The role of state and market in underwriting grid-scale storage projects in Australia

At first glance, the numbers seem eye-watering. According to CSIRO and the Australian Energy Market Operator (AEMO), Australia will need between 45 to 50 gigawatts (GW) of dispatchable storage by 2050 to underpin the renewable energy required to meet its net-zero targets. 

In the more immediate term, the Australian Government’s ‘Rewiring the Nation’ plan estimates that at least 12 gigawatts of new storage will need to be fully operational in the next six years. 

These targets are ambitious but achievable if the sector's current growth trajectory continues. Australia’s state governments deserve credit for creating a clear and consistent development pathway for project approvals and striking the right balance between the national need for rapid rollout of renewable infrastructure and ensuring local environmental and community concerns are addressed. 

Over the last five years, there has been a proliferation of battery projects in Australia, with about 30 currently in various stages of development. Private financing has also led to accelerated technological innovation, a gradual reduction in project development costs, and an expansion in the number of developers operating in Australia. Pacific Green is at the forefront of this trend, and we are excited to be part of a wider community of developers and operators changing the face of energy provision across the country.  

However, financing challenges are still impacting Australia’s battery buildout. Conservative estimates put the cost to reach AEMO’s target of 45/50GW of storage by 2050 north of $50 billion based on current rates. Capital markets have started to take up the financing strain. Still, the sector must make energy storage projects more palatable to an investment community that must fully understand the opportunities and risks involved with project finance in this space. 

First, it is incumbent on developers to step away from the technical build and outline viable commercial models to investors and lenders that are consistent, repeatable and scalable. Linked to this, developers need to prove they have the internal teams and experience, and the access to reputable counterparties to deliver against their model. For large gentailers embarking on storage projects, this process isn’t difficult. They have the size, the commercial legacy, and the revenues to de-risk any project they’re looking to finance. But for smaller disruptors, getting this right is critical. At Pacific Green, delivering ambitious yet feasible and bankable projects has been the cornerstone of our growth in Australia and Europe. It has allowed us to build strong relationships with major partners in the global finance and energy markets.  

Second, governments still have a real opportunity to enable the growth of private finance. The Federal Government’s Capacity Investment Scheme (CIS) is a case in point. The scheme provides a blend of financial and regulatory support to accelerate and de-risk projects, including grid-scale batteries. This can include mechanisms to underwrite certain projects, effectively providing long-term revenue agreements that offer the level of guarantee needed to unlock large-scale private financing.  The scheme is in its infancy but has huge potential, not least in becoming the foundation on which comparatively newer market entrants can elevate projects to the operational phase.   

Third, the financial sector itself can play a role. Green finance, most obviously the growing green bond market, is arguably tailor-made for battery storage financing. Access to and understanding of green bond and green loan mechanisms for projects must be expanded. This could start with clarification and support of initial green financing feasibility assessments for projects, such as insight on eligibility, how environmental benefits are measured by the market, and how use of proceeds is assessed.    

A lot of work is already underway across all three areas mentioned here. At Pacific Green, we are bullish about the acceleration of energy transition and the industry's ability to keep up. 

Through a proven commercial model, we are in a strong position to meet our company-level target of building more than 12GWh of battery storage globally over the next four years. But it will take a whole industry of developers to meet the national targets for Australia, let alone the world.