Phillips National Scholar, United Nations’ High Level Political Forum 2024

Executive Summary

An expansion of energy storage systems is vital to achieving Australia's goal of net zero carbon emissions by 2050. These systems will enable greater onboarding of renewable energy generation while ensuring a reliable supply of electricity to Australian households and businesses.

Current policies that support individual investment in Battery Energy Storage Systems (BESS) preference home batteries. This approach forgoes batteries’ economies of scale, excludes renters, and denies small scale BESS owners access to potentially lucrative wholesale energy prices. 

This paper proposes a government-managed titling system which would enable large scale BESS projects to be subdivided into affordable portions. A titling system that divorces battery ownership from its location will democratise the ability to invest in large scale BESS projects and allow participation regardless of property ownership. Most importantly, it will ensure that every Australian will be able to directly benefit from their nation’s abundant natural solar resource.

Implementing this titling system will simplify contracts and ensure the proper consideration of ongoing costs and end of life management. It will also mitigate risks such as first mover advantages and investor confidence.

Problem Identification

In October 2021, the Australian government committed to achieving net-zero by 2050, with interim commitments announced in September 2025 to reduce emissions by 62-70% from 2005 levels by 2035 (Department of Climate Change, Energy, the Environment and Water, 2025). These goals are a benchmark to measure Australia’s progress on its obligation to limit global warming under the 2015 Paris Agreement.

In 2023, 39.4% of Australia’s energy generation was from renewable sources (Clean Energy Council, 2024) with the government seeking to increase its share to 82% by 2030. A grid predominantly made up of renewable energy presents an issue of intermittency, this is where the level of energy output fluctuates with environmental factors and is not on demand. For this reason, investment in renewable energy must be accompanied by an expansion of energy storage capacity in a process called grid firming. The Australian Energy Market Operator (AEMO) estimates Australia will need 49GW/646GWh of dispatchable energy storage to meet net zero, a significant increase from its current 3GW capacity (Australian Energy Council, 2024). Achieving this level of  capacity is vital for ensuring that Australians have access to a reliable source of clean electricity.

Context

Home batteries

Current policies that seek to increase the deployment of BESS, such as the Commonwealth’s Cheaper Home Batteries Program, incentivise individuals to invest in small-scale BESS located at their properties through financing and subsidies. While this approach has been successful in increasing BESS adoption across Australia (Australian Energy Market Commission, 2025), it has several key limitations. 

Home batteries tie BESS to a particular address, disincentivising Australia’s growing population of renters from investing in BESS. With an estimated payback period 4-7.3 years (Australian Energy Market Commission, 2025), renters are not guaranteed a tenure long enough to recoup the initial cost of purchasing and installing a home battery. Accordingly, a South Australian study found only 0.35% of properties who had applied to install a home battery were renter occupied (Government of South Australia Department for Energy and Mining, 2020). Given the importance and the scale of the BESS adoption required, every Australian should be given the opportunity to participate. 

Home batteries cannot access potentially lucrative wholesale energy rates. When home batteries charge they typically use energy generated from rooftop solar. When they discharge, the electricity is either used by the household or fed back into the grid, receiving government-or electricity retailer-set feed-in tariffs. This is similar for home batteries participating in Virtual Power Plants (VPPs); a network of home batteries that work in a coordinated manner to create a large store of on-demand energy. While set feed-in tariffs offer BESS investors certainty, these rates can be significantly lower than wholesale rates at times of peak demand (AEMO, 2025). This places individuals at a disadvantage to large scale BESS projects which can access more favourable wholesale electricity rates. 

Finally, home batteries have relatively small capacities which forgo economies of scale. The average nominal battery size installed by Australians is 18.2kWh (Clean Energy Regulator, 2025). Batteries of this size can be 35% more expensive than their equivalent capacity in a large scale BESS (based on the cost of a Tesla home battery and the Hornsdale Mega Battery). 

Large Scale BESS

Large scale BESS is an increasingly adopted, financially and technically viable energy storage system. The strong business case for BESS means several projects have been successfully delivered with private funding such as the Hornsdale Mega Battery in South Australia. Large scale BESS projects have competitive advantages over home batteries as they can access wholesale electricity prices and harness batteries’ economies of scale. 

A key limitation of existing large scale BESS projects is they exclude most Australians from capitalising on their nation's natural solar resource. Large scale BESS are predominantly developed by private companies because of their significant financial outlay (tens of millions). Some Australians may have indirect exposure to BESS assets; however, the layers between them and their investment can reduce returns and disconnect them from being part of their nation's journey to net zero. As it stands, large scale BESS is largely inaccessible to Australian individuals.

Policy Options

To achieve its net zero ambitions, the government needs to facilitate greater investment in BESS from all Australians. Current policies are not sufficient and do not harness the full potential of BESS for Australians. There are several policy options the Australian government could implement:

Option 1: Direct Investment

The Australian government could increase contributions to government owned renewable energy infrastructure investors, such as the Australian Renewable Energy Agency (ARENA). In 2022, ARENA contributed $176 million to 8 energy storage projects with a combined project value of $2.7 billion and capacity of 2.0 GW/4.2 GWh (ARENA, 2024). Given that AEMO estimates Australia will need 49GW/646GWh of dispatchable energy storage to meet net zero by 2050, ARENA could require up to $27 billion in total funding for similar projects. While these projects would provide ARENA with income, the initial investment will represent a sharp increase in ARENA’s current baseline funding of $1.43 billion and will pose a significant fiscal burden

Option 2: Expansion of the Virtual Power Plant (VPP) policies

The government could address issues with the current VPP framework. For example,  AEMO could require that energy retailers offer customers feed-in tariffs closer to the wholesale rates they would pay when purchasing electricity from a generator. While this could make home batteries more profitable and increase greater adoption, this option would not harness batteries’ economies of scale.

Option 3: Create a titling system for large scale BESS projects

A standardised titling system for large scale BESS projects managed by AEMO would reduce the capital required to invest in large scale BESS projects. Simultaneously, investors would be able to access associated benefits, such as access to wholesale rates and batteries’ economies of scale. A lower initial outlay, similar to that of a home battery, would encourage wider adoption and ensure all Australians can benefit from their natural solar resource. However, collective ownership of BESS projects can present issues such as delegating maintenance responsibilities and end of life management. Standardised, government managed titles could address these issues and increase investor confidence.

Policy Recommendation

It is recommended that Option 3, to create a titling system for large scale BESS projects, is implemented. 

This policy involves the creation of a standardised subdivision and titling process of large scale BESS projects. Infrastructure developers will be able to build large scale BESS projects, subdivide them, title them, and sell the titles to Australians. Creating a government managed titling system ensures consistent contracts, simplifies the market, and reduces negotiation and record keeping costs.

A titling system would allow investors to invest in BESS projects located anywhere in Australia. Unlike a home battery, Australians will be able to invest in BESS regardless of their property ownership status. Additionally, the development of BESS will be prioritised in states with the most volatile energy prices and where BESS will generate the most income. This will provide a more stable source of electricity to these communities which would reduce overall energy prices for consumers. 

A model where private companies build and manage BESS has numerous benefits. It solidifies Australia’s position as a global hub for renewable energy investment and reduces the need to increase public spending to achieve Australia’s emissions reduction targets.

Key Characteristics

Management of projects and titles

Infrastructure developers will be responsible for their BESS projects during the entire building process. Once BESS projects have been connected to the grid, they will be managed by existing Australian electricity generation companies who will act as ‘BESS custodians’. This will offer these companies a new source of income, ensuring they remain engaged in Australia’s energy transition.

Titling will be administered by AEMO, the agency that currently operates Australia’s electricity and gas markets and has a strong understanding of supply, demand and the domestic energy landscape. They will be responsible for ensuring BESS projects have been built to a high standard that can sustain a useful life of at least 10 years and that BESS custodians manage projects in the best interests of title holders.

Custodianship

A custodian strategy is vital to the success of this policy as it enables a traditional large scale BESS investment to transform into a passive investment. Once the infrastructure developer delivers the asset and titles are allocated, BESS custodians will manage and maintain the project in the best interest of the title holders. For this service, investors will pay 10% of the BESS’s earnings. 

Title Size

A 10kWh title size is most appropriate as it will result in titles costing approximately $7,000 - $10,000, while this is a significant financial commitment, it remains accessible to most consumers that would have installed a traditional home battery. 

Pricing

The price of the 10kWh units will be a function of the developer’s cost price. This proposal suggests a price of project costs plus a profit of 10%. This pricing structure incentivises infrastructure developers to quickly deliver BESS projects and reduce costs so that their titles are attractive to investors. Project costs will be verified by the Australian Energy Regulator (AER), which currently regulates energy infrastructure owners’ claimed costs and profits.

Titles Sales Process

Each charge and discharge cycle of a BESS gradually diminishes its capacity. Therefore, all titles must be sold to investors as soon as the project has been connected to the grid. Where there is undersubscription, earnings will be held by BESS custodians on behalf of future investors.

Titles cannot be traded between investors and remain with their initial owner indefinitely. This is because pricing becomes more complex as the BESS’ capacity diminishes. Therefore, to simplify the market and maintain investor confidence, titles can only be held by one investor throughout their entire life.

End of Life Management

Titles will be valid for 10 years, after which ownership of these projects will be automatically transferred to the government. This policy assumes a rate of degradation of capacity of 3.00% annually (van Groenou, et. al., 2018), meaning, after 10 years and approximately 3,650 cycles, it is estimated that the batteries’ capacity will have reduced to 74.41%. The government could, therefore, continue to profit from the BESS until their eventual decommissioning and recycling. Investors will have the confidence of no end of life costs and the government will assume all economic benefits of BESS after 10 years.

Economic Feasibility

Assumptions

1. A discount rate of 5%.

2. 4 hours charge and discharge times (linear rate).

3. Battery capacity fade of 3% per year.

4. Earnings are based on average spot prices at 5-minute intervals during the day, for the month of September 2024. 

5. The cost of a 10kWh subdivision of a grid scale battery including the additional 10% paid to the developer, estimated to be $7,674.42 (based on the construction cost of the initial stage of Hornsdale Power Reserve project in South Australia).

Results

1. The present value of the titles’ earnings is $10,435.41.

2. After 10% is retained by the custodian, the present value of the titles’ earnings is $9,391.87.

3. Therefore, the net present value of a title would be $1,717.45. 

4. This delivers an internal rate of return of 11.03% p.a. for the BESS investor (after the 10% bonus paid to the developers and the 10% custodian expense).

5. Based on a large scale battery similar to the battery at the initial stage of Hornsdale Power Reserve project in South Australia (100 MW/129 MWh), custodians would earn $16,791,909.36 over the 10 year life of the titles and the developer would earn a profit of $9,000,000 (10% of construction costs).

6. The graph below shows the average electricity spot prices at each 5-minute intervals for the month of September 2024. Optimal charge time was determined to be between 10:50 and 14:50 (where prices are lowest) and optimal discharge time between 17:30 and 21:30 (where prices are highest).

Potential Risks and Mitigations

This policy presents a range of risks assumed by various stakeholders. 

1. End of life management

End of life management of a large scale BESS system presents numerous risks. The 10 year validity of the titles was selected to maximise investor confidence and returns, while ensuring assets are not stretched beyond useful life. The government needs to establish a balance between ensuring investors receive an attractive return, while the government receives sufficient income after the title’s term to offset the cost of decommissioning and recycling the BESS. 

2. First mover advantage and long term feasibility 

As more BESS are connected to the grid, energy spot prices will become less volatile and subsequently reduce BESS investors’ return. This outcome benefits consumers by reducing energy volatility and prices; however, it will make private investment in Australian grid firming less profitable. AEMO and the AER must therefore monitor market conditions and ensure that new titles are not issued in energy markets where investors will not receive adequate returns. These limits must be informed by AEMO forecasts and communicated to infrastructure developers prior to constructing BESS projects. 

3. Investor confidence

Unlike most natural resources whose revenues are captured by corporations, this policy seeks to enable Australians to capitalise on their natural solar resource. It is imperative that Australians trust the system and view BESS titles as a secure way to invest in Australia’s path to net zero. Regulators and market operators must ensure that BESS title holders pay fair costs for construction and custodianship and receive fair returns.

References

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