The Implications of Battery Integration for Variable Renewables in the Australian National Electricity Market

Renewable projects in Australia often rely on Power Purchase Agreements (PPAs) or Contracts-for-Differences (CFDs) to manage merchant risk and ensure revenue stability. This study examines whether lithium-ion batteries can serve as an alternative for a merchant 250 MW wind farm portfolio in Australia’s National Electricity Market (NEM). Using technical and financial models, portfolio performance is evaluated in the energy, derivatives, and Frequency Control Ancillary Services (FCAS) markets. Scenarios consider battery capacities of 25 MW and 50 MW, each with two- and four-hour storage durations. Results show merchant wind farms face missing money and volatile revenues, but battery integration mitigates these issues. Under 50 MW scenarios, positive net present values (NPV) over adjusted free cash flows are achieved under a perfect foresight benchmark. This suggests that batteries can improve portfolio viability and reduce reliance on PPAs and CFDs, although these outcomes represent best-case scenarios and profitability declines materially once price uncertainty is introduced. JEL Classification: C61, Optimisation Techniques; Programming Models; Dynamic Analysis; L11, Production, Pricing, and Market Structure; Size Distribution of Firms; L94, Electric Utilities; Q40, Energy: General